McHugh v Australian Jockey Club Limited

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1187 of 2009

JUDGE: ROBERTSON J DATE: 19 DECEMBER 2012 PLACE: SYDNEY

The parties [8] Terminology [13] The impugned provisions [24] History [32] The state of the debate historically - particularly internationally [41] The applicant's lay evidence [133] Mr McHugh [134] Mr David Baxter [193] Mr Alistair McFarlane [220] Mr Anthony Hartnell [255] Dr Karen Affleck [282] Mr Michael Moore [315] Mr Hendrik Smit [327] Mr Malcolm Campbell [340] Mr Steven Brem [355] Mr John Coffey [375] Mr William Saunders [405] Mr Aleco Vrisakis [437] Mr Kenneth Dyer [464] Dr John Digby [478] The first, second and sixth respondents' lay witnesses [503] Mr Michael Ford [503] Mr Dale Monteith [570] Mr David Chester [596] Mr Grant Pritchard-Gordon [625] The third respondent's witnesses [656] Mr Romanet [656] Mr Winfried Engelbrecht-Bresges [675] The fifth respondent's witnesses [699] Mr Clem Murphy [699] Mr Charles-Henri de Moussac [714] Mr Tim Johnson [728] Mr Mark Webster [747] Mr Messara [772] The medical evidence concerning artificial insemination [787] Dr Stuart Keller [787] Dr Angus McKinnon [834] The statistical evidence [871] The economic evidence [954] Dr Williams [954] Mr Houston [1101] The statutory competition case [1205] Submissions [1206] Findings [1305] Consideration [1375] Contract, arrangement or understanding [1377] Substantial lessening of competition [1428] Rules of sport [1445] The restraint of trade case [1466] Consideration [1513] Rulings on evidence [1535]

Introduction 1 These proceedings involve two causes of action. Each raises the question of the lawfulness of restricting or prohibiting the entry of a thoroughbred horse in the register known as the Australian Stud Book (ASB) where that horse has been conceived by artificial insemination and the restricting or prohibiting of the registration for racing of a thoroughbred horse where that horse has been conceived by artificial insemination. 2 The first cause of action is statutory and depends on s 45 of what is now the Competition and Consumer Act 2010 (Cth) ("s 45"), while the second invokes the common law doctrine of restraint of trade. The applicant relies on those provisions of s 45 which prohibit a corporation from giving effect to a provision of a contract, arrangement or understanding if that provision has or is likely to have the effect of substantially lessening competition. 3 The resolution of the case does not involve the Court deciding whether or not artificial insemination should be available, but whether it is unlawful for the relevant respondents to restrict or prohibit the entry of a thoroughbred horse in the ASB or to restrict or prohibit the racing of a thoroughbred horse where that horse has been conceived by artificial insemination. 4 Similarly, the resolution of the case does not involve the Court deciding whether or not artificial insemination is a good thing from the perspective of a breeder, trainer or owner of a thoroughbred horse, or from the perspective of a veterinarian or geneticist. 5 Apart from the provisions in issue in the proceedings, it is only the method of conception that distinguishes a particular horse bred by artificial insemination, as generally understood, from a particular horse bred by "natural" cover. There is no difference in appearance, physical make up, physical attributes or performance. 6 Artificial insemination as generally understood involves a reproductive method or process whereby semen is introduced into the uterus of a mare by injection through a syringe and pipette. I focus my consideration on thoroughbred horses bred by artificial insemination rather than by other forms of artificial breeding because the applicant's challenge was in substance limited to artificial insemination and, if that challenge were successful, it would be open to the relevant respondents, despite the current form of the rules aggregating various methods of artificial breeding, to remake those rules so as to exclude artificial insemination. 7 The immediate reason that a horse bred by artificial insemination is not a "thoroughbred" is the prohibition on horses bred by artificial insemination from being eligible to be included in the ASB. The first formal rule against breeding thoroughbreds by artificial insemination was introduced in order to enhance the integrity of the pedigree records of the ASB.

The parties 8 Mr McHugh, the applicant, is a thoroughbred horse breeder and former chairman of the Sydney Turf Club. 9 Until February 2011, the Australian Jockey Club Limited (AJC) (the first respondent) and the Victoria Racing Club Limited (VRC) (the second respondent) were the joint proprietors (Joint Proprietors) of the ASB, each holding a 50% interest. The AJC conducted race meetings at Randwick and Warwick Farm in New South Wales. The VRC conducted race meetings at Flemington in Victoria. In February 2011, the AJC merged with the Sydney Turf Club Limited. The newly merged entity is known as the Australian Turf Club Limited (the sixth respondent). The Australian Turf Club Limited and the VRC became the Joint Proprietors of the ASB. They are referred to as the "ASB respondents" (the first, second and sixth respondents). Where it is appropriate to refer to the organisation rather than the ASB as a register, I use the term "the Australian Stud Book". 10 The Australian Racing Board Limited (the third respondent) (ARB) has as its object making, changing and administering the Australian Rules of Racing (ARR). Its membership comprises the six State and two Territory principal racing authorities (PRAs). 11 Racing Information Services Australia Pty Limited (the fourth respondent) is the Registrar of Racecourses within the meaning of the ARR. By agreement with the applicant, on 17 May 2010 it was excused from further participation in the proceedings and the allegations previously made against it in the proceedings were withdrawn without admissions. 12 The Thoroughbred Breeders Australia Ltd (the fifth respondent) (TBA) was joined as a respondent on a limited basis. Mr McHugh made no allegations against the TBA.

Terminology 13 It was common ground that the case involved only thoroughbred horses and the breeding and racing of thoroughbred horses. 14 One of the contrasts pursued in evidence was in relation to harness racing or trotting which does not involve thoroughbred horses and where participating horses, called standardbreds, had been, but were no longer, subject to rules against artificial insemination. 15 As to "thoroughbred", I set out two dictionary meanings. The Macquarie Dictionary online says: 6. (upper case or lower case) a horse of the English breed of racehorses, developed by crossing domestic and Middle Eastern strains. The Oxford English Dictionary says, relevantly: 2. a. Of a horse: Of pure breed or stock; spec. applied to a race-horse whose pedigree for a given number of generations is recorded in the studbook. Also of a dog, bull, etc. 16 The point is that the word defines a breed of horse rather than being a word that relates directly to actual or perceived quality or to appearance or to behaviour. 17 What is said in the "rules"? This is important because that is the universe within which or by reference to which the case was conducted. 18 The rules of the ASB, updated in February 2011, contain no general definition of "Thoroughbred". Under the heading "DEFINITIONS" the word "Thoroughbred" includes non-Thoroughbreds eligible to race as Thoroughbreds under the ARR. The rules of the ASB do however refer to the ASB's status as approved by the International Stud Book Committee (ISBC) and that to retain this status the ASB must comply with the terms of Article 12 of the International Agreement on Breeding and Racing, the March 2011 version being named the International Agreement on Breeding, Racing and Wagering. Each is referred to as the "Federation Agreement". 19 Article 12 of the Federation Agreement, entitled "Definition of a Thoroughbred", states as its first precept: A Thoroughbred is a horse which is recorded in the Thoroughbred Stud Book of the country of its foaling, that Stud Book having been granted Approved status by the International Stud Book Committee (Appendix 8) at the time of its official recording. Appendix 8 to the Federation Agreement contains a list of 67 approved stud books, including Australia. 20 The rules of the ASB also state that there are two categories of racehorses in the Non-Thoroughbred Register. Some horses go back to thoroughbreds in all branches of their pedigree but are not in the ASB because of "administrative reasons". The second category is horses which do not go back to a thoroughbred in all branches of their pedigree. They have as an ancestor a station mare or stallion, an unidentified mare or stallion or a quarter horse mare or stallion in at least one branch of their pedigree. Under international rules horses in this category can only be promoted to the Stud Book if there are eight consecutive crosses of thoroughbreds between them and the "flawed ancestor" and they can only be promoted by the unanimous decision of the ISBC. 21 What is meant by "AI" or "artificial insemination" was a subject of controversy in the case. One manifestation of the debate was, on the applicant's side, to point to the permissibility of "reinforcement" and to human involvement in "natural" mating and then to say that it followed that some forms of artificial insemination were permitted under the rules. "Reinforcement" is effected by collecting residual semen, from service of the mare, and then inserting the semen through the cervix of that same mare, thus reinforcing the stallion's service. On the respondents' side it was said from time to time that "artificial insemination" was conceptually the same as embryo transfer and cloning and both of those methods of reproduction were unthinkable to be permitted and there was no line to be drawn between any of them. It was said that the words "artificial insemination" in the impugned provisions also covered embryo transfer and cloning, at least. In my view the Court is not required to and should not enter into this debate for the purpose of resolving the legal issues. I limit my consideration to artificial insemination as generally understood, as the rules may be redrawn. Put differently, it is not necessary for the applicant to succeed in relation to all forms of artificial insemination presently prohibited by the rules. 22 No doubt there are logical problems in the expression "artificial insemination" in the rules and no doubt there are degrees of naturalness involved in "natural" mating, but they tended to be distracting in the sense that they went to the merits or otherwise of different forms of reproduction. In my view it is not helpful to examine the issues by focusing exclusively on the terminology used. The word "natural" in "natural cover" is a relative concept if one considers the amount of human intervention that is involved both immediately in relation to the "cover" and more remotely in terms of the mare being ready for breeding at the time of year that best suits the economic and other interests of the humans involved. Plainly there is more that is "natural" in breeding between horses in the wild or in a paddock. If what is "artificial" about "artificial insemination" is considered, there is not a bright line between that artificiality and the artificiality involved in immediate reinforcement: there are different degrees of human intervention involved. Again, a less tendentious synonym for "natural cover" is "live cover". "Hand breeding" as a further term shows that "natural cover" involves a degree of human intervention. 23 What is important is that it was not suggested by any party that there was any difference in appearance, physical make up, physical attributes or performance between a thoroughbred horse the product of "the physical mounting of a mare by a stallion" on the one hand and a thoroughbred horse produced by artificial insemination. I note that it was implicit in rule ix of the ASB rules and explicit in Article 12 of the Federation Agreement that mating by the physical mounting of a mare by a stallion involved intromission of the penis and ejaculation of semen into the reproductive tract.

The impugned provisions 24 The impugned provisions were as follows. 25 Paragraph 26 of the Third Further Amended Statement of Claim identified the "ASB Provisions" as the following: The ASB Rules contain provisions to the effect that: (a) no horse which has been produced: (i) as a result of any form of AI; (ii) from a natural covering of a mare by a stallion which in that same covering season was being bred to other mares by AI; is eligible for entry in the Stud Book or the Non-Thoroughbred Register; (b) no horse which has been produced: by a mare which has been the subject of any artificial breeding procedure within 385 days before the birth of such produce; may be entered in the Stud Book or the Non-Thoroughbred Register; and (c) the semen of a stallion owned by a breeder any of whose stallions is included in the Stud Book shall not be used for any form of artificial breeding. 26 These "ASB Provisions" as defined in the Third Further Amended Statement of Claim have their basis in the following provisions of the ASB Rules: Non Eligibility Resulting From Artificial Breeding A horse will not be eligible for the Stud Book or Non Thoroughbred Register if it is produced: - • By any form of artificial breeding, or • From a natural covering of a mare by a stallion which in that same covering season was being bred to other mares by artificial insemination (i.e. was a semen donor). A horse may not be eligible for the Stud Book or Non Thoroughbred Register if it is produced by a mare which was:- • The subject of any artificial breeding procedure within 385 days before the birth of such produce. General Rules, Terms and Conditions i. Any person taking part in any matter coming within these Rules, Terms and Conditions and the other requirements specified in this booklet, or returning any information to the Keeper of the Stud Book agrees with the joint proprietors to be bound by these Rules, Terms and Conditions and requirements herein set out, and such other requirements as may be required from time to time by the Keeper of the Stud Book; • acknowledges that the joint proprietors have jurisdiction to enforce the Rules, Terms, Conditions and requirements contained herein and to delegate this jurisdiction to the Keeper of the Stud Book; • acknowledges that the Keeper of the Stud Book is entitled to not deal with any person who, in his opinion, is untrustworthy or whose conduct breaches or prejudices the standards of trust, reliability, accuracy and honesty required by him. … ix. A foal is only eligible for inclusion in the Australian Stud Book or the Australian Non-Thoroughbred Register if it is the product of a natural service, which is the physical mounting of a mare by a stallion, and unless a natural gestation takes places [sic] in and delivery is from the body of the mare in which the foal is conceived. 1. This natural service may include the immediate reinforcement of the stallion's service by using residual semen ejaculated by the stallion while it penetrated that mare during that service of that same mare; 2. No semen obtained from a stallion by any artificial means may be used to reinforce a service; 3. The reinforcement of service must be immediately after the natural covering and the semen must not be processed or altered in any way before it is used for reinforcement; 4. The intention to use immediate reinforcement of a stallion's service should be notified in advance to the Keeper of the Australian Stud Book (see below); 5. The names of the stallions and mares covered, the Stud Book approved veterinarian supervising the protocols, the persons witnessing or assisting the reinforcement and the date of such reinforcement must be certified to the Keeper within forty-eight hours after that reinforcement occurred. … xi. The products of artificial breeding are not eligible for inclusion in the Australian Stud Book or the Australian Non Thoroughbred Register and consequently are not eligible to be registered under the Australian Rules of Racing. … xiii. The Australian Stud Book may not accept a foal born within 385 days from the date its dam was last the subject of any artificial breeding technique. 1.8 A breeder who returns a stallion to the Australian Stud Book declares, agrees and undertakes that the semen of any Australian resident stallion returned by him will not be used for any form of artificial breeding. 27 Paragraph 32D of the Third Further Amended Statement of Claim identified the "ARR Provisions" as the following: The ARR include, and have at all material times included, provisions to the effect that: (a) any person who takes part in any matter coming within the ARR thereby agrees with the ARB and the PRAs to be bound by them; (b) no horse if in Australia shall be entered for and no horse shall run in any race unless it has been registered with the Registrar of Racing; and (c) no horse born after 1980 can be registered unless it has been accepted in the Australian Stud Book or Non-Stud Book, or equivalent stud books of a recognised authority. 28 These "ARR Provisions" as defined in the Third Further Amended Statement of Claim had their basis in the following provisions of the ARR. AR.2. Any person who takes part in any matter coming within these Rules thereby agrees with the Australian Racing Board and each and every Principal Racing Authority to be bound by them. AR.6. (1) These Rules apply to all races held under the management or control of a Principal Racing Authority, and shall, together with such Rules (not being repugnant to or inconsistent with these Rules) as may from time to time be made by the Principal Racing Authority in its territory, be read and construed as the rules of the Principal Racing Authority in such territory and, subject to the provisions of A.R. 35, shall apply to all races held under the management of a Principal Racing Authority or any registered Club and to all meetings registered by a Principal Racing Authority. (2) Unless the Principal Racing Authority otherwise determines, if any race or race meeting is not held under these Rules - (a) any horse taking part shall ipso facto be disqualified; (b) any person taking part therein shall be ineligible to enter a horse for any race, or to hold or continue to hold any licence or registration under these Rules; (c) any person who acts in connection therewith as promoter, organiser, president, chairman, secretary, treasurer, committee member, or in any advisory or official capacity, shall be debarred from acting in any official capacity at any race meeting, and any horse in which he has an interest shall be ineligible to race at any registered meeting. (3) Paragraphs (b) and (c) of subrule (2) shall not apply to any race or race meeting in which thoroughbreds do not take part and which is or are held under the management or regulation of an organisation formally recognised by the Government of the State or Territory in which the race meeting is conducted. (4) Any question not provided for by these Rules shall be determined by the Principal Racing Authority concerned. AR.7. A Principal Racing Authority shall: (i) … ; (ii) have the control and general supervision of racing within its territory; (iii) in furtherance and not in limitation of all powers conferred on it or implied by this Rules, have power, in its discretion; - (a) To hear and decide appeals as provided for in its Rules or by law. (b) …. (c) …. (d) To penalise:- (i) any person contravening the Rules or disobeying any proper direction of any official, or (ii) any licensed personal or official whose conduct or negligence in the performance of his duties has led, or could have made, to a breach of the Rules. REGISTRATION OF HORSES AR.14. No horse if in Australia shall be entered for and no horse shall run in any race or official trial unless it has been registered with the Registrar of Racehorses, provided that the Principal Racing Authority or Stewards, after conferring with the Registrar, may allow a horse registered abroad to start upon such conditions as they see fit; further provided that an unregistered yearling may be entered for a race if the conditions so provide. AR.15A. A horse born on or after the 1st August, 1980, cannot be registered unless it has been- (i) Accepted for inclusion as a foal in the Australian Stud Book or the Stud Book of a recognised turf authority, or (ii) Accepted for inclusion in the Australian Non-Stud Book Register or Non-Stud Book Register of a recognised turf authority. 29 It is convenient here to set out the relevant provisions of the Federation Agreement between members of the International Federation of Horseracing Authorities (IFHA). The March 2011 English version of this agreement was in evidence. 30 The introduction, stated to be agreed by Australia together with some 50 other countries, provided: The Agreement is designed to assist horseracing authorities by promoting the following objectives: • to enhance public confidence in the integrity of the sport of racing and of its breeding industry. • to protect the safety and welfare of horses and riders. • to coordinate and harmonise approaches across the world of racing and breeding to promote the growth of the international dimension. • to maximise opportunities for the promotion of racing and for its financial welfare by protecting racing's intellectual property rights from piracy by non-authorised wagering operators. All members of the Federation commit themselves to furthering those objectives and undertake to use their best endeavours wherever this is reasonably possible. Under each Article is a list of those countries which have adopted the Article, indicating in some cases those parts which they have excluded. Members who have adopted an Article in full or in part shall make provision within their domestic rules implementing its intentions. Later provisions central to the case are Articles 12 and 13: BOOKS OF HEREDITY (STUD-BOOKS) Article 12. - DEFINITION OF A THOROUGHBRED A Thoroughbred is a horse which is recorded in the Thoroughbred Stud Book of the country of its foaling, that Stud Book having been granted Approved status by the International Stud Book Committee (Appendix 8) at the time of its official recording. 1: QUALIFICATION For a horse to be eligible to be recorded in an approved Thoroughbred Stud Book all of the following requirements must be satisfied: 1.1 The horse must be the product of a mating between a sire and a dam, both of which are recorded in an approved Thoroughbred Stud Book or either or both must have been promoted from a Non-Thoroughbred register under the terms set out in Article 13 paragraph 4.1. 2: SERVICE TO PRODUCE AN ELIGIBLE FOAL 2.1 The Thoroughbred must be the result of a Stallion's mating with a Mare which is the physical mounting of a Mare by a Stallion with intromission of the penis and ejaculation of semen into the reproductive tract. As an aid to the mating and if authorised by the Stud Book Authority of the country certifying the Thoroughbred, a portion of the ejaculate produced by the Stallion during such mating may immediately be placed in the reproductive tract of the Mare being bred. 3: GESTATION TO PRODUCE AN ELIGIBLE FOAL 3.1 A natural gestation must take place in, and delivery must be from, the body of the same Mare in which the Foal was conceived. Any Foal resulting from or produced by the processes of Artificial Insemination, Embryo Transfer or Transplant, Cloning or any other form of genetic manipulation not herein specified, shall not be eligible for recording in a Thoroughbred Stud Book approved by the International Stud Book Committee. 4: RECORDING OF THE MATING AND RESULT 4.1 The details of the mating must be recorded by the Stallion owner or authorised agent on an official form or electronic system provided or approved by the Stud Book Authority certifying the Thoroughbred which should include: 4.1.1 name of the Stallion, 4.1.2 name of the Mare, 4.1.3 the first and last dates of mating to the Stallion and, 4.1.4 a statement signed by the Stallion owner or authorised agent that the mating was natural and did not involve the processes of Artificial Insemination, Embryo Transfer or Transplant, Cloning or any other form of genetic manipulation (see 3.1). Australia is noted as one of the approximately 70 countries which have adopted Article 12. As I have said, Appendix 8, referred to in Article 12 above, contained a list of 67 approved Stud Books which included Australia. Article 13 - REGISTER OF NON-THOROUGHBRED HORSES 1. Scope and purpose of Register. Where appropriate a register should be kept of horses which cannot be entered in an approved Thoroughbred Stud Book. The purpose of this register is to ensure that all relevant particulars of every horse named for racing purposes are known and registered. Australia is noted as one of the approximately 70 countries which have adopted Article 13. 31 Paragraph 36 of the Third Further Amended Statement of Claim identified as "the Combined Provisions" the following: By reason of the facts and matters pleaded in paragraphs 33 to 35 above, there is and has been at all material times a contract, or alternatively an arrangement, or alternatively an understanding, between: (a) the ARB; (b) the PRAs; (c) the Joint Proprietors; (d) all other racing clubs in Australia; (e) racehorse owners in Australia; (f) breeders; (g) owners of stallions; and (h) all other persons who from time to time take part in any matter coming within the ARR, pursuant to which: (i) each party above agrees to be bound by the ARR; (ii) only horses which have been registered with the Registrar of Racehorses may be entered for a Thoroughbred horse race conducted in Australia; (iii) a horse cannot be accepted for registration by the Registrar of Racehorses unless it has been accepted for inclusion as a foal in the ASB or accepted for inclusion in the non-thoroughbred register or the sub-book of a non Australian turf authority; (iv) no horse which has been produced: (A) as a result of any form of AI; or (B) from a natural covering of a mare by a stallion which in that same covering season was being bred to other mares by AI; is eligible for entry in the Stud Book or the NonThoroughbred Register; and no horse which has been produced by a mare which has been the subject of any artificial breeding procedure within 385 days before the birth of such produce may be entered in the Stud Book or the Non-Thoroughbred Register.

History 32 On the applicant's case, the thoroughbred industry had a relatively open mind to the possible development of artificial breeding until perhaps 15 or 10 years ago, when a change in approach could be discerned, both at the international level and in Australia. From about 2002, the industry both in Australia and overseas became increasingly dogmatic in its opposition to any form of artificial breeding. 33 The ban on artificial breeding is not unique to Australia. It had developed in other racing jurisdictions, and those countries started to meet in international forums in the late 1970s with a view to harmonising the rules and procedures. What was said in those international forums reflected the reasoning of those times, and it served also to hold up a mirror to what was happening in Australia at the relevant times, particularly on the question of artificial breeding. 34 It took many years and a great deal of debate before agreement was reached in those international forums on a definition of a thoroughbred which all countries could live with. What emerged from that process was a document referred to as the Federation Agreement. 35 The history was also important, on the applicant's case, in seeking to evaluate the likely response of other racing jurisdictions to invalidating the rules against artificial breeding. In that respect, it was submitted, it was important to understand what had motivated the attitude of those jurisdictions in the past, and what forces were at work in the current environment, internationally, in light of that history. 36 Since the 1990s, the question of artificial insemination, which had regularly featured in discussions in the international forums for nearly two decades, was largely removed from the agenda. 37 This led to a situation which now existed, the applicant submitted, whereby the very fact of having agreed internationally on the definition of thoroughbred, which definition precluded artificial breeding, itself became the public justification for the position adopted, rather than a rational expounding of the supposed inherent advantages of the ban itself. That is, it was said that being a party to a voluntary agreement was in itself sufficient to justify the position. 38 The applicant submitted that there was no basis on which it can be said that the ASB would cease to be an approved stud book if, as he proposed, a separate register were established for AI-bred horses for them to be recognised for the purposes of the rules of racing, because there would be no impact on the ASB and it would continue to comply with Article 12 of the Federation Agreement. 39 The applicant further submitted there were reasons why the respondents' assumptions were not in the least plausible. They included the fact that if there was a good competitive reason for Australian breeders to adopt artificial insemination once they were free to do so, then those Australian breeders in the industry at large would be seen to be at a competitive advantage with others, and that would have a tendency to undermine the financial and competitive position of those industries overseas which refrained from using artificial insemination, such that other racing jurisdictions would be inclined to follow Australia's lead. That in turn would threaten the viability of the international ban, and the position would be unlikely to remain unchanged, even assuming there had been no legal challenge in those other jurisdictions. 40 The applicant submitted that Australia's representative at the IFHA was the ARB, the third respondent. It was the body which adopted Article 12, thereby accepting an obligation to include a ban on horses bred by artificial means in its rules of racing. It does so by referring to the rules of the ASB. No witness was called from the ARB to explain what it would do or what contingency plans it might have against the eventuality that the ban was ruled unenforceable.

The state of the debate historically - particularly internationally 41 The detail for these propositions was largely contained in the documents tendered. These documents were tendered as evidence of the understanding held by persons who were the authors or who were involved, as well being illustrative of particular reasons and justifications that were put forward in them, and relevant to the perception that that created in the minds of others at the time: the material was tendered to show the state of the debate. 42 The particular aspect of this case which, the applicant submitted, provided importance to these documents was said to arise in relation to the international position, particularly as contended for by the respondents in relation to the counterfactual and what might happen if there were a change in Australia in relation to the impugned rules. 43 The first annual meeting of the ISBC was convened by Weatherbys in 1976. The business of concern to Stud Book authorities (SBAs) required the establishment of a body separate from the International Conference of Racing Authorities, which met annually in Paris. As a major breeding country, Australia attended the initial meeting, along with France, Great Britain and Ireland, New Zealand, South Africa and the USA, together with a representative of the South America Stud Books. Members were nominated by their own Stud Book authorities. 44 The document stated that normally the Committee (later the Conference) was able to reach unanimous agreement on decisions. If there was a dissenting opinion there was the option to report as such in the Minutes of the meeting. Where relevant, the IFHA would be asked to support an ISBC decision and, if appropriate, to incorporate it in the Federation Agreement. 45 Clauses 1.4.2 and 1.4.3 included the following: Individual SBAs are requested to implement ISBC decisions and normally do so. If an SBA has difficulty with a specific ISBC policy or procedure then discussions are held through the relevant ISBC Member to resolve the matter. The ISBC retains the right to remove the "approved" status from an SBA if after discussions an SBA is unable to comply with its policies but this has never been necessary. Clause 2.1.1 stated: The mission of the ISBC is to establish standards of Stud Book operation that will ensure the integrity and future development of the Thoroughbred breed and provide the foundation necessary for a healthy international Thoroughbred industry. At clause 3.1 the document stated: The list of achievements of the ISBC and its associated regional partners includes the following: - • The Thoroughbred horse which was formerly considered to be a purely British/Irish animal is now treated universally on an international basis. It took four years of consideration and discussion to agree the definition of the term "thoroughbred". • The adoption of uniform policies towards blood typing and more recently DNA typing and the promotion of both techniques used in parentage verification by SBAs. At the same time the ISBC campaigned for the improvement of technical standards in laboratories and with the assistance of the International Society of Animal Genetics (ISAG) established a minimum standard for parentage testing. • The formulation and general acceptance of an international policy which prohibits the registration of horses by artificial breeding. • The recognition that the status of thoroughbred Stud Books across the world needed to be established. A comprehensive set of requirements was agreed which a Stud Book authority must meet to achieve "approved" status. . . . The effect of "approval" has been to facilitate the international exchange of thoroughbred horses for racing and breeding. Horses registered as foals in an "approved" Stud Book of one country are accepted for racing and breeding in all other countries with "approved" Stud Books on the evidence of documentation prepared to an agreed standard supplied by the country of origin. Clause 3.2 stated that the ISBC was currently investigating the feasibility of establishing a world exports database and continued to monitor developments and horse identification techniques and other technologies which may benefit the breed. 46 Also tendered was the first extant edition of the ASB, dated 31 December 1949. It cancelled the booklet issued on 31 December 1947. It described itself as an "Outline of Stud Book Procedure, governing Returns of Eligible Brood Mares to the Australian Stud Book, Issued for the Guidance of Breeders". It stated at page 9, under the heading 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. [original emphasis] 47 There were in evidence a number of iterations of that book which contained the same proscription and exception. In his evidence, the Keeper of the ASB, Mr Ford, said that the Outline of Procedure Governing Returns of Eligible Brood Mares to the Australian Stud Book contained a provision to identical effect, that Outline being issued first on 31 December 1953, continuing until 30 May 1975. 48 The Outline issued on 1 January 1976 contained the following provision: A foal is not eligible for inclusion in the Australian Stud Book unless it is begotten by a stallion's natural service of a mare and unless a natural gestation takes place in and delivery is from the body of the mare in which the foal is conceived. The Proprietors will not accept returns of service for any stallion owned or leased by any person or company breeding horses by artificial insemination. This was amended in 1982. 49 The minutes of the first ISBC meeting in London in 1976 record that Australia was represented by Mr WJ McFadden, who was the then Keeper of the ASB. In the introduction, it was stated that the conference was an extension of the Annual Conference of Racing Authorities held in Paris each October, designed specifically to deal with international racing matters and: The International Stud Book Conference would aim to deal with only Stud Book matters, with particular attention to the standardisation, wherever possible, of the documentation and identification of Thoroughbreds throughout the world. 50 There was a reference to the non-thoroughbred register, as follows: It appeared there were doubts in the minds of some Stud Book Authorities about the reasons behind the setting up of the Register of Non Thoroughbred Brood Mares in England. The reasons [sic] behind the establishment of the register was to ensure that every horse that runs (and this particularly applied to Steeplechasing in Great Britain) was correctly identified and documented. M. Blanc said that any country could create its own register of Non Thoroughbreds but what concerned him was that the conditions of transferring any families from that register to the main Stud Book should be strictly controlled. 51 There was also discussion of Artificial Insemination: Artificial Insemination Agreed: That while the Conference was entirely opposed to artificial insemination, it was a matter that could not be ignored and that a review of what was happening in various countries, both with Thoroughbreds and standard breeds, should be conducted by the International Racing Bureau (David Hedges) in preparation for next year's Conference. 52 The minutes for the 1977 meeting of the ISBC record a good deal of discussion about artificial insemination. Mr McFadden was again present. Under the heading Artificial Insemination, Mr CN Weatherby said: … Weatherbys had prepared a discussion paper for the Conference following the agreement at the First Conference that A.I. could not be ignored. Mr CE Weatherby said that: [T]he Weatherbys' views were set out in the paper. Some pressure for Stud Book Authorities to admit A.I. was now detectable, although it was not yet particularly strong, unanimous or vociferous. The reasons for this pressure were well known. It was known in particular that some veterinarians were hoping for a change in attitude by Stud Book Authorities. . . . On the other hand, the Council of the English Thoroughbred Breeders' Association had very recently decided to support moves towards the introduction of A.I., with proper safeguards, and it was believed that the International Breeders' Conference in Paris had expressed similar, though less specific, views. Weatherbys' main concern was that the Stud Book Authorities should be ready for A.I. when, or if, it is introduced, and that Authorities should avoid having to take a decision under pressure at some future date. Mr McFadden said that: [A]lthough he was free to express his own personal views, they had not been discussed with the proprietors of the Australian Stud Book, and might not be shared by them. It would be accepted by all Authorities that the integrity of Stud Books was vital, and any development which might threaten that integrity should be banned. Hence the ban on A.I. to date. However, a ban ought to be supported by valid reasons, and in his view, the reasons for banning A.I. in principle were no longer valid, since the question of identification could now be satisfactorily resolved by blood-typing. Regarding the prevention of in-breeding it should be possible to devise systems to control this. He considered that the economic arguments in favour of A.I. could be sub-divided into two different classifications; the enhancement of profit, and the avoidance of loss. On the second category, he felt that Stud Book Authorities could become increasingly vulnerable for refusing to accept A.I. where its use might assist in avoiding a serious loss. There had been a number of cases in recent years where this might have applied, and there would doubtless be others in the future. He supported the general thesis of Weatherbys' paper. The Conference agreed to the following summing up of the position by Mr C. N. Weatherby: A. The Conference was unanimous in its concern that anything which might risk the deterioration of the Thoroughbred breed must be avoided. Consequently it remained totally opposed to A.I. at the present time. B. Beyond A, above, the Conference was divided on most points and was clearly not yet ready to take any decisions about any possible change of attitude in the future. C. On the other hand, the Conference now recognised the need to keep the question of A.I. under regular review, and to keep informed on developments in each country. Delegates from each country would reconsider the various issues raised at the Conference, on their return home, with their respective authorities. In particular, as stressed by the U.S.A., the question of legally enforceable controls in each country should be investigated, and, in general, when considering A.I., countries should be as meticulous and forward looking as possible. D. Certain countries were unwilling to agree that A.I. was inevitable, or even likely, especially so far as their public stance was concerned. They were unwilling to be associated with any suggestion that A.I. might eventually be condoned. Their position should be respected. The following text was agreed for a press release: The Conference is still opposed to Artificial Insemination at the present time. In the light of developments, delegates agreed to refer the discussions of the Conference to the representative authorities in their own countries for further consideration. 53 At a meeting of the Australian Stud Book Committee in March 1977, a report on artificial insemination was received for consideration. 54 At a meeting of the Australian Stud Book Committee in December 1977, it was recorded that, following the agreement at the second ISBC meeting, it was agreed that the Stud Book Sub-Committee should discuss the use of artificial insemination with the Bloodhorse Breeders' Association of Australia and the results of that discussion would be reported to the Proprietors in due course. 55 At a meeting of the Joint Proprietors in March 1978 it was recorded under "Blood-typing Laboratory": (iii) The total ban on the use of artificial insemination is now under review by the International Stud Book Conference. If the ban should be modified, it would be subject to the mare, stallion and foal being blood-typed. Then there is recorded further discussion initiated by the Keeper based on what had been discussed at the Second International Stud Book Conference. The Bloodhorse Breeders' Association had already been consulted and it had advised that it believed that the traditional prohibition of artificial insemination was best for the industry. However, in very exceptional circumstances, such as the outbreak of a contagious disease which could be controlled by artificial insemination, it would condone the use of the technique. In such cases it considered that a very strict code of regulations would have to be enforced by the Australian Stud Book if the collection of semen and the insemination of mares was to be adequately controlled and that it should be mandatory for all animals involved to be blood-typed. The Keeper then sought the view of the Proprietors. Mr. K.F. Cox said that he was opposed to the use of artificial insemination as a general rule as it could change the whole breeding industry but he did not accept the allegation that its use would encourage malpractice. In his opinion the development of the technique of blood-typing had changed the situation. He now believed that artificial insemination should be permitted in exceptional circumstances. He pointed out that contagious metritis has spread to all the major breeding countries and, although it has forced studs to introduce stringent veterinary procedures, it could still only be controlled effectively by the use of artificial insemination. … After further discussion, it was agreed by the Proprietors that they would approve of a modification to the present ban on the use of artificial insemination provided that the International Stud Book Conference could define the circumstances under which its use was permissible, and could draw up a set of regulations which could adequately control the application of the technique. It was accepted that any decision by the International Stud Book Conference to modify the present ban should be unanimous and that any country acting unilaterally would risk the possibility of its stud book not being recognised. 56 A record of proceedings of a conference of delegates of the principal clubs in Australia, dated 26 March 1978, was in evidence. There were different positions in different States in relation to Register of Non-Stud Book mares. 57 In evidence also were the minutes of the meeting of the Federal Council of the Bloodhorse Breeders' Association of Australia in March 1978. That meeting had a discussion about artificial insemination. The following is recorded: The Keeper of the Stud Book has written seeking the opinion of the Association on the matter of artificial insemination. This was raised at the Second International Stud Book Conference in London in October, 1977 and Weatherbys submitted a paper suggesting a review of the traditional view on this matter. The N.S.W. Division would accept artificial insemination only in the exceptional case of Metritis 77 and that under very strict controls. The Victorian, South Australian and Queensland Divisions were against artificial insemination. The Western Australian Division would accept it in the case of serious disease but only with fresh semen and under strict conditions. After some discussion it was agreed that the Delegates take home with them the points that a stud could be out of business completely if disease was discovered among the mares or stallions when the virus could be controlled by the addition of chemicals to the semen and that A.I. be used as an adjunct to control disease and under the strictest conditions and supervision and discuss them with a Committees. The vote on the matter to be delayed until the Committees had decided in their opinions. 58 The British Thoroughbred Breeders' Association wrote to the Senior Steward of the Jockey Club in London in June 1978, the context being recent outbreaks of contagious equine metritis in Great Britain, Ireland, France, Australia and America. The letter said, in part: The T.B.A. wishes to place a firm request before the International Studbook Conference to the effect that A.I. with fresh semen be introduced into Thoroughbred breeding at the earliest opportunity and that its use under veterinary and Stud Book Authority (S.B.A.) supervision be made permissible under the rules governing registration in The General Stud Book. The potential for use in various forms included the use of deep frozen semen: The single advantage of deep-frozen semen is that it may be transported over long distances relatively easily if so desired. However, there are a great many practical problems associated with the deep-freezing of stallion semen, not least of which is a considerable loss of fertility compared to fresh or extended semen. … … Further research in this field is obviously necessary and it seems likely that improvement in conception rates will come from the development of treatment systems which precisely control the time of ovulation in the mare than from trying to increase the lifespan of the frozen stallion sperms. … There are doubtless other forms of control which may be useful and which should be investigated and discussed by all parties concerned. To this end, we would propose establishing at the earliest opportunity a joint commission or working party composed of one or more representatives from interested and concerned organisations. This group to discuss all practical, technical, administrative and control matters related to A.I. and to agree and prepare firm proposals, rules and limitations, etc. upon its use for international agreement and implementation by Stud Book Authorities. … Much ill-informed rubbish has been written and said about A.I. during the past 20 years which has led to some breeders and other interested parties remaining adamantly opposed to its introduction for fear of possible misuse and especially the over-use of particular stallions. Fanciful stories and ideas have arisen suggesting that vials of frozen semen will be shipped around the world at will, that large stallion stations concerned solely with the collection and storage of semen will arise and replace existing stallions/mares studs and that individual popular stallions will impregnate hundreds of mares each year at the expense of less popular horses. These notions are entirely fanciful and impracticable. 59 The minutes of the 1978 meeting of the ISBC were in evidence. Mr McFadden was again representing Australia. The proposed press statement on the topic of artificial insemination was: • Unanimous endorsement of the refusal by Weatherbys and the Jockey Club of the English Thoroughbred Breeders' Association's request for A.I. in 1979. • The general strong support for the ultimate introduction of total blood typing as an essential method of identification. • In spite of a long discussion, the problem of A.I. is such that the Conference had been unable to express a definite united view on whether A.I. would, or would not, ever be acceptable. Such a view would be premature in view of the separate investigations still in progress in several different countries. • In the meantime the Conference's attitude remains unanimously opposed to the use of A.I., in any form, at present, and the rules absolutely forbidding its use continue in force. • The agreement that A.I. should only ever be introduced on the basis of an international agreement. Any country introducing A.I. in isolation would be acting against the best interests of Thoroughbred breeding. 60 At a meeting of the Joint Proprietors in November 1978, the following was recorded in relation to artificial insemination: The Keeper reported that he had tendered the draft rules adopted by the Proprietors and the legal opinion as to whether or not they contravened the restrictive Trade Practices Act to Messrs. Weatherby for reference to the English Committee investigating artificial insemination in horses. The Keeper pointed out that no further progress can be made regarding the use of artificial insemination until the reports of all Committees investigating the legal, genetic, economic, veterinary and administrative aspects of the problem had been received and considered. 61 At the conference of delegates of the principal clubs in November 1978, the minutes recorded the original form of ARR 15A. 62 Also a non stud book register was discussed. Mr McFadden said it was his opinion that the register required a rule such as this if it was to be effective. At the moment, there was a pool of stud book horses and a pool of non stud book horses all of which were unidentified. The purpose of the rule was to make sure that all that second pool was identified, and it was a question of financing. Mr McFadden said: It is creating virtually a second Stud Book. You cannot get into the Stud Book unless both your parents are in the Stud Book, and both have a registered name. In the case of the second Stud Book, we will take anything in originally, provided it has a registered name. After that, all the descendants will be eligible to be in this book. 63 In the 1979 minutes of the ISBC, with Mr McFadden again attending, Mr Weatherby was reported to have said about artificial insemination that: … by keeping this subject under review it was hoped to find out what progress had been made on any of the investigations into A.I. over the past year, what the climate of opinion towards A.I. was around the world, and whether any incidents or developments relating to A.I. had occurred since the 1978 Conference. Papers have been circulated with the Agenda from the U.S.A., setting out a preliminary report of Jockey Club study into A.I., and from O.S.A.F. setting out the general opposition to A.I. from South American countries. Members had also been sent the interim report of the Joint Working Party in the United Kingdom. Mr Weatherby summed up, saying: In conclusion, it seemed that pressure for A.I. to be allowed was possibly greater at present in the United Kingdom than in any other country, with the official breeders organisation having openly requested its use under controlled conditions and there being sustained agitation for its use from certain veterinary and breeding quarters. 64 The 1980 version of the Outline of Procedure for the ASB contained the following: A foal is not eligible for inclusion in the Australian Stud Book or the Australian Register of Non-Stud Book Mares unless it is begotten by a stallion's natural service of a mare and unless a natural gestation takes place in and delivery is from the body of the mare in which the foal is conceived. The Proprietors will not accept returns of service for any stallion owned or leased by any person or company breeding horses by artificial insemination. [Original emphasis] There was no reference to reinforcement. The provision also made clear that the Register of Non-Stud Book Mares likewise required natural service. A section was then introduced on blood typing, requiring acceptable blood samples to be submitted in certain circumstances. 65 The minutes of the meeting of the Joint Proprietors held in April 1980 record further progress in relation to blood typing. There was also recorded that the status of the West German Stud Book had been held in abeyance pending the outcome of an investigation into the use of artificial insemination in relation to thoroughbreds in that country. In the result it was said that the proprietors agreed to recognise the West German Stud Book with the exception of those animals known to have been born by artificial insemination. There was also reference to some further requirements by way of a declaration that artificial insemination had not been practised, proposed to be incorporated in returns by thoroughbred breeders in Australia and "that the adoption of this proposal would greatly strengthen the integrity of the Australian Stud Book". 66 At the ISBC meeting in London in October 1980, there was a further discussion of artificial insemination. Mr McFadden again attended. Mr McFadden was reported to have said, in relation to the three West German fillies apparently produced by artificial insemination: If the Proprietors were to be sympathetic and recognise any of the three fillies, thereby creating a dangerous precedent, the Australian Stud Book would be placed in an impossible position, since it had previously consistently rejected foals born in Australia in breach of its own regulation of A.I. Since 1947, The Australian Stud Book had published a rule forbidding the use of A.I. During the last 33 years breeders had been steadfastly refused permission to use A.I., and on one occasion the entire year's produce of a stud had been ejected from the Stud Book because of the use of A.I. The Australian Stud Book could not accept any of the three fillies. 67 The 1981 minutes of meeting of the ISBC Committee recorded under the heading "Artificial Insemination, Policy": The committee again confirmed its policy that A.I. should remain absolutely prohibited. It was agreed that the subject need not be considered again at future meetings unless raised in connection with a specific problem or development. There was also reference to a joint report of the US Jockey Club and Weatherbys Working Party. The following is recorded: It was reported that the report had been finalised and submitted during 1981, subject to clarification of one point. The co-sponsors of the report disagreed with some of the Working Party's conclusions. Prior to any possible eventual publication domestically, the co-sponsors wished certain senior representatives of the major Stud Book Authorities to be aware of the content of the report, and to know whether their views and reactions coincided with their own. It was therefore intended to circulate the report to members of the Committee on a strictly confidential basis. This would be done in October. Members agreed to consider the report and advise the Jockey Club or Weatherbys of their views by the end of December 1981. Distribution would be on a minimum basis deliberately, and members agreed to use every effort to keep the report totally confidential. That report was not in evidence. 68 The 1982 edition of the Outline of Procedure governing returns to the ASB, issued on 1 January 1982, relevantly read: 1. A foal is not eligible for inclusion in the Australian Stud Book or the Australian Register of Non-Stud Book Mares unless it is the product of a natural service, which is the physical mounting of a mare by a stallion, and unless a natural gestation takes place in and delivery is from the body of the mare in which the foal was conceived. Natural service may include the immediate reinforcement of the stallion's service by a portion of the ejaculate produced by that stallion during that service of that same mare. 2. The products of artificial insemination are not eligible for inclusion in the Australian Stud Book or the Australian Register of Non-Stud Book Mares and consequently are not eligible to be registered for racing. 3. The proprietors will not accept returns of service for any stallion owned or leased by any person or company breeding horses by artificial insemination. This last provision followed the Proprietors' endorsement of the ISBC's suggestion and the Proprietors' agreement that the AJC arrange for the matter to be discussed at the next Conference of Principal Clubs. It was intended to deal with a horse entered in the stud book of a country which condoned artificial insemination and which could be imported and submitted for registration for racing. 69 At a meeting of the Joint Proprietors in 1982 the Keeper read out extracts from Weatherbys' confidential report dealing with the genetic, legal, veterinary, administrative and international aspects of the permissive use of Artificial Insemination. The following is recorded: The Proprietors agreed that the Stud Book Sub-Committee should draft a letter to Messrs. Weatherby informing them that they had no intention of, or could not see any justification for, varying in any way the present total ban on the use of Artificial Insemination. The Proprietors considered the proposition that the factors causing pressure for Artificial Insemination to be allowed may become beyond the control of the Stud Book authority, but rejected the recommendation that a contingency plan to control Artificial Insemination should be prepared in advance. 70 In September 1982 the ISBC agreed in principle on the definition set out in paragraph 1 of the draft revision of Article 12 of the Federation Agreement. Paragraph 1 was in the following terms: 1. Thoroughbred A Thoroughbred:- A. is the product of a mating between a sire and dam both of which were registered prior to 1.1.80, in a Thoroughbred Stud Book recognised and approved by the International Stud Book Committee, or which traces in all lines of its pedigree to horses so registered, OR B. must be able to prove satisfactorily eight recorded crosses consecutively with horses in the category defined in A. Above, including the cross of which it is the progeny. The prohibition on AI was to be found in paragraph 2 of that draft revision of Article 12. Australia supported this initiative. 71 At a meeting of the Joint Proprietors in March 1983, the following is recorded after consideration of the Keeper's report. The Proprietors agreed to adopt the definition of a Thoroughbred recommended by the ISBC and to accept "as recognised and approved" the Stud Books of all other members of the ISBC, to approve certain criteria, and to adopt the final list of recognised and approved Stud Books when it was endorsed by the ISBC at the meeting to be held in September 1983. In addition the Proprietors agreed: That promotion to thoroughbred status could take place either: (a) by recognising a mare (or stallion) as possessing seven thoroughbred crosses consecutively and satisfactory performances, and being therefore able, if mated with a thoroughbred partner, to produce a foal which would be thoroughbred without further question, or (b) by recognising a mare or stallion as possessing eight thoroughbred crosses consecutively and satisfactory performances only when she (or he) goes to Stud and applies for Stud Book registration as a thoroughbred brood mare or stallion. 72 In the minutes of the Meeting of the Bloodhorse Breeders' Association of Australia in April 1983, under the heading "Artificial Insemination", there was the brief statement: England was the only country that wanted this and it wanted it only as a tool in times of infectious disease outbreaks and under strict conditions. 73 In the ISBC Committee minutes of September 1983 it is recorded that there were still different interpretations of the definition of a thoroughbred because there was some misunderstanding and inconsistencies in translation. It was recorded that: Most members were prepared to accept and implement the wording as recorded in the 1982 minutes, and understood this to mean that all horses registered in the Stud Books which had been designated "recognised and approved" would be mutually accepted in members' Stud Books as Thoroughbred without question, irrespective of any possible flaw in their pedigree. The contents of such "recognised and approved" Stud Books as at 1.1.80 would effectively be mutually acceptable in toto. 74 In the ISBC Committee minutes of October 1984 there was recorded a discussion of the definition of "Thoroughbred". The Committee agreed unanimously that for the purpose of the Federation Agreement the concept of a "Thoroughbred" horse would be replaced with the concept of an "Internationally acceptable Stud Book horse". 75 There was published in January 1985 an Outline of Procedure governing returns to the ASB or to the Australian Register of Non-Stud Book Mares. It maintained the provision of non-eligibility for foals not the product of a natural service but dealt in greater detail with the promotion of animals in the Register of Non-Stud Book horses to the Stud Book itself. The following text was added in relation to the stallion return form: 7. In consideration of the acceptance of the stallion return, the owner (or lessee pursuant to a financial lease) is required to declare, agree and undertake: 1. … , 2. that semen obtained from any stallion returned by the owner (or lessee pursuant to a financial lease) will not, under any circumstances, be used for the artificial insemination of a mare of any breed. 76 The notes of the 1987 annual meeting of the ISBC considered a proposed EEC directive on breeding and stud book problems affecting intra-community trade in horses. It was said that a proposed directive by the European Commission envisaging, amongst other things, the permissibility of artificial insemination, trade in ova and embryo transplants would be completely opposite to worldwide Stud Book attitudes for thoroughbreds and that representations would be made by the Committee informing the Commission that the use of artificial insemination, trade in ova and/or embryo transplants was currently absolutely prohibited by all recognised thoroughbred Stud Books in the world; that the Committee was also opposed to any future use of artificial insemination, trade in ova and/or embryo transplants for the breeding of thoroughbreds; and any horse got by artificial insemination or as a result of embryo transfer would not be eligible for registration in any recognised thoroughbred Stud Book in the world. 77 The Terms and Conditions Governing Returns of Eligible Brood Mares to the Australian Stud Book or to the Australian Register of Non-Stud Book Mares issued on 1 August 1987 amended the 1982 rule numbered 3 (above) so that, with the written consent of the Proprietors, returns of service would or could be accepted for any stallion owned or leased by any person or company breeding horses by artificial insemination. That remained the position up to March 1993. 78 The notes of the 1988 annual meeting of the ISBC contained further consideration of the proposed EEC directive concerning stud books. The Committee again considered artificial insemination. The following appears: 12.1 Policy The Committee reaffirmed that the absolute prohibition of artificial breeding methods as set out in Article 12 of the International Agreement on Breeding and Racing, should continue. 12.2 In a periodic review of this policy, members could see no reason for altering the total ban. It was noted that there was no demand for change from breeders generally, who appeared to accept and understand the present position. Such demand as existed was isolated. 12.3 The Committee noted the rapid spread of blood typing coverage in recent years, so that a very large proportion of the world's foal crop was now blood typed annually. It was accepted that this development seriously undermined one of the traditional justifications of the ban on A.I., uncertainty of pedigree and risk of malpractice. However, it was also noted that blood typing was not yet universal, and the justification still retained some limited validity. 12.4 It was believed that the main objection to A.I. continued to lie in the probable impossibility of controlling its use. Measures taken by Stud Books for other breeds, designed to control the use of A.I., were noted to have failed in practice. The uncontrolled use of A.I. carried the risk of long-term deleterious effects for the breed, and a policy to avoid this risk was entirely justifiable. 12.5 The potential damaging consequences of uncontrolled A.I. included: - Loss of genetic variability in the breed. An increase in the inbreeding coefficient for the breed. Denial of opportunity for "unfashionable" stallions to establish a valid reputation as sires and make valuable contributions to the breed. History provided numerous examples of such animals. Additionally, breeders could suffer economically, and the quality of racing could decline. 12.6 While the above consequences must to some extent be conjectural, the Committee could see no reason for incurring such serious risks. The Committee were opposed to any further investigation of the subject by Stud Books at present. Such an investigation would risk stimulating demand for A.I., bringing the present policy again under pressure, and this should be avoided. 12.7 The Committee were aware of the argument that A.I. could prevent the spread of venereal disease, but it was pointed out that the use of A.I. did not necessarily prevent the spread of disease. For instance, both C.E.M. and viral arteritis can be spread by A.I. as well as by natural covering. 79 The minutes of a 1993 meeting of International Breeders noted that "other delegations" were unanimously opposed to the introduction of AI, even as a contingency plan. Although Mr Rotondo, from Italy, suggested that further thought should be given to the subject, it was agreed that it would be inappropriate in view of the strongly expressed views against AI. 80 The minutes of the 1994 annual meeting of the ISBC, attended by Dr Digby, who had become the Keeper of the ASB, recorded the Committee being unanimous in confirming its policy on AI and embryo transplants as agreed at its meeting in 1988. Members were reminded that an explanation of the main arguments in support of the ISBC's policy was provided under Minute 12 of that meeting (set out above). 81 On 14 February 1996 Dr Digby wrote letters to the chairman of the AJC and of the VRC entitled "Artificial Insemination as an Alternative to Dual Hemisphere Serving Stallions". Dr Digby noted that it was 14 years since the absolute ban on artificial insemination in thoroughbreds was written into the Federation Agreement. He wrote that much had changed in the last 14 years, the single most important change having been in the air transport of horses. He wrote that the dual hemisphere use of thoroughbred stallions and their potential to get naturally almost the same number of foals on the ground as a stallion could get in any one hemisphere through the use of artificial insemination, had undermined the only solid, sound argument that remained to support an absolute ban on artificial insemination in the thoroughbred breed. That argument had been that natural cover was the most effective safeguard against any reduction in the genetic base of the breed. Dr Digby said the proposed alternative was to permit the rigidly controlled use of semen but to allow it to be transported between two hemispheres. Dr Digby outlined the control he referred to in six numbered paragraphs, particularly the control on the number of mares that could be covered in any year. He suggested discussions "be initiated strictly on the basis of using semen from the other hemisphere to impregnate a rigidly controlled number of mares." The letter said that the issue should be reconsidered in the light of its potential to become a "more cost-effective, kinder, safer, less stressful alternative than shipping stallions half way around the globe twice per year." He said that regardless of how the proposal was progressed, "it will be doomed unless there is international acceptance - occurring firstly at ISBC level". 82 At a meeting of the Joint Proprietors in April 1996, the minutes noted that, in response to a submission by Dr Digby to the Joint Proprietors entitled "Proposal to Review Australian Support for the International Ban on Artificial Insemination", it was agreed that Australian Stud Book involvement in a review on the ban on artificial insemination could only proceed at the request of the Australian breeding industry. 83 In May 1996 Dr Digby wrote to the secretary of the ISBC. He said an issue was the need for a clear, straightforward, explanation for the retention of the ban on artificial insemination in Article 12 because of the increasing number of foals being conceived from coverings by individual stallions. In the same month Dr Digby also wrote to the chairman of Weatherbys. He said that the industry organisations were reviewing their support for the international ban. Dr Digby said his expectations were that the industry would come back to the Joint Proprietors and say that their belief was that the ban on artificial insemination should remain in place, on commercial grounds. 84 In June 1996 the Commercial Thoroughbred Breeders Association wrote to Dr Digby, the Keeper, and said its members represented the major thoroughbred breeding interests in New South Wales and the Association was steadfastly opposed to the introduction of artificial insemination in the Australian thoroughbred industry. 85 The minutes of the 1996 annual meeting of the ISBC recorded that the Committee "agreed the following recommendations": 1. In response to recent public debate and to avoid any doubt or uncertainty all Thoroughbred Stud Books and breed associations where necessary be advised that the current I.S.B.C. policy banning Artificial Insemination and Embryo Transplants remains. 2. Members be permitted if they so wish to undertake a review of the policy in their own country and report their findings back to the Committee. Equally should a Member not wish to take this matter further then this should be respected and no pressure placed to take any action. 86 Dr Digby's memorandum to the Joint Proprietors in relation to that meeting recorded that Weatherbys, the Australian Stud Book and the New Zealand Racing Conference were to seek legal opinions on whether the ban could be challenged on restraint of trade grounds and the likelihood of withstanding such a challenge: this would take into account the current genetic studies. The results of the legal opinions and the genetic studies would be dealt with at the 1997 ISBC along with the question of a policy statement on the ban. 87 The minutes of the meeting of International Breeders in October 1996 contained a discussion of artificial insemination. The chairman was recorded as referring to the reopening of the debate on AI seeming to have encouraged several breeding organisations and stud book authorities around the world to look again at the subject in conjunction with the topics of shuttle stallions and stallion book sizes. There was no reference to the position in Australia; no representative from Australia was noted as being present. 88 The minutes of the TBA board meeting of November 1996 recorded the chairman reporting that the Australian Stud Book had commenced a genetic study regarding both artificial insemination and stallion limits: the TBA would await results of those genetic studies before taking a position. 89 This genetic study, entitled "The genetical implications of the use of "shuttle" stallions", being the final report of a research project conducted by the Department of Animal Science, University of Sydney and the Animal Genetics and Breeding Unit, University of New England in conjunction with the Australian Stud Book, was submitted on 13 August 1997. The aim was to calculate the inbreeding coefficient of all horses in the ASB; to investigate trends in inbreeding over time with Australian Thoroughbreds; and to investigate the influence of particular sires on Australian Thoroughbreds. Part of the summary was as follows: The average level of inbreeding of the 1,196 offspring of shuttle stallions in the dataset is 0.095, which is only slightly greater than the comparable average foal offspring of all other stallions, which is 0.092. This and other evidence suggests that there has been no widespread tendency for shuttle stallions to be mated to related mares more than other stallions. If they continue to be used as they have been to date, therefore, shuttle stallions do not pose a threat to the genetic well-being of Australian Thoroughbreds. However, if there were a strong move towards line-breeding to any stallions (shuttle or otherwise) in the future, this could result in a substantial increase in the level of inbreeding, and hence a narrowing of the genetic base of Australian Thoroughbreds. 90 The position of the Commercial Thoroughbred Breeders Association Ltd, the members of which were said to represent the major thoroughbred breeding interests in New South Wales, was steadfastly opposed to the introduction of artificial insemination in the Australian thoroughbred industry. The Thoroughbred Breeders Australia said they were not in a position to commit funds to the review and expressed doubts that the ISBC would agree to any Australian initiative to remove the ban anyway. Mr Digby said that the ASB proposal did not get off the ground. 91 The minutes of the 1997 annual meeting of the ISBC record the Committee considering the international ban on artificial breeding. Those members who were reviewing the situation in their own countries reported on the findings so far. As a consequence, the minutes recorded, the Committee was able to re-evaluate the validity of the three reasons most frequently used by members to justify the ban as follows: 7.1.2.1 Identification Members accepted that with the advent of DNA parentage testing which offered an efficacy level of near to 100% the identification reason was no longer valid. Given the modern technology available for verifying parentage, artificial breeding could not be viewed as a threat to the integrity of a stud book's records. 7.2.2.2 Genetic variation in the breed Research had been undertaken on behalf of Australia, Great Britain and Japan which indicated that the level of inbreeding in the TB population was currently not a significant concern. Each of these studies, however, expressed uncertainty about the long-term effects of line breeding on the genetic pool of the TB breed. Given that these conjectures caused continued concern about the effect of artificial insemination on the long-term genetic variability of the thoroughbred it was agreed that further research should be considered. Great Britain would prepare a draft research proposal and then consult with members to establish how they might assist, especially financially, in undertaking the work. 7.1.3 The Committee also noted the special situation of Europe given that Weatherbys had received a legal opinion which stated that EC competition law (Article 85) could be violated by the present ban. It was understood that it was open to European Stud Books to try to persuade the European Commission that the ban should be exempted from the competitions provision of Article 85, though it would obviously require cogent grounds to make the argument. This was not of any concern to members who did not belong to the EC. 7.1.4 Members considered Australia's recommendation that notwithstanding retention of the ban, individual stud book authorities be permitted to allow the use of artificial breeding in special circumstances. 7.1.4.1 Whilst the Committee recognised that some breeders argued a case for the use of artificial breeding to assist with problems, it was noted that the management of such exemptions could lead to inconsistencies and the abuse of any such official exemptions that were granted. Accordingly the Committee was of the view that it could not support at present any exemptions but was mindful of the legal implications that might arise in the future. 92 Dr Digby reported to the Joint Proprietors on the 1997 ISBC meeting. He said that he had to remind ISBC members that Australia was not talking about removal of the ban. Lifting the ban was not the issue - the issue was to be seen to have credible and sound reasons for retaining the ban. 93 In April 1998, Dr Digby provided a report entitled "Update on Artificial Insemination" to a meeting of the Joint Proprietors. He said that natural insemination was regarded as a very convenient way of keeping down the number of mares mated to a stallion and breeder organisations in Australia had advised him that on commercial grounds they did not want the ban on artificial insemination lifted. The report states: 5. The case for the world wide stud book imposed ban is expected to continue to weaken as evidence from the use of artificial insemination in other breeds is accumulated. The Australian Stud Book has advised both the TBA and the CTBA that: • unless research evidence comes to light to support the ban, it is unlikely that the ban will be retained indefinitely. • as the ban is now applied, through control at the stud book level, it is looking more and more like a restriction of trade and less and less like a protective mechanism for the thoroughbred breed. • breeders who want the ban retained should consider other ways (in addition to, and as a "backup" for the stud book rules) of retaining the ban, for instance restricting thoroughbred racing to horses bred by natural insemination (as per the French model). 94 At a meeting of the ISBC on 1 October 1998 the Committee said it was aware that the International Breeders' meeting had discussed the topic of an ISBC policy statement on artificial insemination during the year and had confirmed their desire for the ban on artificial insemination to be continued. The minutes of the 1998 annual meeting of the ISBC, held on 1 October 1998, recorded the members endorsing the following policy statement to support its maintenance of the ban on artificial insemination: 8.3 "The ISBC supports natural breeding of thoroughbreds due to a number of relevant facts (not necessarily legal reasons) being one or more of the following: - a) the basis of the thoroughbred breed traditionally has been that progeny is conceived naturally b) internationally the rules of racing prevent any horse got by artificial methods from racing c) possible genetic implications d) possible economic implications on the overall industry, particularly international trade e) the vast majority of thoroughbred breeders associations support the ban f) the appeal of racing would be adversely affected due to lack of variety." Footnote: Australia was in favour of scientific research being undertaken to review the validity of point c. above. It was noted that research in USA and GB/IRE was ongoing. 8.4 The Committee agreed that there was no need to release a statement to the media to this effect but that any Member could quote part or all of the above wording. 95 The minutes for the 1999 annual meeting of the ISBC did not record a discussion of artificial insemination, although there was a reference to Australia having tabled a paper seeking to modify the ban on embryo transplant technology for thoroughbreds. The minutes recorded the view of other members that the embryo transplant technology could not be controlled and that, in addition, there appeared to be little interest in their own countries. Given this situation the Committee agreed that there was no reason to change the existing rule with regard to the application of new reproduction technology in the thoroughbred. 96 In March 2001, the Keeper prepared a document entitled "Proposal for a Fall Back Position in the Event of the Ban (on Artificial Insemination) Being Found not Legal in a Court of Law". A letter dated 18 April 2001 from the Keeper to the President of the TBA said the legal advice the Australian Stud Book had since received was that although the planned approach was not actually preventing the covering of mares beyond a set number, the intention was there: the contingency measure was highly likely therefore to be found not legal in a court of law. 97 The minutes of the 2001 meeting of the ISBC noted the agreement of the Committee to the following, in relation to artificial breeding technology: 12.3.2 The Committee's experience was that the TB breeding industry generally maintained its dislike of unnatural breeding and that this included ET. 12.3.3 At the recent International Breeders Meeting (whose Chairman had written to the ISBC's Chairman) there h 12.3.4 It was noted that Professor Allen had given a balanced view on ET. It was a workable and efficient technique but there could be negative effects on growth rates. 12.4 Legal challenges to AI or ET 12.4.1 The Committee considered the possibility that a Stud Book might face a further legal challenge to permit for registration a foal produced by AI or ET. 12.4.1.1 It was agreed that it was likely such a challenge would have to be faced at some point in the future and that it might be successful. 12.4.1.2 Two of the established arguments (effect on the gene pool and difficulty in determining parentage) to support the ban on AI or ET were open to question and may not be sustainable in a court of law. 12.4.1.3 The Committee recognised that the choice was either to wait until a case was successful, the ban was overturned and then react with the risk that an individual SBA was disadvantaged, or be proactive. 12.4.1.4 It was agreed that the latter approach was more sensible and that the way forward was for the Committee to develop a contingency plan, although strictly not for publication. 12.4.1.5 In the first instance the Secretary would collate work already done in this field and provide a composite document on the web site by end of March 2002. 12.4.1.6 It was also agreed that in due course after Members had had the opportunity to consider the issues to be covered by a contingency plan that the opinion of an international lawyer might be sought. 12.4.1.7 It was also recognised that ultimately the IFHA would need to decide its policy in conjunction with the ISBC. 98 In November 2001 there was a meeting in Bangkok of the Asian Racing Conference. An International Business Session had as its subject "Artificial Insemination". According to the full report the objectives were "To explore potential benefits and risks of Artificial insemination in today's thoroughbred breeding environment, and regulatory and administrative requirements in the event of its introduction in the future." 99 The minutes of the meeting of the Joint Proprietors held in February 2002 recorded Dr Digby discussing revised ASB rules on reinforcement. Dr Digby is noted as having said he would be recommending to the ISBC that reinforcement be banned. 100 The notes from an extraordinary meeting of the ISBC in March 2002 in Dubai recorded that the proposal on the table was for the establishment of a special subcommittee of the ISBC tasked with gathering and presenting factual information in order that any future decision by the ISBC on artificial insemination would be based on sound scientific, legal and commercial data. It appears to have been agreed that it was not necessary to establish the special subcommittee. 101 A letter dated 2 September 2002 to Dr Digby from the President of TBA said that the writer was in full agreement with the resolution of the Dubai meeting that each country should have legal advice on the validity of the ban. 102 The minutes of the 2002 annual meeting of the ISBC, held on 2-3 October 2002, recorded agreement of the Committee that the expression "artificial breeding" which had been adopted as a generic term to describe activities not permitted in thoroughbred breeding was too unspecific and inappropriate and in future specific reference should be made to artificial insemination, embryo transplant, cloning or genetic manipulation, as appropriate. A review of Article 12 was referred to. The following also appeared: 9.4.2 It was agreed that Mr Greeves would prepare a modification to the statement agreed at the ISBC 1998 meeting on the reasons for maintaining the ban on AI such that it would embrace the key objective of facilitating the free movement of horses. 9.5 The Committee agreed that AI, ET, Cloning or gene manipulation would not feature on the next agenda unless there was a significant new development to report and which needed discussion. The secretariat would advise accordingly. 103 A report to the Joint Proprietors in November 2002 by the Keeper included the following in relation to artificial breeding: Of real concern is the ISBC whitewashing of their reasons for maintaining the ban on artificial insemination. ISBC is opposed to the lifting of the ban for one reason only, that is because the breeder organisations in nearly every country are implacably opposed to artificial insemination. This has been discussed and accepted repeatedly at ISBC. This is more than enough reason for ISBC to take the stand it has taken but ISBC, it seems, is reluctant to come out in the open and admit this is the reason. ISBC does not have to comment on why the breeders want the ban to be maintained, everybody knows that reason anyway, besides it is breeders' business and they are the ones who should be placed in a position to provide explanations if they are required, before a court or any other tribunal. ISBC is considering a policy statement which emphasises that the ban on artificial insemination must be maintained to ensure the freedom of movement (trade) of thoroughbreds. Trade was one of several reasons put forward in a rather "wishy-washy" 1998 ISBC policy statement. Not one delegate around the ISBC 2002 table tried to provide details of how the presence of horses produced by artificial insemination in a country's racehorse population may have an effect on the movement of thoroughbreds out of that country, if that country cannot, under its own rules, prevent artificial insemination from being used. Restrictions of thoroughbred movements will only occur if individual countries implement entry requirements, either on their own account, or under the direction of the ISBC or the IFHA. Not one country has warned or advised that it will do so if the ban is lifted or overruled, and neither the ISBC nor IFHA made it clear that they would restrict horse movements if the ban on artificial insemination had to be lifted in a country. The questions have to be asked "Have they considered it yet?" and "If they have considered it, are they prepared to stand up and state openly that they will restrict any movement of horses produced by artificial insemination?" [Original emphasis] 104 Dr Digby sent a paper expressing similar views to the Chairman of Weatherbys under cover of a letter dated 27 December 2002. 105 The minutes of the meeting of the Joint Proprietors on 10 December 2002 noted an agreement to circulate a draft paper to members on the Stud Book's determination to ensure compliance with the ban on artificial insemination for distribution to breeders and trade journals and include a communication strategy with the paper. 106 The President of the TBA wrote again to Dr Digby on 7 January 2003. The letter said in part: In Australia, there have been a large number of seminars and conferences where the relative merits of banning Artificial Insemination and Embryo Transfer have been discussed, and at the end of the day there seems to be only three reasons why breeders support the continuation of the ban. 1. If a country unilaterally decides to accept into their Stud Book horses born through AI or ET, then the whole Stud Book may be internationally isolated and this would affect exports. 2. The value of bloodstock may diminish significantly so that profits on service fees and yearlings or other sales would not be sufficient to pay for the large overloads and infrastructure that are ingrained in the thoroughbred industry. 3. There may be a tightening of the genes pool caused by high number of extra progeny from popular stallions, who may all have similar blood lines. The tough Trade Practices Act may prevent any limitation on the number of progeny from a stallion being registered. On the other side, the reasons why the bans should be dropped are that AI and ET would mean service fees would be cheaper, there would be no need for mares and stallions to travel for matings, mares would be healthier, there would be greater control on infectious diseases and of course the final product would be cheaper to purchase and would benefit racehorse owners. 107 The proceedings of the 6th Asian Stud Book conference in February 2003 recorded that, in a lengthy debate, the meeting once again reaffirmed its ban on AI as defined in the relevant article of the Federation Agreement. It was also resolved that this subject should not come again on the agenda unless there were extraordinary reasons - such as a court case - to warrant a re-discussion. It was agreed that contingency plans should be a matter of domestic policy and that the ISBC would let each country decide it for itself. It was also agreed that the term "Artificial Breeding" would be used in the specific sense of the relevant article of the Federation Agreement and that terms like AI, ET, cloning and so on would be used when discussing those specific issues. 108 The minutes of the 2003 annual meeting of the ISBC contained reference to updating Articles 12 and 13, amongst others, of the Federation Agreement. It was agreed that there should be a specific reference to cloning, embryo transfer and genetic manipulation in Article 12, described as "This key Article". 109 In correspondence in late 2003 between the Secretary, International Breeders Meeting and Weatherbys it was said that the ISBC maintained its current ban on artificial insemination and embryo transfer and so did the IFHA and therefore all of its 50 plus member racing authorities. 110 The minutes of the Executive Council meeting of the IFHA held on 30 March 2004 referred to Article 12 having been rewritten to reinforce ISBC's position on practices such as embryo transfer, artificial insemination and genetic manipulation. It appears that the proposed revised Article was still in draft form. The Vice-Chairman of the Asian Racing Federation was recorded as informing the members of the Executive Council that, on the occasion of an international gathering, breeders had adopted a unanimous position against artificial insemination, therefore, the subject was not to be debated anymore in the future. 111 The minutes of the annual meeting of the ISBC in September 2004 recorded that the members debated the draft changes to the Federation Agreement, including Articles 12 and 13, and after suggesting minor amendments ratified the draft for onward transmission to the Paris Conference. In relation to artificial insemination, the Committee reaffirmed that the ban applied only to horses conceived by any of the banned methods and not to the Stud Book of the country in which they were born as long as those horses were not registered in the Stud Book and for as long as the Stud Book subscribed to the Federation Agreement. 112 The Keeper's report to the Joint Proprietors in October 2004 on the ISBC meeting in September included the following: The Australian Stud Book must consider, sometime in the near future, its position if it was asked to identify artificially bred horses. A negative response might see the development of a registry which did identify such horses. This registry, when established, might then be in a position to take over the Australian Stud Book's role in identifying thoroughbreds. Although the barriers to this are significantly high, the ASB only exists through Australian Rule of Racing 15A which states simply that a horse cannot be registered unless it has been accepted in the Australian Stud Book as a foal. 113 The Rules of the ASB as updated in October 2004, by rule ix, stated that natural service did not include the immediate reinforcement of the stallion's service by a portion of the ejaculate produced by that stallion during that service of that same mare, or by semen obtained in any other way. It said: "The practice of reinforcement is artificial insemination, it is not permitted." In addition, rule xiii added that stallion returns or declaration of service would not be accepted for any stallion located in or on any premises where the breeding, or production of horses, by artificial means in any form, takes place, except with the written consent of the Australian Stud Book. Rule xiv stated that the ASB "may not accept a foal born within 385 days from the date its dam was last the subject of any artificial breeding technique." 114 In an email dated May 2006 Mr Ford, the Keeper, wrote: The general reason why studs and breeders are not crying out to introduce the practice of artificial insemination is economic. No one appears convinced that the result will be a cheaper horse, and it is in the interest of stallion owners to limit the number of foals produced to ensure maximum return. There is also a massive infrastructure established in Australia, and other countries, consisting of stud farms, and transport systems, set up to manage the way horses are brought to studs for natural coverings and sent back to their home farm. In Australia, the coverings generate over 100 million GBP in earnings for studs and more than this in the sale of yearlings. This distinguishes thoroughbreds from other horse breeds which permit artificial breeding practices. The stakes are too high to change the economics but should there be a change of opinion it would be the ASB's role to provide regulation. This, of course, must sit comfortably with the accepted practices of other SBAs and if ever Australian [sic] went it alone, the product of artificial breeding would not be accepted in most countries for racing and breeding. 115 In March 2007 there was a report updating a previously commissioned analysis of inbreeding in Australian thoroughbred horses in 1996. The summary was as follows, in part: Since the last analysis, the ASB has done a significant amount of work filling gaps in its pedigree file. The analysis reported here used all available pedigree data. This has had the effect of consistently raising the calculated level of inbreeding compared to the previous analysis. The inbreeding coefficients were calculated using an average of 24.3 generations of pedigree. The average inbreeding co-efficient for Australian Thoroughbreds born in 2005 was 0.1433, up from 0.1299 in 1985. From 1985 to 1994, the average yearly rate of increase in inbreeding was 0.00115. From 1994 to 2005, the rate of increase in inbreeding slowed to 0.00038 per year. This relatively low rate of increase in inbreeding suggests that the breeding practices in the last 20 years have not posed a threat to the genetic well-being of the Australian Thoroughbred. 116 A letter dated 7 August 2007 to the Keeper from the TBA advised that the Board of the TBA had reviewed its position on the "reinforcement of natural breeding" and had resolved to request that the ASB remove its ban on the practice. It was said that the TBA's position changed after a formal study was conducted on the protocols associated with the practice and the current status of the practice under European and USA Stud Books. 117 The minutes of the TBA board meeting of September 2007 recorded that the directors expressed their views as follows: • All racing countries are bound by Article 12 of the International Agreement maintained by the International Federation of Horseracing Authorities (IFHA). The Article states that a thoroughbred must be the result of a stallion's mating with a mare which is the physical mounting of a mare by a stallion. • The International Stud Book Authority does not permit the use of AI for the same rationale as the IFHA. A thoroughbred horse conceived by AI can not be registered in to the International Stud Book. • A thoroughbred horse produced artificially will not be accepted by overseas racing authorities and may ultimately jeopardise the acceptance of all Australian horses. • Initiating any form of debate on AI would not be in the best interests of the Australian thoroughbred breeding industry unless all other countries agreed. The motion to further investigate support for a national debate on the subject of Artificial Insemination was not approved by the TBA Board. 118 The minutes of a meeting of the Joint Proprietors held on 18 September 2007 recorded agreement to approve reinforcement of natural service, subject to detailed protocols. 119 The rules of the ASB as updated in September 2007 removed the prohibition on reinforcement. Those rules repeated the requirement of natural service, rule ix, and then stated: 1. This natural service may include the immediate reinforcement of the stallion's service by using residual semen ejaculated by the stallion while it penetrated that mare during that service of that same mare; 2. No semen obtained from a stallion by any artificial means may be used to reinforce a service; 3. The reinforcement of service must be immediately after the natural covering and the semen must not be processed or altered in any way before it is used for reinforcement; 4. The intention to use immediate reinforcement of a stallion's service should be notified in advance to the Keeper of the Australian Stud Book (see below); 5. The names of the stallions and mares covered, the Stud Book approved veterinarian supervising the protocols, the persons witnessing or assisting the reinforcement and the date of such reinforcement must be certified to the Keeper within forty-eight hours after that reinforcement occurred. 120 The Keeper wrote a letter on 21 September 2007 to Dr Gilkerson, President, Equine Veterinarians Australia, in the context of the equine influenza outbreak and whether artificial insemination was a solution to that outbreak. He said: There was an energetic debate about the practice for two weeks recently, involving some of the leading stakeholders in Australia's breeding and racing industry. Some were in favour, some against, but it was a healthy airing of the issue. Besides the commercial, genetic and legal considerations which could be overlooked in a one-off situation, there are serious international and longitudinal issues which are irreversible. 121 The minutes of the 2007 annual meeting of the ISBC recorded discussion of the prohibition of artificial breeding practices. Mr Greeves, Chief Executive, Weatherbys Thoroughbred Ltd said that the ISBC was not a rule-making body but that, in reflecting the overwhelming consensus amongst the various representative bodies of breeders and governing bodies around the world, all 64 Approved Stud Book authorities had elected to be signatories to Article 12 of the Federation Agreement which recorded a full definition of a thoroughbred including that it was to be the produce of a natural service. 122 An email to the Directors of the TBA from the Chief Executive Officer of that organisation on 20 April 2009 referred to the CEO meeting with the Keeper and expressing in the strongest possible terms the TBA's opposition to the ASB having any involvement whatsoever in an AI Book. The email continued: I forewarned him of an inevitable reopening of the ownership issue if the Stud Book were to undermine the case against AI in this way. I left the meeting more reassured than I had entered it. … Michael Ford believes that since the ASB is under no compulsion to establish an AI Book and Mr. McHugh is free to establish his own, then it is the ARB which is preventing an AI horse from being registered to race. 123 In May 2009, Mr McHugh wrote to the Chairman of the AJC attaching a brief document attempting to outline a range of considerations for the Australian Stud Book. The proposal was for the Australian Stud Book to operate multiple registers, some of which embraced artificial insemination. 124 In June 2009 the then solicitors for Mr McHugh wrote to the Keeper summarising Mr McHugh's position and explaining why he believed the Australian Stud Book may want to remain involved in any future developments. Mr McHugh's preferred position was establishing a third register to be held and maintained within the Australian Stud Book organisation. The proposed third register would accept only foals produced by artificial insemination from thoroughbred parents both of which were in an ISBC approved thoroughbred stud book; or artificial or natural breeding from parents, one of which was in an approved thoroughbred stud book and the other in the third register; or artificial or natural breeding from parents both of which were already in the third register. 125 A document dated 12 June 2009 was entitled "Australian Stud Book Submission to Australian Racing Board on Bruce McHugh Request for a Register of Artificially Bred Horses". The paper, which remained in draft, pointed out that the ASB did not determine which type of horse could race. It was a repository of the breeding records of racehorses, 99% of which were thoroughbred. The ARB, through ARR 15A, used this information to register the horses it allowed to race. The paper also pointed out that the ASB was established to record the true pedigree of racehorses, not to determine which horses can race or not. 126 The paper stated: The proprietors consider that the Australian Stud Book ought not to keep such a register [of artificially produced horses] because it sends the message that the Australian Stud Book implicitly sanctions the artificial breeding of racehorses. While ever the international breeding and racing community define a Thoroughbred as being bred naturally, the keeping of a register for artificially bred horses may compromise the national and international integrity of the Australian Stud Book, an organisation held in the highest regard by its peers. 127 The paper further said that if the ARB had no desire to register artificially bred horses, then it was suggested that it introduce a rule of racing which precluded such horses from being registered for racing. This was a step the British Horse Racing Authority took in 1993. 128 The paper concluded: Unless there is a multilateral agreement by international racing and breeding authorities: 1. The joint proprietors of the Australian Stud Book will not agree to McHugh's request that it keep a register of artificially bred horses; 2. The joint proprietors urge the Australian Racing Board to refuse any request to register artificially bred horses for racing and introduce a rule similar to the British Horse Racing Authority Rule 31(xiv). The paper set out that rule as follows: Rule 31(xiv): The HRA will refuse to register the name of any horse unless it and its sire and dam are each the produce of a natural service or covering, and unless a natural gestation took place in and delivery was from the body of the mare in which the foal was conceived, and if a name is registered for a horse produced by other means the registration shall be void. 129 The Australian Stud Book replied to Mr McHugh's letter of 1 May 2009 to the Joint Proprietors. The reply said, in part: At this point in time, the Australian Jockey Club Limited and Victoria Racing Club Limited are of the view that establishing an additional register for artificially bred horses would not be consistent with the legitimate interests and objectives of the Australian Jockey Club Limited and Victoria Racing Club Limited, as joint proprietors of the Australian Stud Book. It follows that the Australian Jockey Club Limited and Victoria Racing Club Limited are not minded to establish a registry for artificially bred racehorses, as joint proprietors of the Australian Stud Book, or otherwise. 130 By email dated 20 July 2009, Mr McHugh said that the CEO of Harness Racing Australia had agreed to set up a new birth register with him for Purebreed Racehorses if the Australian Stud Book did not wish to accept racehorses bred by artificial insemination in a new third register. 131 In November 2009 the applicant filed the originating process in the present proceedings. 132 A memorandum of the meeting of the Joint Proprietors in May 2010 recorded unanimous agreement to immediately remove rule xiii of the General Rules, Terms and Conditions of the ASB: the same person/same stud rule. The memorandum said that the rule was considered unnecessary to protect the integrity of the ASB from the point of view of registering thoroughbred horses as defined by Article 12 of the Federation Agreement. The memorandum also recorded unanimous reaffirmation of the Joint Proprietors' consistent position not to produce a third register for artificially bred racehorses.

The applicant's lay evidence 133 The applicant called evidence from 9 individuals or entities engaged to a greater or lesser extent in thoroughbred breeding in Australia and from one in New Zealand.

Mr McHugh 134 Mr Bruce McHugh gave evidence of his personal involvement in the thoroughbred horse industry. He first began racing thoroughbred horses himself in or about 1963 when he bought a yearling from the Inglis Easter Yearling Sales. He first began thoroughbred horse breeding in the mid-1960s when that yearling mated with several stallions to breed a number of racehorses. Also since the late 1960s Mr McHugh had owned shares in many stallions, one of which, Bletchingly, was a Group 1 winning racehorse before going on to become a leading Australian sire standing at Widden Stud. 135 From 1968 to 2009 Mr McHugh acquired and sold several properties for breeding thoroughbred horses. From the late 1980s to 2000 he owned a 1000 acre farm at Cobbity at which he kept up to 30 broodmares. He had also owned several small adjoining holdings close to Tamworth Airport, and at December 2010 owned two holdings comprising 700 acres called Rotherwood. 136 As at December 2010 Mr McHugh owned, or part owned, seven broodmares, each of which he aimed to breed every year. As at the end of March 2011 Mr McHugh owned or part owned nine broodmares. 137 Mr McHugh bred thoroughbred horses to race and to sell at yearling sales. He had sold yearlings at two major thoroughbred auction houses, William Inglis & Sons Ltd (Inglis) and Magic Millions Sales Pty Ltd (Magic Millions). He regularly took advice of experienced bloodstock agents as to which of the sales to apply to send a particular yearling in order to maximise its value. To make a profit on the sale of a thoroughbred yearling, Mr McHugh said it was necessary to cover the cost of producing the yearling, which included the stallion's service fee, any agistment costs for the broodmares, transportation of broodmares to and from the stallion's stud, and any veterinary costs. It was also necessary to cover the cost of rearing the foal until it was a yearling (including management, veterinary and agistment costs) as well as part of the cost of purchasing the broodmare and caring for her. If the yearling was not accepted into either of the two major auction houses' sales Mr McHugh said he would not sell the yearling but would keep it to race himself. As to his statement that if the price offered for the yearling did not cover the costs he would not sell the yearling, Mr McHugh said that he had sold and would still sell yearlings even if they did not meet the costs. 138 Mr McHugh said that throughout the 50 years that he had been breeding thoroughbred horses he had been taking and following the advice of bloodstock agents and pedigree advisers, and had chosen potential sires to breed with his broodmares based on the price of the stallion's service fee; the geographic location of the stud on which the stallion stood, with a preference for studs within New South Wales; the pedigree of the stallion; the value of both horses; the physical attributes of the stallion; the race-record of the stallion and its other progeny; and the quality and number of the other broodmares being served by the stallion that year. Mr McHugh gave more detailed evidence as to these last two considerations. 139 The service fees Mr McHugh had paid in the period 2007-2010 ranged from $7,000 to $130,500. 140 Mr McHugh usually sent his broodmares to studs within a day's drive from his farm in either the Hunter Valley or Scone in New South Wales. He rarely sent his broodmares to studs located interstate because of the incremental associated transportation costs and the stress caused to the broodmares. By sending his broodmares to studs within a day's drive Mr McHugh said he could transport the broodmares to the stud to be covered and immediately transported back to his farm. That meant that he did not need to send the mares while they were pregnant (from the previous year's covering) or to send young foals still being fed by the mares. That allowed him to care for his broodmares on his own farm and not to have to pay agistment fees. 141 Mr McHugh also referred to occasionally buying shares in stallions in order to secure the right to send broodmares to be covered by that stallion. 142 In Mr McHugh's estimate between 2005 and 2010 the costs he had incurred as a result of breeding his mares included: transport costs of approximately $300-$500 per mare each way; agistment costs for each mare at the stud of approximately $30 per day per mare over approximately a 4 month period; veterinary bills as required; and the stallion service fee, where he usually selected stallions whose service fees were advertised to be in the range of $7,000-$130,500. 143 In the same period the foals Mr McHugh bred and offered for sale as yearlings at auction sales fetched prices ranging from $10,000-$200,000. On the sale of the yearling he paid a commission fee to the auction house. 144 Mr McHugh then referred to artificial insemination in relation both to thoroughbreds and "other breeds of horses, such as standardbreds". 145 His evidence was that if artificial insemination were permitted, he would purchase stallions to stand at his farm in Tamworth. He would also consider buying shares in stallions (rather than purchasing them outright) or buying the southern hemisphere breeding rights to a stallion. In cross-examination he agreed that one of the possibilities, in the purchase of a stallion, was that he would simply have a share in the stallion but he would also have the stud rights. He would endeavour to own the stallion outright and that was his preferred option and intention at the present time. If the purchase of any stallions involved others then they would have to be like-minded people in relation to the use of the stallion for breeding by artificial insemination. He said that he would, with the aid of a veterinarian, collect semen from his stallions or purchase semen from other stallions and impregnate broodmares on his stud using artificial insemination rather than transporting broodmares to studs. He would seek to purchase semen from stallions standing in studs located interstate or overseas. He would also offer for sale the stallions' semen to other thoroughbred breeders. If artificial insemination were permitted for the reproduction of thoroughbred horses he would review his options. 146 This evidence was challenged as not being honest testimony on the basis that these would not be serious options if artificial insemination were permitted in Australia only, but not the rest of the world, in thoroughbred racing. Mr McHugh's evidence was that in those circumstances he would definitely purchase a stallion or stallions to stand at Rotherwood and supply or offer to supply semen for artificial insemination. If they were domiciled stallions at the Tamworth Equine Centre the staff would take the semen as was necessary and distribute it to where it needed to go. I accept that evidence as honest. I so accept it even though Mr McHugh agreed that he had not asked his regular accounting firm or anyone else to make any assessment as to whether or not that project of standing a stallion for artificial insemination purposes in the thoroughbred industry would or would not make commercial sense. He was prepared to take the risk that it might be a commercial disaster. 147 Also Mr McHugh accepted that he would have to purchase a stallion or stallions as he had no thoroughbred stallions at present. While artificial insemination was banned, his intention, on acquiring a stallion, was to send it off to a stallions' stud and have those persons do the work for him until such time as the ban on artificial insemination was held invalid. If that did not happen he would keep that stallion or those stallions providing direct cover services. 148 He accepted that he may have to spend many millions possibly for one horse if his artificial insemination proposal was permitted. He said he had assets accessible to fund such a purchase but he would have no intention of purchasing a stallion without having some prospect of trying to get a return on the investment. He accepted he had not reduced to writing any analysis of costs. 149 Assuming that Australia was the only place where artificial insemination was permitted, Mr McHugh accepted that a broodmare owner who used Mr McHugh's stallion's artificial insemination services to produce a yearling would not be able to sell the yearling overseas and anyone who wanted to race that horse overseas could not do so. 150 Mr McHugh had not considered whether Inglis or Magic Millions would accept into their sales a horse produced by artificial insemination. He accepted that if a broodmare owner considered that a horse produced by artificial insemination could not get into Inglis or Magic Millions sales then using artificial insemination may not be an attractive proposition. 151 He disagreed with the proposition that it would be highly likely, if artificial insemination were permitted only in Australia, that the attractiveness to broodmare owners of his stallion's semen might be very low. This was because he could afford to sell semen from any particular stallion at a lot less than the service fee presently prevailing in the absence of artificial insemination. He had an opportunity to undercut the market. 152 Mr McHugh said he hoped that the major stallion owners continued doing what they were doing because, if they did, they gave him the inside running to be able to undercut them and to breed and race horses in Australia. In Mr McHugh's opinion the first people to use artificial insemination would be the major stallion owners and they would beat him to it. 153 He said that most horses that were bred never went to the markets but were raised by the people that bred them and never sold. He disagreed with the proposition that, given a choice between producing a yearling by artificial insemination as against a naturally bred yearling where artificial insemination was not permitted anywhere else in the world, a broodmare owner who wanted to sell the yearling would be commercially irrational to take the artificial insemination option. Mr McHugh said that he would breed horses using artificial insemination the moment the court ruled favourably. He did not accept that the progeny would have no takers whatsoever if Australia were the only jurisdiction in which artificial insemination were permitted for thoroughbreds. He said he had a lot of people who would support a stallion as soon as he had got one when he could use artificial insemination. 154 Mr McHugh referred to an agreement he had reached, in or about 2007, with Dr Keller of the Tamworth Equine Veterinary Centre that if artificial insemination were permitted he would perform artificial insemination on Mr McHugh's broodmares, collect semen from Mr McHugh's stallions, store the semen by chilling or freezing it, and transport the semen. Mr McHugh's stallions would remain at the Tamworth Equine Veterinary Centre for approximately five months during the breeding season in order for semen to be collected from them when required. Mr McHugh wanted to ensure that there was a veterinarian in local proximity who would be able to collect semen and use it to inseminate mares and had the necessary facilities to freeze or cool the semen when required and who was also prepared to provide the service to him should the opportunity arise. No formal agreement was entered into between Mr McHugh and Tamworth Equine Veterinary Hospital and the agreement was not otherwise documented. 155 If artificial insemination were permitted, Mr McHugh said, he would not need to consider the geographic location of the stud on which the stallion stood and would otherwise continue to consider the factors set out above when selecting a stallion to mate with broodmares. He would not just select the most popular stallion whose fees he could afford. 156 Mr McHugh added that if thoroughbred horses produced by artificial insemination were registrable in the ASB register he would expand his thoroughbred breeding activities. He would undertake personally, or have undertaken under his direction, and at his own personal expense, the breeding of his broodmares using artificial insemination. He said that he intended to purchase a stallion and use semen collected from that stallion to breed from his broodmares by artificial insemination. He also intended to offer for sale semen collected from that stallion for use in artificial insemination. He would also purchase semen from other stallions to use in artificial insemination to service his broodmares. He had not yet purchased a stallion as he was not prepared to incur the significant expense until the ban on artificial insemination had been lifted and he knew he would be able to carry out artificial insemination breeding activities. 157 In relation to how he might fund the proposal to keep a stallion or stallions for provision of semen, Mr McHugh's evidence was that the income of McHugh Holdings in the then current tax year would be of the order of several millions and in the next year he would expect to double that, notwithstanding that the company had made losses for the last two years. He said that he owed the bank only about $3 million now, he did not have any outgoing interest bills and, while he was paying back the bank, he was not able to devote the energies to his businesses during that time and they suffered accordingly. He said he was now able to devote time to those businesses. 158 An objective or by-product was to lower the new owners' cost of entry into racehorse ownership, that is, the cost of buying a racehorse. Mr McHugh said that artificial insemination would lower the cost of entry for racehorse owners because the cost of producing a horse would be substantially less and as a result people would be prepared to or would be able to sell the racehorses for a cheaper figure to make a profit. He accepted however that it was not the sort of industry where prices were set by reference to the marginal cost of a horse. Mr McHugh rejected the proposition that a couple of thousand dollars of cost to a breeder in producing a racehorse was not going to make any difference to the sale price they were going to be seeking. 159 Mr McHugh then referred to a "Third Register". He referred to this as a proposal to permit thoroughbred horses reproduced by artificial insemination to be accepted into a register and be eligible for racing. The proposal was to establish a third register of the ASB, which could accept foals produced by artificial insemination of thoroughbred horses and to amend the ARR to permit the horses on the new register to be registered for racing. 160 In Mr McHugh's opinion, the establishment of a third register of the ASB would provide Australian thoroughbred horse breeders with the ability to breed horses either by natural means or by artificial insemination. In the event that the Australian Stud Book could or would not agree to establish and maintain the third register, Mr McHugh decided that an independent register of foals by artificial insemination of thoroughbred parentage may be able to be created. 161 Harness Racing Australia had experience with establishing a stud book register which provided for horses produced by artificial insemination. 162 Mr McHugh referred to correspondence he had had on these topics between May 2009 and April 2010. The effect of that correspondence was that Racing NSW considered the matter appropriate to be referred to the ARB for its consideration as it was a matter for national consideration and not a matter to be addressed on a State by State basis. The Australian Stud Book, by letter dated 22 June 2009, said that at that time the AJC and VRC were of the view that establishing an additional register for artificially bred horses would not be consistent with the legitimate interests and objectives of those two organisations as Joint Proprietors of the ASB. It followed that the two organisations were not minded to establish a registry for artificially bred racehorses, as Joint Proprietors of the ASB. 163 By letter dated 22 April 2010 the Chief Executive of Harness Racing Australia wrote to Mr McHugh enclosing "a further draft of the Service Agreement" "between your entity and Harness Racing Australia, for the establishment of an International Purebreed Stud Book." It was noted that the Service Agreement was conditional upon the present court proceedings being decided favourably to the applicant in respect of declaring void, or unenforceable, the restriction upon registration and racing of foals of 100% thoroughbred genetic origin conceived by artificial insemination, and the court allowing the recognition of alternative registers. Mr McHugh said that if there was a third stud book put in place in Australia, which he had offered to do, that would mean that all the other horses that were entered in the ASB could continue to race and breed in Australia and overseas. 164 In cross-examination Mr McHugh accepted that there was nothing to prevent him establishing a register of horses bred by artificial insemination from thoroughbreds. He accepted it would cost money to set up and he would require someone to undertake the work. He said that the indication from Harness Racing Australia was that the initial cost was $150,000 and he had not been prepared to pay that cost to have that register set up now: if he did not win the case he would have no reason to have that register. Mr McHugh agreed that he did not need the Australian Stud Book to set up that register: he was more than happy to do that himself. Mr McHugh accepted that the existing thoroughbred register in the ASB was accepted around the world, and has an integrity, founded on many years of administration and publication, and that it was a valuable asset. He accepted that the ASB was a responsible and credible register and he accepted that the ASB had a valuable reputation worldwide. 165 In cross-examination, one issue was whether Mr McHugh's concern for the welfare of his mares was a motivating factor in his attempt to alter the ASB rules. I accept that it was such a motivating factor. I do not regard the matter as going to the substantive questions in the proceedings. 166 Another issue was whether Mr McHugh's primary source of income at any stage had been thoroughbred breeding. In his second witness statement, Mr McHugh said that thoroughbred breeding was one of many enterprises carried on by him and he derives the majority of his personal income from those other enterprises. Mr McHugh accepted that being a thoroughbred breeder was not his primary activity as at 2011 or over the last five years. He accepted, and I find, that overall he was running at a loss on thoroughbred breeding and it was not something that he was required to do by reason of his economic circumstances, that is, to feed himself and his family. He also said that the three tax returns in evidence showed that he had made losses in each year for racing but "not necessarily" in relation to horse breeding. He said, and I accept, that thoroughbred breeding has been a passion and he had tried to make money out of it. He agreed that he probably did not need the money to be made from thoroughbred breeding and in effect he made a loss out of it. 167 Mr McHugh accepted that certain races in Australia were renowned around the world in the thoroughbred racing industry. He referred to the Golden Slipper, the Melbourne Cup, the Cox Plate, the Caulfield Cup and the Victorian Derby. He accepted that the Melbourne Cup, in particular, attracted foreign entrants and said it was the most important handicap over two miles in the world. 168 Mr McHugh accepted that thoroughbred racing in Australia attracted major crowds, particularly in Melbourne, and major publicity in terms of media, both in the print and television media, although he said it had been dying off over the last 10 or 20 years. 169 Mr McHugh accepted that any yearlings produced in the future by Black Caviar would possibly be valuable yearlings and, if they were very nice types by a very good stallion, likely to attract interest from around the world in any yearling sales. 170 Mr McHugh agreed that he loved the tradition of thoroughbred racing generally. He agreed that he loved the theatre of thoroughbred racing. He had a passion for the theatre of thoroughbred racing which he expected was shared by many thousands of racegoers around Australia. 171 Mr McHugh referred to the excitement at the Harold Park harness racing of a Friday night 40 or 50 years ago being on a par with thoroughbred racing but that the leading harness racing track, at Menangle, now had nothing like the theatre and experience of a day at Randwick or Flemington. 172 Mr McHugh accepted that buyers attended both Magic Millions yearling sales and Inglis yearling sales with a view to buying yearlings which they might race overseas. 173 He agreed that his primary objective was to breed yearlings which he could sell and part of the object of taking advice was to maximise the prospects of producing an animal which might attract a good price. In deciding to put a broodmare to breed, Mr McHugh agreed that he took into account the likely saleability of the yearling. He presumed that Inglis or Magic Millions would accept artificially bred horses for sale. If they did not, he would have to take other measures to sell the horses. He accepted that the Inglis and the Magic Millions sales attracted interest from overseas buyers. 174 He had not given any consideration as to whether or not an artificially bred horse would be included in the higher level of Inglis or Magic Millions sales. He had not given any thought to the significance or otherwise, to his proposed artificial insemination activities, of the New South Wales Breeder Owner Bonus Scheme (BOBS). 175 In relation to prize money, Mr McHugh's evidence was that the most important people were the punters, as a percentage of their wagering made up the prize. He accepted that a very insignificant part of the prize money came from breeders and owners who paid money to clubs to enter their horses in the top races. 176 Mr McHugh accepted that there were a number of kinds of horse races: thoroughbred, harness, steeplechase and quarter horse. His evidence was that there were very few people in Australia who followed the other sorts of horse races besides harness racing and thoroughbred racing. Betting was by far and away the biggest source of funding for those other races. 177 Mr McHugh said that most of the horses that are champions tend to be from just middle of the road breeding. He accepted that while there are such horses, a significant number of purchasers of horses like to buy horses from proven families. He also accepted that purchasers on the whole were willing to spend more money for a horse from a proven family, provided it was a good individual. 178 Mr McHugh accepted there are four kinds of black type races for Australian races. The Australian Pattern Committee (APC) determined which races were black type races and rated them accordingly. Recommendations were put to the International Grading and Race Planning Advisory Committee (IRPAC) and it was the quality of horses that had been racing in that race that justified the category that the race was given. When somebody is assessing a horse or members of that horse's family, the purchaser wants to know whether a horse has won or been placed in races of a particular standard and that shows up in the catalogues, which refer also to foreign races. That is the case wherever the race was run in the world. 179 Mr McHugh agreed that there were a few foreign breeders and owners who came to the big auctions in Australia and made bids. He agreed there were some very wealthy people who liked to buy racehorses but he also said there were very poor people who liked to buy racehorses: it was an egalitarian sport in Australia and that was why racing was better in Australia that anywhere else in the world, because it encouraged people who did not have a lot of money to participate in the industry. 180 Mr McHugh accepted that yearlings sometimes fetch very large sums. The auction houses that run the major sales in Australia and the other major sales around the world compete for the custom of the very wealthy prospective purchasers, as they do with all customers. 181 He agreed that the IFHA determines the world thoroughbred rankings and a small but significant portion of the top horses in those rankings are Australian. 182 Mr McHugh accepted that probably 20 or 35 horses come to Australia to run in the big Australian races each year and there was usually a fair bit of hyperbole around some of those foreign horses when they come to the big races. 183 If a stallion's progeny performed well in a major world-class race, Mr McHugh would assume that that would be a big boost in value for that stallion. 184 Mr McHugh accepted that it was quite common for northern hemisphere stallions to be sent to Australia for the Australian breeding season and there were a few reverse shuttle stallions, that is Australian horses sent over to the northern hemisphere for the northern hemisphere breeding season. Reverse shuttle meant that Australian bloodlines were introduced into American, European or Japanese markets. If the progeny of a reverse shuttle stallion performs well in those overseas markets, that would increase demand for that horse and that horse's relatives both in Australia and overseas but, Mr McHugh added, more so overseas. Australian horse breeders would be interested in the progeny of a reverse shuttle stallion performing well in black type races in Japan, America or Europe but they would not be as interested as those horse breeders in the country where the horse has performed well as it was an indication that those progeny tended to race better on those sorts of tracks in those sorts of conditions. 185 Mr McHugh said that far and away the majority of breeders breed horses to race themselves and he accepted that other breeders will breed a horse, see whether it fetched a good price at sale and, if not, hold onto the horse to race himself or herself if they could afford to. 186 Mr McHugh accepted that he had bred a number of his own broodmares to American shuttle stallions: he had done it on a number of occasions. 187 Mr McHugh accepted that there were quite commonly discounts from the advertised service fee for a stallion. 188 Mr McHugh said that he would like to see more people following thoroughbred races again and he believed that one step that might help was allowing artificial insemination. If artificial insemination is not available then, instead of getting involved in thoroughbred racing, it was a possibility that people may take their money, time and energy and spend it on other things. 189 In cross-examination Mr McHugh was asked whether he said that the semen of a dead stallion should be available for the creation of thoroughbreds. He was asked his position on whether such horses should be available for breeding and racing if they had been produced using semen from a dead stallion. He said he did not have a position: he had not considered that at all. He made the same response in relation to embryo transfer. He was of the view that there was a relevant difference between a horse produced by cloning and a horse produced either by artificial insemination or by natural covering. He was asked whether, in his view, if horses produced by cloning were allowed, it changed the character of the sport. His answer was: it changed the character of the individual: artificial insemination was exactly the same as a mare being covered physically by a stallion. 190 In summary, the ASB respondents drew attention to Mr McHugh's references to thoroughbred breeding as a "passion" from which he had tried to make money but from which he had typically made losses. Those respondents submitted that Mr McHugh's evidence was at times shrill, aggressive and evasive. It was submitted that he gave unsatisfactory evidence regarding his prior discussions with Dr Digby and Mr Pemberton. Those respondents submitted that Mr McHugh ought not to be treated as a reliable witness and it could not be concluded that in an Australia only AI world Mr McHugh would become an AI stallion service provider or breeder. It was submitted on behalf of the applicant that it was an unfair characterisation to suggest that Mr McHugh's evidence was shrill, aggressive and evasive: the portions of his cross-examination there cited did not support such a contention. The characterisation of his evidence regarding his prior discussions with Dr Digby and Mr Pemberton as "unsatisfactory" was also undeserved and unmerited. He answered the questions fairly and frankly and made concessions relating to the discussions where appropriate and possible. It could certainly be concluded on the evidence that in an Australia only AI world, Mr McHugh would become an AI stallion service provider or breeder. 191 I reject the ASB respondents' overall criticisms of Mr McHugh's evidence. I accept Mr McHugh as a witness of truth. However in assessing that evidence I take into account that much of it was as to his opinion or state of mind and he showed he has a strongly-held conviction that the rules against AI are illogical and wrong and they limit his freedom to choose what he sees as merely a method of breeding. It is from that perspective that he has sought to deploy s 45 and the common law doctrine against restraints of trade to impugn those rules. Mr McHugh's evidence as to the impact of the impugned provisions was generalised and his intentions as to the future had a theoretical or abstract quality about them, because his motives were at the level of principle. 192 I am asked to find that his hopes and expectations, in the absence of the impugned provisions, would be economically incredible in that his putative business as a seller of semen for the breeding of thoroughbreds by artificial insemination would have no buyers. This was largely by virtue of the international dimension of thoroughbred breeding for racing. I find that his intentions in that respect are genuine but at a commercial level theoretical and accurately characterised as hopes and mere expectations. The evidence does not persuade me that Mr McHugh would achieve a substantial level of trade or that it would be profitable.

Mr David Baxter 193 Since the late 1980s Mr Baxter has been the general manager of Macquarie Stud, a 3000 acre commercial thoroughbred horse farm near Wellington, New South Wales. The Baxter family, through Macquarie Stud, has been breeding thoroughbred racehorses on a commercial basis since the late 1960s. Mr Baxter was responsible for selecting a stallion to breed with each broodmare, managing the finances and promotion of Macquarie Stud and supervising the staff in the training, transportation, foaling and care of the horses. 194 Macquarie Stud owns about 20 broodmares and cares for an additional 70 broodmares that live permanently at Macquarie Stud but which are owned by others. In addition to the broodmares, yearlings, foals and weanlings, a stallion stands at Macquarie Park, making a total of approximately 200 horses. The stallion has a service fee of $4,400 including GST. 195 When selecting a stallion, Mr Baxter said he aimed to create a match with the broodmare which will produce a foal which will be as valuable as possible. In that way he was seeking to have the option of either racing the progeny or selling it as a yearling at the Inglis or Magic Millions yearling sales at a profit. The other factors which he had taken into account in choosing a stallion for a particular mare were: the physical traits of the animals; the pedigree of the horses; the race record of the stallion and its progeny; the relative value of the horses; whether a stallion was in his first, second or subsequent season as a sire; the number of progeny sired by the stallion at that year or the previous years' yearling sales, if applicable; and the geographic location of the stallion. 196 The value of the yearlings was affected by their conformation or physical appearance, the pedigree of the yearlings' sires and dams, and the race record of the yearlings' sires and dams and their other progeny. 197 Mr Baxter said that in the first instance, when selecting stallions to mate with his broodmares, he considered stallions at four studs, all of which were in the Hunter Valley in New South Wales. He regarded those stallions as superior and their progeny more likely to be consistently successful racehorses. Those four studs also regularly shuttle stallions from the northern hemisphere. Mr Baxter considered he would breed his broodmares with overseas stallions, if they were appropriate matches for his broodmares, because they have different genes and family pedigrees and often have reputations as successful racehorses. 198 Many thoroughbred broodmares were usually accompanied by newborn foals when transported to be covered. Pregnancy in horses lasts about 11 months from the date of conception so broodmares were covered and impregnated within weeks of giving birth to a foal. 199 Mr Baxter explained the practice of "walking on" a broodmare to be serviced. He transported the broodmare (accompanied by her foal) to stud a day before her ovulation and then after she had been covered by the stallion, he transported the broodmare and foal back to Macquarie Stud rather than agisting her at the stallion's stud. If the broodmare did not fall pregnant he organised for the broodmare to be covered again by the stallion when she was next ovulating if the stallion was available. The broodmare was "walked on" to be covered again at that time. 200 Mr Baxter rarely sent a broodmare to be covered by a stallion that was located interstate. He said the transportation of the foal and mare long distances caused stress to the animals, involved the risk of injury and illness and also involved greater transportation costs. 201 Mr Baxter's evidence was that if thoroughbred foals bred by artificial insemination were eligible to be registered in the ASB he would practise the method of artificial insemination to impregnate his broodmares. If he wanted a particular stallion to mate with a broodmare and the stallion's stud chose not to collect and sell his semen for artificial insemination, he would probably send the broodmare to stud to be directly covered by the stallion. If the progeny of a particular stallion was popular in Hong Kong, Singapore, Macau, the Philippines or South Africa and foals in those countries bred by artificial insemination were not permitted to race, Mr Baxter said he may reconsider whether or not to use artificial insemination. In all other circumstances he would use the method of artificial insemination instead of direct cover and in the majority of cases he would use artificial insemination. 202 He said that if artificial insemination were permitted, he would no longer need to transport his broodmares or foals to the Hunter Valley but would inseminate his mares at Macquarie Stud. As a result he anticipated that he would be able to reduce expenditure on transportation of broodmares and on some veterinary costs. Also, if his mares and foals remained on Macquarie Stud throughout the year and additionally had no contact with stallions, his herd would in effect be quarantined from disease. If artificial insemination were permitted he would be able to continue to breed broodmares with semen transported to Macquarie Stud and would not be restricted in mating options as a result of the imposition of restrictions on the transportation of horses during periods of outbreak of equine disease. 203 If artificial insemination were permitted he would seek to acquire semen from stallions located at studs overseas. He would also consider acquiring semen from stallions located in other Australian states. He would no longer be restricted by the geographic location of the stallion. If there were a stallion standing at a stud in Western Australia, for example, which was an appropriate match for his broodmare, he would no longer be eliminated as a candidate sire to breed with that broodmare because of its location. 204 If artificial insemination were permitted, in Mr Baxter's opinion, it would lower the likelihood that broodmares would fail to become pregnant each year because the semen could be collected and be ready and available to be inserted into the broodmare's uterus at the correct time during the broodmare's ovulation: if pregnancy did not eventuate the process could easily be repeated a couple of weeks later in the breeding season. 205 In cross-examination Mr Baxter said that if the rule against artificial insemination was changed he would do a far better job for himself and his clients. 206 Mr Baxter's evidence was that the auction houses, Inglis and Magic Millions, competed against each other in this part of the world rather than competing with other yearling sales all around the world. He accepted that Inglis and Magic Millions have overseas customers. He accepted that persons interested in acquiring yearlings from those sales included persons having an interest in the possibility of a horse ultimately racing overseas. He accepted that it can happen that horses were raced initially in Australia and then raced overseas subsequently. It had happened a few times in recent years that a successful Australian racehorse was ultimately acquired by an overseas interest for stud purposes at the end of their career. 207 Mr Baxter agreed that people coming from overseas to buy horses in Australia would like to know they can race them at home. To the question whether he agreed that potential buyers of yearlings sales at Inglis and Magic Millions included overseas and Australian buyers who have an interest in the horse being able to race overseas or ultimately to produce progeny which could race overseas his answer was "Yes, in a dream". 208 Mr Baxter agreed that most of his clients who agisted their horses at the Macquarie Stud did not have thoroughbred breeding as their main source of income. 209 Mr Baxter referred to one instance where he sold a horse on behalf of his client for many millions of dollars to an overseas investor from Dubai. His evidence was that the purchaser bought the horse in the first instance as a stud proposition. The horse came from Australia and lived in Australia. 210 He was asked to assume that artificially bred yearlings from thoroughbreds could race as thoroughbreds in Australia and could be registered in an ASB but that in all the major thoroughbred racing jurisdictions overseas such yearlings could not so race and could not be so registered. On that assumption Mr Baxter was asked whether that specific yearling would not be attractive to overseas buyers. His response was that there were a lot of sales which overseas people would not look at anyway because the horses had not got enough pedigree or looks and as a result they would not buy them. There would still be a lot of horses for sale that Australians would be interested in buying that possibly overseas purchasers would not. To the proposition that the top bracket buyers would not like to buy horses bred by artificial insemination his answer was he thought it really came down to the horse and whether the horse was one that the buyer liked. 211 As to the commercial wisdom of producing an artificially bred horse in Australia in circumstances where the yearling could not race overseas, Mr Baxter said it did not worry him greatly: there were usually plenty of people who had plenty of money to buy good horses to race in Australia. AI could curtail the huge expense of running a lot of horses around the countryside: it would save a lot of money and time to transport semen and not the horses. 212 If at the end of the day some buyers did not want to look at them because they were bred by artificial insemination then so be it: he would still have plenty of buyers. Overseas was not the be all and end all. In the main, he said, you were better off here. It was the best racing country. You get the right horse here, it will change your address. 213 Mr Baxter did not know what the attitude of Inglis or Magic Millions would be to a yearling bred by artificial insemination. He had not given any thought to whether there were potential buyers of yearlings who would regard the fact that a yearling was artificially bred as unattractive. 214 He said he would certainly inseminate mares by artificial insemination if it was available. If there was a stallion available and the owners did not want to use it in that way and that was the stallion that suited that particular mare he would have to have it covered naturally. He said there were plenty of people in Australia who would give you half a million for a horse. He did not know why it was necessary to worry about the overseas people. He did not give consideration to whether, if both artificial insemination and direct cover were permitted in Australia, even the direct cover horses would cease to be attractive to overseas buyers because they would not be recognised. 215 His evidence was that using artificial insemination he thought would be cheaper and far more efficient and it would be a good saving staff-wise. For natural cover you had to meet deadlines. In the case of artificial insemination you could get hold of the semen and work to your own program. He did not know of any difference between chilled and frozen semen in terms of fertility rates and he did not know whether there were any timing issues in terms of when it is possible to inseminate with chilled or frozen semen. He agreed he did not have any understanding one way or another as to whether or not the fertility of cool semen decreased after a certain period of time. 216 He said that on the assumption there was a risk as to whether the AI produced yearling would be of the same value as the same yearling produced by direct cover he would go down the artificial insemination route anyway as he would hope that the artificial insemination service fee would be cheaper for a start and he would think that any possible difference in the price of the other one of the yearlings would be made up in that way. Then he said he would go down the artificial insemination path "because if I produced a horse that looks right, it will bring the money". 217 As to embryo transfers he said he had never thought about it and did not know enough about it. As for cloning, he did not know whether that could happen and did not know if he would be interested in it because it would probably ruin the racing world. He thought it would be no fun if you knew you were going to produce the same champion horse every year. He agreed that part of the spark that he regarded as an attractive feature of thoroughbred racing was the challenge of being able to produce a champion. 218 In summary, the ASB respondents submitted that Mr Baxter gave evidence that he would adopt AI irrespective of the commercial implications but had made no meaningful enquiries in respect of the attendant procedures. His evidence expressed the skewed views of a proponent of AI and should be given no weight. Significantly, although his stud stands stallions, he did not say he would use them to provide AI services in an Australia only AI world and it may be inferred that he would not do so. The applicant submitted that the contention that Mr Baxter's evidence expressed the skewed views of a proponent of AI and should be given no weight was offensive and unfair. There was no evidence to support it. 219 There was a limited attack on Mr Baxter's credit, which I reject. I also reject the submission that his evidence should be given no weight. Also Mr Baxter has undoubted extensive experience in thoroughbred breeding. I note however there was no quantification which he gave of the benefits that he saw from the removal of the impugned provisions. I do accept therefore that his evidence was at the level of principle, as also demonstrated by his limited enquiries in respect of AI procedures and the absence of evidence as to his proposed use of the stallion at his stud. In my opinion Mr Baxter's evidence has as its main significance the potential difference between the possible general effect of the impugned provisions on smaller breeders and racers as opposed to the numerically fewer participants in the industry who are directly involved in the international trade.

Mr Alistair McFarlane 220 Mr McFarlane is a thoroughbred horse breeder. In about June 1994 he retired to South Australia and the following year bought Tori Park Stud Farm in the Adelaide Hills. During the period 2004 to 2008 he was a board member of the South Australian Jockey Club, South Australia's metropolitan thoroughbred horse racing club which conducted numerous thoroughbred horse races. 221 In about 1996 Mr McFarlane bought a thoroughbred broodmare and since then he has conducted thoroughbred horse breeding on Tori Park Stud Farm. During that time he has owned various numbers of broodmares, at one stage around 14 broodmares. At the time of his statement he owned or part owned nine broodmares. Since 2000 his broodmares had produced about 37 winners from 41 runners including horses which had won or been placed in Group 1, Group 2, Group 3 or Listed races in Australia. 222 Since 1997 Mr McFarlane has also owned shares in sires. At the time of his statement he owned shares in four active and two retired sires. His active sires included Bel Esprit, the sire of the champion Black Caviar. Since 1997 Mr McFarlane has also had shares in racehorses and at the time of his statement owned shares in ten named racehorses. His stud also owned a racehorse which was currently leased out. Mr McFarlane and his wife also owned shares in five unnamed thoroughbred racehorses which had not yet started to race. 223 The studs to which Mr McFarlane sent his broodmares in the last three years had included Arrowfield, Darley and Coolmore studs in the Hunter Valley and Eliza Park Stud and Darley Stud in Victoria and the studs in South Australia which stood the stallions in which he had a share. 224 Mr McFarlane said that he primarily bred thoroughbred horses to sell in order to make a profit at yearling auction sales. However he also aimed for all of the foals that he produced to become fast and successful racehorses and therefore could not afford to be solely motivated by making a profit in his selection of a stallion to breed with his broodmares. He was aware that when a broodmare attained a reputation as a producer of successful racehorses her value and the value of her subsequent progeny increased. 225 When selecting a stallion to breed with one of his broodmares Mr McFarlane said it was not merely just a matter of selecting the most "fashionable" stallion whose service fee was commercial. His primary aim was to select a stallion which would maximise the chance that the resulting foal would have the physical characteristics to be a successful racehorse. He took into account: the physical appearance and confirmation of the sire and the mare; the advice he received from pedigree consultants about whether the stallion was an appropriate match and the pedigree of the broodmare and the stallion; the cost of the stallion's service fee; the racing performance of the sire, the broodmare and their other progeny; whether the stallion had a reputation as a producer of sires; the geographical location of the stallion; the number of other broodmares the stallion was covering that breeding season; and an estimate of the value of the progeny of the sire and his dam at the yearling auction sales two and a half years after covering. 226 In relation to the cost of the stallion's service fee, Mr McFarlane said that over the last five years he had usually selected stallions whose service fees were advertised to be in the range of $15,000 to $50,000. Since 1996, the most expensive service fee he had paid was approximately $90,000 for Zabeel (NZ) in about 2005. He also paid about $15,000 to ship his broodmare to New Zealand and back again and he paid about $20,000 for unborn foal insurance in case the mare did not fall pregnant or give birth to a live foal. 227 In relation to the geographical location of the stallion, Mr McFarlane said that while he would prefer not to transport his broodmares long distances interstate to be covered, he often did send them to studs in Victoria and New South Wales. This was because the sires located in South Australia from which he could choose were relatively limited in number and quality. In the 2009/2010 breeding season there were approximately 36 sires standing at stud in South Australia whereas, in contrast, there were about 191 sires standing in Victoria and about 267 sires standing in New South Wales. Also, not all the sires located in South Australia nearby to Tori Park Stud were an appropriate match for his broodmares. 228 Mr McFarlane said it was a disadvantage for breeders such as himself to send their broodmares on a lengthy journey to stud because of the costs of transporting the broodmare and the increased risks of stress or injury to the mare and foal. He gave evidence of a broodmare he had bought in 2007 which had become stressed and injured in the course of being transported from Melbourne back to Tori Park Stud. In the result, Mr McFarlane had to put the broodmare down a few weeks after her journey from Melbourne. 229 Mr McFarlane said that since he first commenced breeding he had sold yearlings at each of the metropolitan auction sales run by Magic Millions or Inglis around Australia, except for Perth. At the time of his statement, to date in 2011 he had sold one yearling privately, one yearling at the Inglis Melbourne Premier Yearling Sale in February 2011 and one at the Magic Millions Premier Yearling Sale on the Gold Coast in January 2011. 230 In 2010 he had sold five yearlings at auction sales. 231 The range of prices of the yearlings he had sold at auction sales was between a high of about $330,000 (including GST) and a low of about $11,000 (including GST). He also referred to a yearling he had sold for $3,000 at the 2002 Magic Millions South Australian May Sale (Mixed). 232 Mr McFarlane said that in his experience the primary costs associated with breeding thoroughbred horses were the amortisation of the value of the broodmare, stallion service fees, veterinary costs, agistment costs and transportation costs. 233 Mr McFarlane said he usually preferred to send his broodmares to agistment farms rather than having them agisted at stud, in circumstances where the agistment farms housed and cared for smaller numbers of thoroughbreds than the studs during the breeding seasons so that the risk of his mares contracting disease or incurring an injury from being kicked by another horse was lowered. 234 He said the costs involved in servicing his mares included: the stallion service fee and transportation to and from Tori Park Stud to the stallion's stud, which was usually interstate. This cost approximately $100 per mare each way to a nearby stud, approximately $600 per mare each way to Victoria and approximately $1,000 per mare each way to the Hunter Valley. When the mares were located at an agistment farm during the breeding season he also had to pay for them to be transported between the agistment farm and the stud for servicing. Other costs involved in servicing his mares included: agistment costs for each mare at the stud or agistment farm of approximately $20 to $25 per day for each mare and her foal; and veterinary bills of mares and foals while at stud as necessary. 235 Another cost of breeding thoroughbreds, Mr McFarlane said, was the value of the broodmares which was a cost which had to be recouped by the sale or racing of the approximately 8 to 10 foals per broodmare at stud. At the time of his witness statement approximately 20% to 25% of his mares were not productive each year because of disease, injury, gynaecological ailments, late foaling and sub-optimal fertility of the stallion's sperm. 236 In relation to artificial insemination, Mr McFarlane said that if thoroughbred foals so produced were registrable in the ASB he would have the choice whether to use AI to impregnate his broodmares. His decision to use AI would be determined by whether or not the stallion he chose to breed with his mare was available for natural service or AI. If his mare was not very commercial or was older, he would choose a stallion available for service by way of AI and would not consider any stallions available for natural service. He would prefer to use AI in order to reduce: stress to his mares and their foals, costs, the risk of illness and injury to mares and any foal in transport and while agisted at stud and to the mare during direct breeding and to reduce the risk of injury to the handlers during direct breeding. 237 He said that if AI were permitted the geographic limitation on the range of stallions from which he could choose to mate with his broodmares would be reduced or eliminated. He would be able to impregnate his broodmares with semen from stallions located anywhere in South Australia, another Australian State or overseas without incurring the increased costs or risk of disease and injury associated with transporting his broodmares to and from his stud. The pool of appropriate quality stallions from which he could select to mate with his broodmares while keeping them at his stud in South Australia would expand considerably. In cross-examination Mr McFarlane said what he had in mind was if AI were permitted both in Australia and other thoroughbred places around the world. 238 On the assumption that if AI were permitted the shuttle stallions would continue to travel to Australia for natural service or for semen collection and that owners of sires located overseas would sell their semen to Australian breeders, Mr McFarlane would be particularly interested in purchasing chilled or frozen semen from stayer sires located overseas. In cross-examination Mr McFarlane said what he had in mind was if AI were permitted both in Australia and other thoroughbred places around the world. 239 If AI were permitted, for his part Mr McFarlane would want the semen of the stallions in which he owned shares offered for sale for use in AI to purchasers in Australia. He would want their semen to be available for use in AI to expand the market of potential broodmare owner clients willing to pay for their mares to be impregnated by the stallions. He would also want the semen of the stallions in which he owned shares to be available for purchase by breeders located overseas. Further, if AI were permitted, the costs incurred in shuttling a sire between Australia and Asia, Europe or North America and incurred by shuttling a mare between Eliza Park Stud and New Zealand would be avoided. In cross-examination Mr McFarlane said what he had in mind was if AI were permitted both in Australia and other thoroughbred places around the world. What he was specifically talking about was he would like to be able to export semen of a stallion he owned worldwide. 240 If AI were allowed for breeding thoroughbreds, Mr McFarlane anticipated that his costs of breeding thoroughbreds would be reduced as compared with his current cost of direct breeding his broodmares, as a result of the ability to eliminate or significantly reduce the agistment and transportation costs. He would be able to care for his broodmares on Tori Park Stud at a cost of approximately $8 per day to feed his mares using his own labour and he would not have to transport them interstate or to New Zealand, if AI were permitted worldwide. He also anticipated that he would have cost savings in respect of veterinarian bills, given that his broodmares and foals would not need to come into contact with other broodmares, foals or the stallion at stud and they could remain at Tori Park Stud. As a result, the risk of contraction of disease or recurrence of injury at stud or in transport should reduce. 241 If AI were permitted both in Australia and worldwide, Mr McFarlane said that, in his opinion, stallion owners were likely to limit the number of broodmares the stallion could sire each breeding season to ensure the market was not flooded by the yearlings. He said he would expect the incidence of mass outbreaks of equine disease to lower because of the reduced need to transport animals or agist them at stud or on an agistment farm for the duration of the breeding season. He said the risk of incurring the opportunity cost of having a mare not give birth to a foal each year may be reduced because of the associated reduction in contact between thoroughbreds which can cause injury and gynaecological ailments, and the ability to analyse the fertility of the semen prior to insemination. Further, if there were an outbreak of dangerous equine disease warranting a mandatory restriction of the transportation of mares, during that period mares could still be impregnated by stallions located throughout the country by using AI. 242 In cross-examination, Mr McFarlane accepted that his ultimate guide, if AI was available, would be whether or not the step would or would not detrimentally affect the commercial value of the foal. He would look at it at the time because it depended on the circumstances at the time. If he thought that a foal would have no chance of making the Inglis or Magic Millions sales he would take that into account before breeding a mare and producing that foal. 243 In answer to the question whether the introduction of artificial insemination was a matter of significant moment for him either way, Mr McFarlane said that it was such a matter: for example he had just sold three of his mares because the extra costs did not justify what he was doing. 244 If the Court were to rule that in Australia AI was permitted but the international situation stayed exactly the same, Mr McFarlane said he would use AI in some circumstances and the considerations he would take into account would include whether or not producing an AI foal was a good commercial decision. He said that he could guarantee that if AI came to pass at least one of his mares would be served by AI but just on principle he would probably do it on one of his less expensive mares just to save the $5,000 or $6,000 it cost him to send them out. 245 Mr McFarlane agreed that one of the reasons he was keen to get his yearlings into Inglis and Magic Millions was because they could attract some high-quality buyers and demand, including demand from overseas buyers. He said he had sold a horse overseas which had raced overseas and succeeded. He said he would much rather the horses raced in Australia because he might get breeder's bonuses under BOBS or the equivalent bonus schemes in South Australia and Victoria. However, he did say that he still sent most of his mares to New South Wales, where he did not get a breeder's bonus, because he thought that was the best place for them to go. Mr McFarlane said that potential overseas buyers did not matter to him because they did not buy the quality horses he had. 246 He said that Australian prize money was generated from punters not overseas buyers of horses so the races would not be downgraded although, in his opinion, they may not be recognised by other countries for a year or two. 247 Mr McFarlane accepted that part of the appeal for racegoers was the scarcity of champions. 248 He said that the standardbred industry was totally foreign to him and it was a totally different situation, the only things they had in common that he had noticed was that in both there were horses with four legs and they raced. Standardbred horses were bred by people who were going to race them rather than sell them and the prize money was significantly less. Also standardbreds raced probably five races for every one that a thoroughbred did. He also said that the standardbred was significantly less valuable than a thoroughbred, generally speaking. 249 He agreed that thoroughbred racing for him had a certain theatrical appeal. He could not care less what happened internationally in thoroughbred racing: it meant nothing to his personal business situation. 250 He said that he had looked at the costs that he knew about: he had looked at the transport costs; the veterinary costs and agistment costs. He said it cost him an average of about $1,200 in vet bills when he sent his mares for hand service. 251 Mr McFarlane agreed that if the Court were to rule that AI was permitted in Australia that would be the time for him to sit down and look at the issue as to whether or not it was practical or whether it was commercially viable for his purposes or for any particular horses, albeit he might have a preference for AI for at least some of his mares. 252 Mr McFarlane agreed that he had not made money out of horse breeding and he had carried forward losses of six figures. 253 In summary, the ASB respondents submitted that Mr McFarlane agreed he would not make any decision regarding the use of AI without considering whether that would detrimentally affect the value of the foal produced. He gave evidence of possible counterfactual use of AI largely on the premise that the use of AI breeding was permitted worldwide. If AI were introduced in Australia Mr McFarlane would serve at least one mare by AI, probably one of his less expensive mares and he would not breed an AI yearling unless he thought it was commercial except "maybe just one to be quixotic". The applicant submitted that Mr McFarlane's apparent concession in cross-examination that he addressed the consequences of being permitted to breed thoroughbreds with AI on the basis of AI worldwide should be given little weight as it was clear that he was expecting AI to be introduced in Australia first, not worldwide. The applicant also submitted that it was self-evident from the text of his statement that most, if not all, of the matters he referred to would plainly apply as a matter of logic in circumstances where AI was allowed in Australia only. 254 I accept Mr McFarlane's evidence. His estimates of relative costs were coherent. His breeding business could not be said to be marginal. I reject the applicant's submission that Mr McFarlane's apparent concession should be disregarded. I understood Mr McFarlane to be saying that if AI were permitted he would make a commercial decision at the time, save for serving one of his less expensive mares. Again however, as shown by his evidence that when AI was permitted in Australia that would be the time for him to sit down and look at the issue as to whether or not breeding by AI was practical or whether it was commercially viable for his purposes or for any particular horses, Mr McFarlane's position was at the level of principle.

Mr Anthony Hartnell 255 Mr Hartnell, in addition to practising law, has since 1985 engaged in the breeding of thoroughbred horses. From around 1985 he commenced purchasing fillies and mares and he started to breed the mares, often to stallions located at a nearby horse stud called Meringo Stud Farm. Between 1985 and 1992 those mares had progeny which he raced or sold at public auction either at the Inglis sales or with Magic Millions. His yearlings were usually not accepted into the first tier yearling sales (the Magic Millions January Sale and the Inglis Australian Easter Yearling Sale) but rather the next tier of yearling sales, such as the Inglis Classic Yearling Sale. In cross-examination Mr Hartnell clarified this evidence so that it included yearlings he had bred in joint venture in Segenhoe and they were all put into the Easter sales. The joint venture yearlings were accepted into the first tier yearling sales. He had sold many horses in the Easter sale with Segenhoe as the vendor, being joint venture horses between Meringo and Segenhoe. Mr Hartnell said he did not believe he ever tried to get any yearlings into the Easter sales at that time or subsequently. His focus and concern was getting yearlings into the classic sales and he was having trouble even getting the yearlings into those sales. He reached the conclusion that he was never going to make a profit so he had to do something about it. 256 By the end of 1991, Mr Hartnell said, he decided that his objective was to develop a profitable business, which required the production of racehorses capable of winning black type races or yearlings that were capable of being accepted into the most prestigious first tier auction sales. In 1992, together with Ray Hall, he purchased the Meringo Stud Farm. This was an established horse stud of 240 acres. It had stables for 18 horses as well as all necessary infrastructure. In May 1998, together with Jim McDonald, he bought Central Farm (approximately 15 kilometres from Meringo Stud Farm) on which he agisted horses and reared weanlings. Central Farm was then operated as an adjunct to Meringo Stud Farm. 257 From 1992 there were up to five stallions at any one time on Meringo Stud Farm which serviced broodmares brought to Meringo Stud Farm by clients. He currently stood a stallion called Naturalism which has sired around 500 live foals. Over that period Mr Hartnell had built up the broodmare stock at Meringo Stud which currently amounted to a least 20 mares. He did so in order to maximise the reputation of Meringo Stud and his reputation as a breeder. 258 He would not often sell any yearling for a price less than the cost of the service fee paid to produce it but would rather keep a horse and lease it to others. Accordingly from time to time his yearlings were passed in at auction. On average he sold approximately half his foal crop each year. 259 The factors Mr Hartnell took into account in choosing a stallion to breed with one of his broodmares included: the cost of the stallion's service fee; the racing performance of the stallion and its progeny; the physical traits of the stallion; the pedigree of the stallion and of the mare; and the geographic location of the stallion. He said it would be very unusual to breed his mares or stallions located in studs outside New South Wales, in order to curb transportation costs, but also to utilise the BOBS scheme which applied to New South Wales bred horses. He usually sent his mares to studs located in the Hunter Valley region to breed. If the studs were offering the services of shuttle stallions for the southern hemisphere breeding season he would often use a shuttle stallion to mate with one of his broodmares if the stallion was an appropriate match to the physique and pedigree of the broodmare. 260 One of the primary costs, in Mr Hartnell's experience, associated with breeding thoroughbred horses was the cost of paying for the broodmare and any foal to be fed and cared for while at stud for three to four months. This was the agistment fee. The three to four months was referable to the time required for a broodmare to give birth to the foal she is carrying, the recommencement of her oestrus cycle, the covering of the animal and then the confirmation of the mare's pregnancy. The ultrasound scan confirming pregnancy was usually 45 days after ovulation. If the broodmare did not become pregnant after being covered the first time, she had to be covered again when she was ovulating and to remain at stud until the ultrasound scan confirms pregnancy. 261 The cost involved in servicing mares therefore usually included transportation to the stallion's stud ($500 per mare each way or $600 each way with foal); approximately $184 further transportation; agistment costs of approximately $32 per day per mare over approximately 4 months; veterinary bills (usually a flat fee of $880); and the stallion service fee. Mr Hartnell usually selected stallions whose service fees were advertised to be in the range of $10,000-$40,000. 262 In his experience over the last five years the foals he bred that he offered for sale as weanlings or yearlings fetched prices ranging from negative 20% of service fee to positive 1000% of service fee. 263 Mr Hartnell said that if artificial insemination were permitted in Australia he would favour the use of artificial insemination rather than direct covering to breed thoroughbred horses particularly because of the associated welfare benefits for his broodmares and foals: he could keep the horses at his farm instead of transporting them. He would avoid the risks of injury and transfer of disease to his horses during mating, agistment with other horses and during transportation. He would consider purchasing semen from stallions standing in studs located interstate (not often, because of the BOBS scheme) or internationally. His choice of stallions to breed with his mares would be expanded, particularly by reference to international stallions. 264 The use of artificial insemination would allow him to have his broodmares foal down on his own property and then inseminate them a couple of weeks later in their first or second oestrus cycles after foaling without having to transport them while pregnant or with vulnerable foals at foot. 265 Mr Hartnell accepted that if artificial insemination was permitted in Australia in thoroughbreds but not in the rest of the thoroughbred racing world, then a horse bred by artificial insemination in Australia would be unlikely to be attractive to an overseas buyer, other than an overseas buyer that wished to race in Australia. He also agreed that it would be unlikely to be attractive to a local buyer who might have a dream or even an intention of racing the horse overseas. That case, Mr Hartnell said, would be much more uncommon. Mr Hartnell also agreed that on the same assumption the interest of a buyer in a yearling bred by artificial insemination in Australia would be significantly less if that buyer had hoped that the horse may ultimately be attractive after a racing career to an overseas buyer or overseas breeder (physically located overseas). The same applied to a breeder located in Australia who may wish to produce a horse which might ultimately be attractive to potential overseas interests. 266 As to the question whether there would be little commercial logic in using up a broodmare resource to produce a horse which ran the risk of having a lower commercial value simply because it was produced by artificial insemination, Mr Hartnell said he did not immediately instinctively agree. 267 He did not see why the inclusion of horses bred by artificial insemination in what were black type races might result in a downgrading of the listing of those races in overseas eyes if the overseas jurisdictions did not change. 268 Mr Hartnell agreed that any decision to use artificial insemination would take into account whether or not it was a commercially sensible thing to do. 269 Mr Hartnell accepted that he would probably not take the commercial risk of limiting the potential attractiveness of one of his yearlings from a valuable broodmare by breeding it as an AI yearling, if the rest of the world did not permit artificial insemination, but that was not his usual operation. He would do so for another broodmare, breeding for Australia. Because he was breeding to race in Australia, for the majority of his mares the commercial risk of using artificial insemination would not be an issue. 270 He would not use artificial insemination in relation to a stallion on Meringo Stud that was 100 yards up the road. What concerned him was the transport risk, injury risk and panic risk because of concern about the welfare of the horses. 271 Mr Hartnell accepted he had not done an exhaustive study of the interaction of the likely real cost of using artificial insemination in terms of cost of transport of semen; in terms of veterinary bills; in terms of risk of semen not arriving on time or in terms of lower fertility using artificial insemination. He had however thought about them, read about them, enquired about them and formed his own view. He did not accept the proposition that artificial insemination was always a low fertility risk. 272 In cross-examination Mr Hartnell, while disclaiming expertise on the Easter yearling sales, said that it was probably correct that a significant force on the average price of horses at those sales was foreign buyers. He said from his point of view he had no reason to dispute it but he did not think he could agree with it. He said his present view was that international buyers were not a major force in the Easter yearling sale because of the strength of the Australian currency. He did not agree that the Easter yearling price was the indicator price for the whole of the pricing of yearlings generally as it was a different market. Whether it was an indicator or not, you had to make a lot of other assumptions. Mr Hartnell agreed that the first tier sales attracted interest from foreign buyers. He maintained the only reason he wanted to get his yearlings into those sales was because they attracted better prices. He accepted that price was generated by demand. He said there was no doubt that there were foreign buyers in the Easter yearling sale market. He baulked at using words like "significant" or "substantial". In re-examination he said that in 1999 the Easter yearling price was an indicator price for the pricing of horses. To be more precise it was the top end of the market and how the top end of the market performed was to that extent an indicator of what the market generally did, but having said that he thought of the Easter market and the classic market and the Magic Millions market really as very different markets. 273 Mr Hartnell agreed that the world of horse racing had always thrived on the Cinderella stories. He agreed that his personal view was that racing was about dreams and he shared those dreams and he would expect that there were a number of people in Australia involved in the thoroughbred industry who shared similar dreams. He agreed that part of the charm of racing was racing around the world: it was nice to watch racing in England and America and France. He hoped that Black Caviar had the chance to prove itself against international competitors or competitors in another jurisdiction. He agreed that the success of the horse Takeover Target would benefit him in his breeding. He had raced Takeover Target's siblings and succeeded. He had sold yearlings from Takeover Target's mother and sisters at prices which probably would not have been achieved but for Takeover Target's success, including success overseas. Takeover Target's winning over $6,500,000 had an effect on the price of yearlings coming on. 274 Mr Hartnell accepted that horses sold by him as yearlings by Meringo Stud or Segenhoe, even if sold to an Australian buyer, had the prospect of being raced overseas. Mr Hartnell accepted that part of the demand for his yearlings or any yearlings, whether they be in the classic sale or the Easter sale, included demand from local buyers who buy with a view to at least the possibility of at some stage racing overseas or buying the yearling for a client overseas. 275 With thirty seconds of consideration at the hearing, Mr Hartnell thought that using frozen semen from a stallion which was dead sounded like a very sensible idea. He said he would be opposed to embryo transfers as he was in favour of legally imposed restrictions on the numbers that could be bred to any stallion in the course of the year. He would be very much in favour of restricting artificial insemination as racing was getting to the stage where it was dominated by a select group of stallions. He said that, leaving aside artificial insemination, if there were no limits on breeding, which was the present position, his belief was that it entrenched the strength of the major studs that owned those stallions. He would argue in favour of a lawful restraint on the number of covers, whether it was artificial insemination or physical covers, that any stallion could have. He would hope that a validation of artificial insemination would come with a limitation. 276 He had not thought about cloning. 277 Mr Hartnell accepted that his income from the practice of law was the source of income from which he lived and looked after himself and his family. That income enabled him to support losses in his horse breeding activities in pursuit of what he accepted he would describe as a passion for horse breeding and horse racing. 278 In further cross-examination, Mr Hartnell accepted that he tried to follow advice that as you improve the quality of your broodmares, you should send them to the more expensive stallions for servicing because that was what the top buyers want to buy. He added that there were not many good broodmares in Australia. 279 Mr Hartnell agreed that the element of risk in breeding to an unproven sire was part of the excitement of thoroughbred breeding. 280 In summary, the ASB respondents submitted that Mr Hartnell's evidence involved certain unfortunate inconsistencies with evidence previously given in the Court; and he was elsewhere evasive and argumentative. However he did candidly concede that if a commercial risk and possibly reduced price attended the use of AI he probably would not take that risk and that it would not be his choice as to how horses within the control of the joint venture would be covered. To the extent that Mr Hartnell maintained his affidavit evidence that he would use his mares to breed by AI in an Australia only AI world, notwithstanding the obvious commercial risks, the ASB respondents submitted his evidence was not credible and should not be accepted. Significantly he too had stallions but did not say that he would use them to provide AI services: indeed he said to the contrary. The applicant submitted that Mr Hartnell's evidence could not be said to be relevantly inconsistent with evidence given in other proceedings: Mr Hartnell was explaining the different context in which his previous testimony was provided. Further, it was an improper characterisation of his evidence to describe it as "evasive and argumentative". The characterisation of his evidence that he would use AI to breed his non-commercial mares in an Australia only AI world as not credible should not be accepted: there was no reason to question Mr Hartnell's evidence that he had weighed the commercial risks and cost benefits and the fact that he was breeding to race in Australia and decided that he would use AI. 281 I reject the submission that Mr Hartnell's evidence involved relevant inconsistencies, given the different contexts. I also reject the submission that his evidence was elsewhere evasive. It was to a certain extent argumentative but in my opinion that was due to the nature of the questions he was being asked which in turn reflected the high-level or general nature of the affidavit evidence he had given. As to his intentions if AI were permitted, I accept that at the level of general intention, if AI were permitted even in Australia only, Mr Hartnell proposed to use it in relation to his non-commercial mares he was breeding to race in Australia. As Mr Hartnell said, as presently advised he would use AI in respect of those non-joint venture mares that he would otherwise wish to transport. Again, this evidence was at the level of principle.

Dr Karen Affleck 282 Dr Affleck has had a small thoroughbred breeding enterprise since 1987. She has bred between one and six broodmares per year with yearlings being sold through appropriate yearling sales. She has a masters degree and doctorate degree in equine reproduction from Kentucky University, United States of America. She also has a degree in agricultural science majoring in animal husbandry from Sydney University. 283 Originally she had mares at Tumut, New South Wales and during the breeding season the mares were sent away to be covered by stallions at studs in either Scone, New South Wales or in Victoria. The broodmares remained on the stud or nearby agistment farms for between two and four months until pregnancy was confirmed. In 1997 she bought land at Wagga Wagga, New South Wales and transferred her broodmares from Tumut to Wagga Wagga. She sent the majority of mares to be covered by stallions at studs in Scone or Victoria. In 2004 she relocated her broodmares to a new farm in Lancefield, Victoria. As at December 2010 she owned eight broodmares. In 2007/2008 one of her broodmares was covered by a stallion. In the next year, five of her broodmares were covered by stallions. In 2009/2010 six of her broodmares were covered by stallions. The stallions were located at Scone and Wagga Wagga and Victoria. As at September 2011 she had eight viable breeding mares. 284 Because mares were able to conceive as soon as eight days after giving birth to a foal, pregnant broodmares were usually sent to the stud or broodmare boarding farm one to two months before foaling so they could foal down at stud and be ready to be covered by the stallion as soon after foaling as possible. Mares were able to conceive as soon as eight days after giving birth to a foal. Mares were normally brought home when they were confirmed to be 45 days pregnant. As a result many thoroughbred mares were heavily pregnant or accompanied by nursing foals when they were transported to and from the stud or to the broodmare agistment farm. 285 Dr Affleck chose potential sires to breed with her broodmares on advice from pedigree consultants. In addition to pedigree, she has considered physical traits, racing aptitude, number of years at stud, breeding performance, the likely commercial value of the foal, the number of mares going to the stallion and the location of the stallion. She bred to sell not to race, so at least a portion of her foals had to have some commercial value. The commercial value of the foal was affected by its physical characteristics, the race record of the sire, the mare and their respective progeny and the pedigree of the sire and a mare. 286 Dr Affleck said that location was a critical factor in her selection of a stallion, particularly for pregnant mares. To avoid the risks associated with sending pregnant mares away for the breeding season, the choice of stallions for her pregnant mares was limited to those that were close by. This meant she had to use stallions that were not the best available for the mare or suffer the considerable financial loss associated with a mare not bearing a foal that year. The farm was close to a large number of studs. If the stallion located at a stud nearby was a suitable match for one of her broodmares she could walk the mare on to be covered. This allowed her to retain control of the management and care of the mare during the breeding season, a period which was critical to broodmare fertility and the health of the foal. She said the costs associated with mares giving birth to foals at the stud made her disinclined to send pregnant broodmares away to stud. Those costs could include a stud foaling fee, additional veterinary fees, and the agistment fees associated with an extended period of stay at stud. 287 Other than service fees, the major costs associated with the enterprise included agistment costs, veterinary fees and transport, including the transport of mares (and foals) to and from the stud or broodmare agistment farm and, if the mare had gone to an agistment farm, to and from the stud for covering. Because the broodmare had to remain for an additional three weeks each time she failed to conceive, because it took that long for her to be tested as not in foal and ovulate again, thereby having another chance to conceive, the agistment costs rose. So did the additional veterinary bills to improve the broodmare's chances of conception. If the mare did conceive but did so late in the breeding season she would have a late foal the following year and that would be the case for her subsequent foals, until the mare missed a year. 288 With direct cover, the mare owner had no way of knowing whether the stallion had deposited sufficient quantities of fertile sperm for fertilisation to take place and had to trust the stallion's manager to ensure this. To Dr Affleck's knowledge, mare owners were often not told about problems with stallion fertility and were left to incur the direct and indirect mare costs resulting from a stallion's sub-optimal fertility. In contrast, if the reproductive technique of artificial insemination were used, semen quality would be assessed and the broodmare owner would know the characteristics of the product they were paying for. 289 Dr Affleck said that indirect costs of illness and injury also arose from a natural breeding process because it generally necessitated sending broodmares away for breeding. Broodmares and foals were at risk, in trucks and lay over stables as well as on the agistment farm or stud where they were sent for the breeding season, due to the relatively high pathogen load frequently found in those environments and contact with other horses from a wide geographic area. Pregnant mares and foals were particularly susceptible to disease and injury and the consequences of some diseases could include loss of a foal and/or prolonged and expensive veterinary treatment. Broodmares could be injured or receive a sexually transmitted disease during natural covering. On their return to their home farm, broodmares and foals could transport pathogens home and contaminate other animals. Many large and well run studs managed these risks by keeping their own horses, but particularly pregnant mares and foals, isolated from outside horses wherever possible to protect them from the known disease risks associated with transported or outside horses. 290 Dr Affleck's table of the agistment and transportation costs associated with breeding her broodmares showed that the average total cost of agistment and transportation per broodmare for 2007/2008 was $1,218.38; for 2008/2009 $1,530.80 and for 2009/2010 $2,238.08. 291 The average prices that the yearlings she had bred sold for were in the range of $2,500-$40,000 (including GST). Part of the sale price of the yearling went to pay the auction company and to pay for the promotion and preparation of the yearling. In addition both the selling company and the farm preparing the yearling for sale took a percentage of the gross sale price. 292 If artificial insemination were permitted Dr Affleck said she would use the method to impregnate her broodmares rather than natural service. Her breeding practices would be significantly altered. She would no longer transport the broodmares or foals but would inseminate her mares on her breeding farm. 293 Dr Affleck said that she had sent away about 12 mares to foal down and she had lost or had injured three of those, whereas having foaled down an equivalent number of mares she had not lost or had any of those injured in the same timeframe. So she had adopted the policy that if the mares were foaling down she would try to foal them at home and therefore miss that year's breeding to keep a foal safe and secure. So she bred mares every alternate year if she could. She had had a situation where probably her most commercial mare was not a good travelling mare and that had cost her dearly. The mare was good at home in a small group that she knew but she was not a mare that travelled well. When Dr Affleck sent her away to foal down she lost a full brother to a very good commercial horse that would have been a very saleable weanling. She also lost a subsequent foal when she sent the mare away. She then decided to keep that mare at home and foal her down repeatedly at home. Since she decided to do that she had not lost any foals at all but it did limit her to what stallions she could use and it did limit whether she could bred her every year or not. 294 She had the expertise to conduct personally the artificial insemination of her mares, rather than hiring a veterinarian. If artificial insemination were permitted she would breed all her mares, including foaling mares, each year as she would no longer have to accept the risks associated with natural cover. In her opinion the result would be more foals from each mare in their lifetime, more foals each year and fewer non-productive mares would have to be fed and maintained each year. This would reduce the number of mares she needed to run to produce the desired number of foals each year and would allow her to cull the least commercial of her mares. 295 Dr Affleck expanded on this, saying that the issue was that if she could foal the mares down at home under her care she would certainly breed all the mares every year. She may not get them in foal but she would certainly be trying to keep those mares going. She said it did not seem right that for nine months of the year she got to manage her mares as she saw fit but for the most crucial three months of the year she was forced to send those mares away and to accept the fact that somebody else would be looking after them. These people did not have the interest or the motivation that she would have caring for her own mares. 296 Her current personal plan was only ever to have six really commercial mares, starting from nothing and trying to get there slowly. The amount of time and attention you had got for those animals, and restricting their contact with others, keeping them home, definitely had safety aspects. That was certainly what she had seen in the numbers that she had bred either away or at home. 297 If artificial insemination were permitted Dr Affleck said she would be able to consider stallions in a broader geographic range, from interstate or overseas. The use of artificial insemination would remove the overriding consideration of location when choosing a stallion and this would mean that the most appropriate stallion could be used. This would increase the rate of success in breeding successful racehorses. She would be able to maintain her own standards of feeding, husbandry and handling during the breeding season. If artificial insemination were permitted she was aware that the yearlings may not be permitted to race overseas but she would choose to use the technique regardless, happy to accept that the resulting progeny could race only in Australia. 298 In her second witness statement, Dr Affleck said that she personally chose not to send pregnant mares or those that were problem travellers long distances to a stallion, to avoid the health risks associated with such travel, however she did send mares that were not pregnant further distances from her farm in Victoria. 299 As to analysis of semen, Dr Affleck said it was not the case that analysis could be performed on the same ejaculate that was deposited in the mare during natural cover. With direct cover, Dr Affleck said, a mare owner had no way of knowing the quality of the ejaculate deposited in the mare. Further, although fertility examinations could already be performed whenever required, in Dr Affleck's experience they were rarely done. Dr Affleck also said that in her understanding a dismount sample did not provide a reliable indication of the number or motility of sperm in an ejaculate, both being factors in determining fertility. In contrast it was her understanding that many well-run artificial insemination facilities routinely performed a quick assessment of sperm numbers and progressive motility to allow appropriate dilution of the ejaculate and efficient division of it into suitable fractions for insemination. Placing an adequate number of progressively motile sperm, suitably diluted in an appropriate extender, into the uterus of a mare in the absence of urine or blood contamination would enhance the chance of conception compared to a poor natural cover that may go unnoticed or at least unreported to the mare owner. Poor natural cover could result from low libido, age, pain, past fever or overuse and may be characterised by poor semen placement, inadequate numbers of progressively motile sperm and blood or urine contamination. 300 Although Dr Affleck accepted that stud farms and thoroughbred owners were reluctant to disseminate information about an individual horse's fertility or infertility, her belief was that there would be greater monitoring, transparency and accountability if artificial insemination were used than was currently the case with direct cover. 301 In cross-examination, Dr Affleck said that her business plan did not count on artificial insemination but the unavailability of artificial insemination was the reason she had to move from Wagga Wagga, that is, the costs and the risk of sending her mares away were making it not viable. Dr Affleck accepted that for each of the financial years ended 30 June 2005 to 30 June 2008 she made a loss on the horse breeding activities. Those years involved her move to Melbourne. There were years prior to 2005 in which she made a profit on her horse breeding activities and that was while she was at Wagga Wagga. Overall, she accepted, her horse breeding activities had made a loss. Dr Affleck accepted overall that the only money she had made was because of improvement in land value not because of carrying on any horse breeding activity. 302 Dr Affleck was asked what it was about thoroughbreds that attracted her rather than standardbreds. She answered the higher commercial value allowed you to capitalise on your expertise to a greater extent than standardbreds. That higher commercial value was in the sales arena as she only bred to sell. She did not race them herself. 303 As to artificial insemination, Dr Affleck said that even if it only came in in Australia, she would still accept the risk of using AI. In explanation she said that there was a commercial downside depending on how AI was brought in: it depended on whether the horse was recorded as AI-bred or not. She said she could not predict whether there was a market back step for AI-bred horses. For her, she said, there should be absolutely no commercial risk but it depended on how AI was brought in and what the organisation was. If it was brought in as a separate group then there might be a commercial price to pay and it depended on that price. It depended also on how the animals were sold. If the industry chose to record AI-bred horses separately but still register them and still allow the parentage to be recorded and still allow them to race then she would still go ahead and use AI and she would do that knowing that there might be, for example, overseas buyers who would not be interested in her yearlings. She agreed that anybody who had a dream of racing a horse overseas would not be interested in her AI-bred yearlings. 304 Dr Affleck said, in relation to the question of commercial risk of horses bred by artificial insemination that she did not say blindly that it would never affect one of her decisions: if she had a really expensive horse that may be sold to race in England or overseas then she might breed naturally. She was not forcing anyone to breed a horse by artificial insemination and she would not have to breed horses by artificial insemination. She would simply have the option to breed those horses she wished to by artificial insemination and that to her was a valuable option that she should not be denied. For the bulk of her mares she would use artificial insemination as she would sell to the Australian market only and be happy to accept that there might be a commercial price to pay but she did not think it would be a massive commercial price, particularly if the horses were decent horses. She did not think the commercial risk would be massive because the only markets her horses would be going to would be the cheaper end of the international market and she also had an ethical consideration and she would in fact prefer that those horses got their chance to race in Australia. At her end of the market, the overseas market was not where she wanted her animals to be. 305 Dr Affleck said that she would absolutely and unquestionably use artificial insemination on those mares that it suited. She would do it on a valuable mare and she gave as an example the best mare that she had had but one that did not travel, with the result that she was only able to get about three foals from her and the only way she got those was by breeding her locally and keeping her at home. That horse's market was in Australia. So she would have unhesitatingly bred by artificial insemination every year instead of what she had to do. She said it would be a process of weighing the risks: some mares she may choose to send away because they handled the travel well or she did not have to send them far. Other mares she would choose to use artificial insemination and she believed that she should have the option, not that it should be forced on anyone. 306 Dr Affleck accepted that part of what drove the demand for her product was the social prestige but that was not what motivated her at all. 307 Dr Affleck said that the bottom of the market for yearlings was $1,500 and there was a massive range. $35,000 was not the bottom of the market. 308 Dr Affleck said that with artificial insemination, she may suffer a little bit in the price of the yearling but getting the animals home safely and getting them to the sales was a massive saving so that there was a trade-off. She would be prepared to take a reduced price on the yearling if it meant she could get more yearlings out of each mare through her lifetime or more yearlings per year. 309 Dr Affleck referred to the internationalisation of the thoroughbred industry as being shipping stallions all around the world (rather than their semen); selling horses all around the world; competing all around the world. This was part of the appeal for a lot of young people that were thinking about making a career out of the industry, including people thinking about buying horses. 310 In relation to embryo transfer, Dr Affleck said she had not given that as much thought as artificial insemination. She had thoughts on the ethical considerations because the mares would not be raising their own foals. She agreed it was a handy technology if, for some reason, the mare was sound genetically and had some issue such as a broken pelvis or maybe a uterine injury or something like that. 311 Dr Affleck had not attached to her statement or tendered any invoices in respect of veterinary expenses/costs for 2008 to 2010. 312 Dr Affleck agreed that she followed the progeny of her mares after they had been sold. She agreed that success overseas (and locally) would make the dam more appealing in Australia. 313 In summary, in written submissions the ASB respondents did not attack Dr Affleck's evidence. In oral submissions it was submitted that a curiosity about her evidence was that one of the great benefits of AI was she wanted to breed at home as she did not like the breeding taking place where she could not look after the foal as it came down. The applicant submitted that Dr Affleck testified that she would use AI on the bulk of her mares, including her "commercial" mares, regardless of any commercial risk in circumstances where an AI-bred thoroughbred could not race overseas. 314 I accept Dr Affleck as a witness of truth. I observe she had both training and experience in animal husbandry and her evidence about the care and welfare of mares and foals was persuasive. However, her circumstances were atypical. She said she would be prepared to accept a significant amount less in the market if it meant the horses racing in Australia. If it was a year when she needed "massive income" she might choose to breed naturally, but she would have that choice. She referred in her evidence to her ethical consideration that she would prefer the horses to get that chance to race in Australia. Further, the commercial viability of her breeding enterprise was marginal in the sense that, although she had given much thought to her plans, in the past they had not been often realised.

Mr Michael Moore 315 Between 2003 and 2010 Mr Moore was a director of Country Racing Victoria Inc, a statutory body charged with the oversight of regional or country thoroughbred horse racing in Victoria. From 1974 to 2003 he was a committee member of the Pakenham Racing Club, before becoming a director of Country Racing Victoria. For the last 50 years he had been a member of the VRC, one of the three racing clubs in the Melbourne metropolitan area. The VRC organised and controlled thoroughbred horse racing at the Flemington Racecourse in Victoria. The VRC ran all racing in Victoria prior to the establishment of Racing Victoria Ltd. 316 Mr Moore first began breeding thoroughbred horses in the 1960s. He owned a thoroughbred broodmare and from her bred thoroughbred progeny to race. He also purchased and bred thoroughbred horses for hurdle and steeplechase races. At the time of his statement he owned one thoroughbred broodmare which he bought in about 2004 for the purpose of an experiment. That experiment was that his broodmare became pregnant by way of artificial insemination in 2006. Mr Moore bought the semen of a stallion called Bold Ramses at a cost of $500. At the time the semen was collected the stallion was not registered as a thoroughbred but the stallion had been so registered in the past. The registration had lapsed because the stallion was no longer being used as a thoroughbred sire. He gave the foal to a college at Geelong. 317 The experiment referred to by Mr Moore was that he wanted to compare the cost of using artificial insemination with the cost of producing a natural service foal. He found that natural service was roughly double the cost even though the stallion was the cheapest stallion, having a service fee of $2,000. Mr Moore's recollection was that the $500 was just for the obtaining of a straw of semen: the veterinary charges were extra, that is, calling out and doing the insemination. In relation to the $2,000 service fee comparison Mr Moore said he had to send a horse to the stud and pay agistment as well which were quite substantial amounts. 318 The breeding was not part of any thoroughbred breeding enterprise: Mr Moore had never been in the business of thoroughbred breeding but it had been a hobby with him. He had never been a professional breeder and he had never claimed expenses or declared revenue in relation to it. His sources of income on which he was dependent for a living and looking after his family had been unrelated to thoroughbred breeding. 319 Mr Moore was aware at the time that the ASB rules would not permit the registration as a thoroughbred of a horse produced by artificial insemination. However, he applied to register the colt and in his letter of application did not inform the ASB that the horse had been produced by artificial insemination. The ASB rejected the registration on the grounds that the stallion was not registered, so although he was really seeking to have the rejection in the long term because the foal was bred by artificial insemination, it never became relevant because the sire was not registered: it never got to the stage of the rejection on the ground that the foal was produced by artificial insemination. 320 In the 2010/2011 season he was not sending his thoroughbred broodmare to be covered by a stallion based on factors which included his observations that thoroughbred horses being directly covered caused significant discomfort and pain as a result of the physical restraint of the broodmare, the sedation of the broodmare and the forced covering of the broodmare when the mare was unwilling to participate. Drugs were used to artificially sedate and heat synchronise mares. There was also no checking system to ensure stallions actually ejaculated into mares. 321 An additional factor was the expense involved in transporting the mare to stud and paying for the mare to be fed and cared for at the stallion's stud for three to four months until pregnancy was confirmed. In Mr Moore's opinion the associated costs of transportation and inducement of a horse at stud, discomfort of the horses during the direct covering process and increased risk of disease transfer were unnecessary as the technology of artificial insemination was available, but not permitted, for reproduction of thoroughbred horses. Mr Moore's belief was that the Australian thoroughbred horse breeders would be able to reproduce thoroughbreds at lower cost and also produce higher quality progeny if artificial insemination were permitted in Australia for reproduction of thoroughbred horses. 322 It would no longer be necessary to send broodmares to stud, which would remove the cost of transportation of broodmares and the cost of agisting the broodmares at the stud for months on end. Also Mr Moore believed that the incidence of disease would be substantially less if artificial insemination were permitted for the reproduction of thoroughbreds. Artificial insemination techniques would limit the need for overseas and interstate horses to travel and would thereby limit the potential spread of diseases, such as equine influenza and strangles, at the stud or agistment farm, or during direct covering. This would be an unquantifiable cost saving of veterinary bills for broodmare owners and would lessen the risk of outbreaks of epidemics. 323 Mr Moore said that if AI were permitted, he would have a much larger range of stallions to choose from to breed with his mare. He would seek to purchase semen from around Australia and overseas. The transportation costs of moving stallions between hemispheres had prevented more international stallions from being available to physically mate by the direct covering method with Australian broodmares. If foals produced by artificial insemination were able to be registered in the ASB, then frozen or chilled semen could be transported interstate and from overseas rather than the transportation of thoroughbreds themselves. 324 If artificial insemination were permitted, Mr Moore would consider the physical features of the sire and the mare, the pedigree of both animals, their success as racehorses, their history of producing successful racehorses and all the information available as to their genetic merit. He would seek to purchase semen from a stallion with superior genetic merit which was also physically compatible with his thoroughbred mare. However, in cross-examination Mr Moore said that at his age of 75, using artificial insemination had really passed him by, it was too late and he probably would not do anything. Even if artificial insemination were permitted he was unlikely to take advantage of it. 325 In cross-examination, Mr Moore said he was not involved with artificial insemination in thoroughbreds, other than the fact that he had inseminated his own mare artificially and got a successful foaling at half the cost of what it would have cost him for the natural service. He was not familiar with the procedures that they used but he had talked to vets who were involved with the harness industry and they had not told him that there was any great problem with artificial insemination. 326 In summary, the ASB respondents submitted that Mr Moore is not and will not be a breeder: his evidence was irrelevant. Cross-examination revealed that his experiment did not permit any meaningful rigorous comparison of costs as between direct and artificial breeding. He conceded that, aged 75, it was too late for him to do anything further in thoroughbred breeding such that, if AI were permitted, he was unlikely to take advantage of it. The applicant accepted that it was correct that Mr Moore was not currently a breeder of thoroughbreds and would not be, in any AI counterfactual. However, the applicant submitted, if AI were currently permitted Mr Moore would have used it in breeding thoroughbreds. I reject that submission by the applicant. My conclusion is that Mr Moore's experiment was not at all in a commercial environment. His evidence went to theory and philosophy rather than providing useful practical material. His evidence was irrelevant to the present issues.

Mr Hendrik Smit 327 Mr Smit holds the degrees of Bachelor and Masters of Science (majoring in animal genetics, animal husbandry and agricultural economics) from the Agricultural University of Wageningen, the Netherlands. In about 2007 he and his wife bought a 40 hectare property called Paxton Park outside Cambridge, New Zealand on which they had bred thoroughbred horses. He stood a stallion called Shinko King on the farm. He owned or leased 12 broodmares and shares in Shinko King and in another stallion. Shinko King served on average 100 mares per season, including some of Mr Smit's broodmares. Shinko King's current service fee was NZ$5,500 excluding GST. Shinko King had sired four Group 1 winners and other successful horses located in New Zealand, Australia and Japan. 328 The broodmares served by Shinko King were not agisted at Paxton Park but the mares were walked on to the stud for service from his own property or the mares were agisted at specialist agistment farms in the region. By not providing agistment services to the broodmare owners, Mr Smit said, the risk of equine diseases being transferred to his stallion and broodmares was reduced. 329 Mr Smit said that if thoroughbred foals produced by artificial insemination were registrable in the ASB he would be willing to sell semen from Shinko King to Australian broodmare owners. Mr Smit had twice collected semen from Shinko King, with the assistance of a veterinarian. It went under the microscope to determine the dilution rate and after that it was frozen. He collected approximately 30 doses over the two collections; a dose, consisting of seven straws, being generally sufficient to impregnate a mare. From memory, the veterinarian charged Mr Smit approximately NZ$300 on each of the two occasions. He would charge as much as the market would allow for Shinko King's service fees. Mr Smit did not know what the market would allow him to charge for artificial insemination. 330 For direct cover, two persons were involved for about 20 to 30 minutes per service. The time involved in collecting semen, on the second occasion he did it, was like a normal natural service and took 15 to 20 minutes. That was to collect approximately 15 doses. 331 If artificial insemination were permitted for reproduction of thoroughbred horses in Australia Mr Smit would expect that the quality of progeny would improve because of access to superior foreign and domestic frozen semen and because of the potential for services to offer scientific data on the physical characteristics and pedigree of the animals for mating purposes. Mr Smit said that artificial insemination would empower mare owners. The group of mare owners was enormously diverse, from extremely wealthy people to farmers with limited funds. The wealthy people could fly mares around the world for their good mares to be covered whereas the people with limited funds were limited to their selection in the stallion population because of costs, because of travel distance, et cetera. 332 He said the use of frozen semen would be a much safer environment in which to work than handling dangerous stallions. He said he had personally had experience in handling stallions for the purposes of providing direct cover and he had been exposed to dangerous situations many times. He said he had been seriously kicked and bitten three or four times over four mating seasons. 333 He also anticipated that the incidence of disease transfer would reduce and the costs associated with physically transferring animals for breeding purposes would be avoided or reduced. 334 Mr Smit said as far as economic outcomes for his business were concerned between direct covering and supplying a dose of semen for artificial insemination, the opportunities for certain stallions to cover more mares artificially than they could naturally meant stronger competition and he expected it to be very healthy for his business. He had not worked out a comparison between his economic outcomes supplying direct cover as compared to supplying semen for use in artificial insemination. 335 Mr Smit had spent no time in the breeding industry in Australia. He had had no experience in the success rate of using frozen semen to impregnate thoroughbreds. 336 Mr Smit agreed that in New Zealand thoroughbred yearling sales attracted buyers from many countries overseas, including Australia. 337 Mr Smit said since the date of his statement he had acquired shares in two more stallions. He agreed that his thoroughbred breeding activities were a hobby for him. 338 In summary, the ASB respondents submitted that despite Mr Smit's assertion that he would make his stallion available for AI from New Zealand, no Australian breeder who gave evidence professed any interest in his stallion. There was evidence that, at present, Australian breeders ship their mares to New Zealand to be bred to New Zealand stallions but there was no evidence that Mr Smit's stallion had been the subject of any such activity. Even if he did offer AI services, the evidence did not suggest that that would interest Australian breeders. Further, it was submitted, there was no evidence that he would be able to offer both direct breeding and AI during the Australian breeding season. The applicant submitted that it was enough that Mr Smit gave evidence that he would make his stallion available for Australian broodmare owners for breeding with AI. There was no evidence to suggest that Mr Smit would not be able to offer both AI and natural breeding services and the proposition that he would not be so able was not put to him as a basis to found such a submission. 339 I would not take from this witness more than general evidence. In my opinion, the criticisms of the ASB respondents are well-made and I accept them, with the exception of the proposition, as to which there was no evidence either way, that there was no evidence that Mr Smit would be able to offer his stallion for both direct breeding and AI during the Australian breeding season.

Mr Malcolm Campbell 340 Mr Campbell is a thoroughbred horse pedigree adviser and bloodstock agent. As at 2011 he had about 10 clients. As a pedigree adviser, his primary role was providing advice to thoroughbred broodmare owners on potential stallions to mate with their broodmares. He would also advise stallion owners on how to buy shares in a stallion, how to select a stallion either from local ranks or from overseas and also how to ensure that a young stallion's first year at stud was successful. A bloodstock agent recommends, and purchases as agent for their clients, thoroughbred yearlings, racehorses and breeding stock by private treaty and public auction either from local ranks or from overseas. 341 He first commenced breeding thoroughbred horses in the early 1980s. In the early 1990s Mr Campbell began providing advice on potential pairings of stallions and broodmares and the purchase of stallion nominations to thoroughbred horse broodmare owners and stallion owners on commission. Since that time he had acted as a pedigree adviser for approximately 70 thoroughbred horse breeders and stallion owners in Australia, South Africa, the United States and Monaco. His clients ranged from breeders with a small number of modestly bred horses, to clients with a moderate number of prestigious horses. 342 Mr Campbell gave evidence of the theories of thoroughbred breeding. 343 Mr Campbell said that when advising broodmare owners as to potential sires with which to mate their broodmares, he considered a number of factors: the cost of the stallion's service fee and his client's budget; the likely physical conformation of the mare and of the stallion; the pedigree of the stallion and of the mare, separately and in combination; the geographical location of the stallion and the broodmare, because it was more costly and more stressful for the animals if the broodmare and foal were transported long distances; and whether the broodmare owner was seeking to breed to race the foal themselves or to sell. 344 Mr Campbell said it was material to the selection of a suitable stallion whether his client breeder was seeking to race the foal themselves or to sell the foal at the yearling auctions. When breeding to sell, the primary consideration would be the likely return on a foal with a particular pedigree at the auction sales. When breeding to race, however, a broodmare owner could select a stallion with a focus on maximising the likelihood of producing a winning racehorse. In such a case, a stallion with a lower service fee may be a better pedigree match based on considerations such as the compatibility of the horse families and the presence of proven blood crosses in the pedigree of the mare and stallion. 345 Mr Campbell said that if thoroughbred foals produced by artificial insemination were registrable in the ASB, in his pedigree advice to broodmare owners he would continue to recommend stallions for mating with their broodmares which had the most compatible pedigree and physical features and whose service or semen fee was in the price range acceptable to the client. He would not merely advise his clients to choose the most popular stallions, even if their price dropped. If artificial insemination were permitted, the number of stallions Mr Campbell would consider would be enlarged, assuming frozen and chilled semen from stallions located in other states around Australia and around the world would become available. He would be particularly interested to purchase semen from stallions located in Japan, Chile, Peru and Argentina. The availability of semen from sires located interstate and internationally would also open up the opportunity of considering a wider range of bloodlines and mating with previously unavailable thoroughbred horses. 346 In cross-examination, Mr Campbell said that if artificial insemination were permitted in Australia by reason of a court order he had not given any consideration to whether artificial insemination would be permitted around the world as well. He said his main concern was compatibility of bloodlines. He had never discussed artificial insemination with any client. If there was a commercial risk about going down the artificial insemination route because artificial insemination was only permitted in Australia, Mr Campbell would leave that matter to the client. In further answer he said the stakes in Australia were so high that he would not be considering overseas and if the horse was so successful it would command a big price in Australia anyway. He said that all his clients bred to race, or occasionally to sell, in Australia so he did not see the relevance of the potential ramifications of artificial insemination being only permitted in Australia. He accepted that on the assumption that a horse bred by artificial insemination could not be raced overseas or sold for racing overseas or sold for breeding overseas or its progeny could never be sold or raced overseas then there would be ramifications of producing a yearling by artificial insemination in Australia. 347 Mr Campbell accepted that paragraphs 35 and 36 of his statement, under the heading "Artificial insemination", were conjecture but he said he was asked a straightforward question and those paragraphs were his straightforward answers. 348 Mr Campbell agreed that the income he primarily lived off was his wife's income as a teacher and that his income earned as a bloodstock agent was not sufficient to provide for his wife and family. It had been a lifetime passion. 349 Mr Campbell agreed that the international aspect of thoroughbred racing was important because it was always good, from a nationalistic point of view, to get a win. 350 Mr Campbell agreed that pedigree and breeding were, in his opinion, a very important part of the thoroughbred sport. He also agreed that many punters and many people who watched the races liked to know the pedigree of the horses. He agreed there was a lot of interest in matches and a lot of different views but it was a large part of the sporting commentary. There was also a lot of commentary about the pedigree of horses and about blood crosses. He agreed that in the thoroughbred world blood crosses were becoming more known than they used to be. 351 Mr Campbell agreed that the three big Australasian yearling sales were the Magic Millions Gold Coast Sales, the Inglis Easter yearling sale and the Karaka sales in New Zealand; each tried to persuade international buyers to purchase yearlings; and that all the big auction houses around the world, including those three auction houses, competed for the business of those international prospective buyers. The studs attempted to win the breeder's business and put on open days as part of that attempt. Mr Campbell seemed to agree that the studs were in aggressive competition with each other to win the breeders' business. 352 Mr Campbell agreed that everyone liked to be associated with success and most breeders that were breeding on their own, without getting outside knowledge, would probably go to the stallion they could most afford, at the highest end of whatever their budget was, that was successful. 353 In summary, the ASB respondents submitted Mr Campbell was not a breeder but a bloodstock agent who did not derive income from that activity adequate to provide for himself and his family: rather his activity was in the nature of a "lifetime passion". He had never discussed AI with any client and would leave to his clients any assessment of commercial risk attendant on artificial breeding. He had not given any thought to whether, if thoroughbred foals produced by AI were registrable in the ASB, AI would be permitted in all the major jurisdictions around the world. The applicant accepted that Mr Campbell was not a breeder but submitted that his evidence was relevant to the TBA's increased concentration argument. 354 In my opinion, Mr Campbell's main concern, from his perspective as an agent, was the compatibility of bloodlines. His evidence demonstrated, if demonstration were needed, the importance of bloodlines to the definition of a thoroughbred and to the breeding and racing of thoroughbreds. He accepted that the paragraphs of his statement that referred to artificial insemination were conjecture. In so saying, Mr Campbell may have meant no more than it lay in the future but it is unnecessary to consider this point further in light of the applicant's acceptance of the limited use of Mr Campbell's evidence.

Mr Steven Brem 355 Mr Brem is a bloodstock agent. He is also a thoroughbred horse breeder but not as an occupation - his thoroughbred breeding activities were purely a hobby. Since 2005 he has worked as a bloodstock agent, recommending and purchasing as agent to his clients thoroughbred yearlings, racehorses, pregnant broodmares and breeding stock (fillies and mares). He has travelled each year to Kentucky in the United States to buy fillies and broodmares for his clients. He provides advice as to potential sires to mate with his clients' broodmares. His clients are mostly thoroughbred horse breeders with an average of 20 to 40 broodmares and are located in New South Wales and Victoria. 356 At the time of his statement Mr Brem owned two thoroughbred broodmares, two weanlings and had shares in two racehorses. He sent both his broodmares to be covered by stallions. He set out his breeding selection criteria. His primary aim is to select a stallion which would improve upon the breed, or in other words, to maximise the genetic merit, physical characteristics and quality of the foal. The factors he takes into account include: the cost of the stallion's service; the racing performance of the stallion, the broodmare and their other progeny; the pedigree of the broodmare and the stallion; the location of the stallion; the value of the stallion and the broodmare; the physical characteristics of the stallion and the broodmare; and the number of other broodmares the stallion was covering that breeding season. 357 As at September 2011 he owned 50% of one thoroughbred and 10% of another, neither of them being breeding stock. He owned no thoroughbred mares. At that time he was not a breeder of thoroughbreds at all, although it was a possibility that he might get back into thoroughbred breeding. He said he had no concrete plans and if artificial insemination were permitted that would have no bearing on his plans. 358 He said that the geographical location of the stallion relative to that of the broodmare, in his experience, was often determinative of which stallions were considered for selection. He usually preferred studs in the Hunter Valley to those in other parts of New South Wales or interstate so that he did not have to transport his broodmares any distance. He said it was a disadvantage to undertake a long road transport journey to the stud on which the stallion stood because of the costs of transporting the broodmare and any foal she was feeding and the increased risks of stress or injury to the mare and foal. 359 His evidence about yearling sales was that the majority of yearlings sold at auction did not cover the nominal cost of the production, being the stallion's service fee, the rearing costs and any other costs such as the amortisation of the value of the mare. This had been an industry norm in Australia and internationally for decades. 360 He said that the primary costs associated with breeding thoroughbred horses were the veterinary costs, agistment costs, service fees, transportation costs and the amortisation of the value of the broodmare. Transportation costs, within the Hunter Valley, were approximately $150 per mare each way; agistment costs were approximately $28 per day per mare; veterinary bills were as required; and he usually selected stallions whose service fees were advertised to be in the range of $8,000-$40,000. 361 With reference to the time when he had broodmares, Mr Brem said that if thoroughbred foals produced by artificial insemination were registrable in the ASB he may use artificial insemination to impregnate his broodmares. Whether or not he would use artificial insemination would depend upon whether the stallion he selected to mate with his broodmares was available for natural service or artificial insemination. If artificial insemination were permitted he would have little or no geographic limitation on his choice of possible stallions to mate with his broodmares or those of his clients. He could consider selecting stallions located in different regions of New South Wales, interstate or overseas without incurring the increased risk of disease and injury and increased costs associated with transporting his broodmares. He said that if artificial insemination were introduced the opportunity cost of having a mare not give birth to a foal each year could be reduced. He also said that artificial insemination might solve some of the problems with infection and transfer of disease because of a reduced need to transport animals, a reduction in contact between animals and ability to determine the fertility of the sperm prior to insemination. He gave as an example the equine influenza outbreak in the 2007/2008 breeding season. 362 In cross-examination Mr Brem said he thought he would be able to continue to function as a consultant agent whether the artificial insemination rule in Australia was removed or not. It would not be a matter of any moment to him. 363 He agreed that major studs acquired the top commercial sires, generally speaking. If they did not have them then they went out and got them. It was not his view that if artificial insemination was permitted in Australia the likelihood was that the commercial power of the owners of the commercial sires would become further entrenched. That assumed that the owners of those horses may adopt different business practices to what they presently had. He explained that the basis of his view was that he believed the decision rested in the hands of the stallion owners and if they wished to preserve the nature of the industry as it was known they had all the power to do so because no one could compel them to make AI available and/or they could limit the availability of it at their own behest. 364 Mr Brem said that the racing world had very porous borders and it was a global activity so it would be preferable if there was international commonality. In regard to his activities, all his clients, of whom there were very few, were Australian-based breeders and people for whom he bought horses were Australian-based owners so artificial insemination (in Australia only) may not have a great bearing on his activities for them. 365 He agreed that his clients included persons who would cherish the dream of one day breeding or owning a horse like So You Think which raced in Australia and all over Europe with a very high level of success. The horse had raised the profile of Australian racing and Mr Brem agreed that it was a good thing for thoroughbred racing that international horses could come and compete against Australian horses in major Australian thoroughbred races. He agreed that Australian bred horses could compete overseas against international thoroughbreds in international events and they had been doing that for 100 years. 366 In relation to yearling sales which he had attended for a number of years in Australia he had seen the impact of foreign buyers and accepted as a general proposition that they had helped to raise prices by providing more demand. He agreed that, overall, higher prices, even at the top end of the market, could assist in filtering down to prices at other ends of the market. 367 So far as giving advice to clients was concerned, if artificial insemination was introduced and used only in Australia he would leave up to them the decision as to whether or not they should pursue artificial insemination. He would not have any input into that decision. 368 Mr Brem published an article dated 30 October 2008 which he said still reflected his views. The relevant part of that article was as follows: Imagine the quality of this year's [Melbourne] Cup field if the 8 or 9 visitors going to the post were replaced by 8 or 9 locals who thus far haven't proved good enough to get in on merit? Thank heaven for overseas participation (and that's even without the Japanese). "Australia's greatest race" would be descending into utter mediocrity without them. Those who espouse restrictions are thinking of themselves rather than having the quality of the race at heart. It's just a handicap. Resist any attempts to restrict free and fair access to the field. Let overseas interests cart off the lion's share of the prizemoney every year until we locals get so fed up we change the distance to 2000m. Either that or we put greater emphasis long-term into programming which positively promotes the preservation of stamina in this part of the world. There's no chance of that happening, incidentally, if commercial breeders run racing. 369 In further cross-examination Mr Brem accepted that even if artificial insemination were permitted for the purpose of producing thoroughbred racehorses, a person interested in thoroughbred breeding but who did not have his or her own farm would continue to be likely to stand his or her broodmares at the stud or an agistment farm. 370 If artificial insemination were available, and Mr Brem owned broodmares, he would not expect that he could use artificial insemination unless the stallion owner had it as his policy to make it available. He would expect to pay for the semen once a positive pregnancy test had been obtained. 371 Mr Brem accepted that there was competition "at this global scale" between different thoroughbreds from different countries. He agreed that Australian purchasers were prominent in some of the higher-priced horses, including the top priced horse, at the Arqana sales in France. He said that not many foreigners sent their horses to Australia to race. He agreed that the thoroughbred industry needed a diverse range of bloodlines. He agreed that the pedigree and bloodlines of particular racehorses were followed closely by many racegoers. He considered that commentary about particular matches and particular pedigrees was prevalent wherever racing was undertaken either in Australia or the rest of the world. 372 Mr Brem gave evidence that approximately 81% of yearlings sold at auction showed a loss when calculated by reference to the gross price at auction and compared to the cost of the current service fee plus a nominal $25,000 rearing cost to sale. He agreed that in respect of the 19% there could be huge upsides where, for example, a relative of that horse had won a race and the yearling became tremendously valuable. He agreed that that was part of the excitement of breeding. 373 In summary, the ASB respondents submitted that Mr Brem's evidence was unfortunate in that it required the issue of certificates under s 128 of the Evidence Act 1995 (Cth) (Evidence Act) and confidential disclosures. It was significant that he volunteered that he conducted the activity of breeding only as a "hobby"; that he may not return to such breeding; and that "the racing world has very porous borders, and it's a global activity" with an established and significant international dimension. The applicant submitted that the criticisms made of Mr Brem's evidence did not support a submission that his evidence should be completely disregarded. 374 I do not disregard Mr Brem's evidence. I accept his statement that the racing world has very porous borders and it is a global activity, although I also note that he said that the global porous borders to which he referred may not have a great bearing on his activities for his few clients, all of whom were Australian-based. I do not regard Mr Brem's evidence as contributing to the necessary economic analysis.

Mr John Coffey 375 Mr Coffey is a horse stud general manager. His evidence concerned standardbreds. He referred to breeding standardbred horses from 1973. 376 When Mr Coffey first became involved in breeding standardbred horses in the early 1970s, standardbred foals produced by artificial insemination were able to be registered in the Australian Trotting Stud Book. During the period from the mid-1970s to 1999, various limits on the number of mares a stallion could serve each breeding season were imposed by Harness Racing Australia and its predecessors. 377 In summary those limits were: during the early to mid-1970s each stallion could only serve 100 mares in any one breeding season whether by direct cover or by artificial insemination and the transportation of semen off the farm at which the stallion was located was prohibited, so broodmares impregnated using artificial insemination were inseminated at the stallion's stud; in the mid-1980s the limit on the number of mares a stallion registered for artificial insemination could service was increased to 125; in the mid-1990s, the prohibitions on transportation of semen off the farm, interstate and overseas was removed; in 1996 the service limit on stallions registered for artificial insemination was removed but a service limit of 25 mares inseminated with chilled or frozen semen from overseas was introduced for each foreign stallion; and by about 1999 there were no restrictions or service limits of any kind. The service limit on foreign stallions serving with frozen or chilled semen was removed. 378 As a result of the lifting of the service limitations in or about 1996 on domestic stallions registered for artificial insemination, artificial insemination became more popular than natural mating for reproduction of standardbred foals to the extent that it became the method of reproduction exclusively used at Alabar Stud farm and, to the best of Mr Coffey's knowledge, elsewhere in Australia on major stud farms. Since the removal of service limits, comparatively few stallions "served" more than around 200 mares. The exceptions were stallions which were very fertile and highly promoted. In the 2009/2010 breeding season, the 16 stallions standing at Alabar Stud in Australia and New Zealand "served" in total about 1600 mares in Australia per annum. 379 Mr Coffey said that the number of mares "served" in each state by Alabar stallions in the 2009/2010 breeding season included 764 broodmares from Victoria, 469 from New South Wales, 195 from Western Australia, 80 from South Australia, 78 from Tasmania and 76 from Queensland. Approximately 1400 of these broodmares were inseminated with chilled semen transported to the broodmare owners' farms. Approximately 120 to 130 broodmares were transported to Alabar Stud by broodmare owners who lived within 100 km from Alabar Stud's farm in Victoria. Alabar's stallions were not available for live cover. In Mr Coffey's experience, most commercial standardbred stallions were not available for live cover and their owners sold their semen only. 380 Alabar Stud had the ability to analyse the number of progressively motile sperm in each semen dose used in artificial insemination. As a result it was possible to increase the number of foals born to less fertile stallions than would otherwise be possible with live cover. During live cover, the semen concentration or motility of the sperm could not be determined and sometimes it was difficult to determine whether an ejaculation had occurred at all. 381 Mr Coffey said the deregulation of artificial insemination and semen transportation had allowed standardbred mares to remain resident on their farms during the breeding season and be inseminated in situ. This meant that mare owners could choose not to transport their mares to studs and therefore not bear the associated costs and risks of transportation. It also meant that the selection of potential sires was no longer restricted by the availability of stallions within a geographical area. Mare owners now transported their mares shorter distances, such as to nearby farms or veterinary clinics, to be inseminated, if they were transported at all. For the Alabar Stud the number of mares residing at the stud during the breeding season had reduced, meaning that less grazing land was required to care for the mares. 382 Mr Coffey and his stud manager, among other members of staff at Alabar Stud, were licensed artificial insemination technicians. The licence was issued by Harness Racing Victoria after the completion of the short accreditation course. 383 Mr Coffey said that since about 2000 the quality of Australian standardbred horses had improved by the influx of genes and new bloodlines from foreign stallions, following the removal of the prohibition on foreign stallion semen and the service limit on artificial insemination with chilled or frozen semen of foreign sires. Since about 2000, there had also been an increase in the number of foreign horses inseminating mares by way of imported chilled or frozen semen. 384 Since about 2000 there had been a decrease in the number of standardbred horses in Australia. In particular the number of sires had decreased. Mr Coffey attributed this to a drought lasting throughout the decade in New South Wales and Victoria. In addition, less popular stallions, or approximately the bottom 10% of standardbred sires, ceased to be used after there was deregulation of artificial insemination and semen transportation. 385 As to service fees, Mr Coffey said the quality of standardbred horses at Alabar had improved dramatically and there had been no overall decrease in service fees. 386 The average price of yearlings had been steadily increasing since the removal of all restrictions relating to artificial insemination, such as service limits and prohibitions on semen transportation. 387 Mr Coffey said that in his opinion one of the main benefits of the availability of artificial insemination for reproduction of standardbred horses had been a severe reduction in the spread and incidence of disease. He also said that, in his opinion, since the transportation of semen had been a widespread practice in the standardbred industry in Australia there had been a significant reduction in the number of injuries to mares and foals. In cross-examination Mr Coffey attributed part of the reduction to there being many fewer mares and less crowding on each property. 388 Mr Coffey said that while the number of the sirelines fell in the period 1969 to 1996, the quality of those sirelines improved. Those local sirelines that could not compete with the influx of higher quality sire lines from interstate or overseas died out. 389 In cross-examination, Mr Coffey accepted that classification as a standardbred was a description of a certain kind and quality of performance by a horse. He said that that was how it was originally termed and now it was a well-known breed of horse. He was not able to give evidence about the background of thoroughbreds. 390 He accepted that Australian harness races typically offered lower prize money than thoroughbred races of equivalent status. He also agreed that prize money was usually what dictated prices of either stallions or racing stock. He agreed that Australian harness racing was generally regarded as being less prestigious than thoroughbred racing. He agreed that the level of participation in Australian harness races by overseas horses was extremely small. He said this was because of the prize money levels in Australia as compared to the United States. However he said that there was actually quite a large export market of Australian/New Zealand horses to the USA and Canada and that depended on the exchange rate. Mr Coffey agreed that simply travelling for the purpose of competing and then returning to Australia would not happen very often. However Mr Coffey said there was a large market, depending on the exchange rate at that time, for horses from Australia or New Zealand to be sold to America and to stay in America. 391 Mr Coffey agreed that standardbreds were considered to be much calmer horses with a better disposition than thoroughbreds. 392 Mr Coffey accepted that artificial insemination in standardbred breeding in Australia was adopted voluntarily through a process of consultation and cooperation amongst the various state-based trotting clubs and authorities. 393 Mr Coffey agreed that it was the complete liberalisation of artificial insemination, particularly the ability to transport semen around Australia and the removal of the limit on numbers of covers that allowed it to be successful. 394 Mr Coffey was taken to his statement that since the removal of service limits comparatively fewer stallions had served more than around 200 mares. He agreed that there was a significant decline in the number of local services between the years 1980 and 1981 on the one hand and the 2008/2009 season on the other. He also agreed there was an overall decline in the number of standardbreds produced. 395 On the subject of the quality of chilled semen, Mr Coffey did not agree that it had a reduced motility and fertility compared with fresh semen in the order of 60 to 70% as effective or that it had a reduced capacity to impregnate a mare. He also did not agree that frozen semen had a reduced capacity to impregnate a mare compared to fresh semen and that it was approximately 50% as effective. He said that, once it was thawed out, frozen semen only had a lifespan of about six hours so the operator who was breeding the mare needed to be more efficient to inseminate that mare close to ovulation. He did not think it had anything to do with the actual semen. 396 Mr Coffey agreed that the price of yearlings had increased since 2000 but he said that was probably to do with increasing prize money: there were better bred horses but there had also been much better prize money on offer. 397 Mr Coffey agreed that any standardbred mare owner who wished to use the services of a northern hemisphere shuttle stallion by way of direct cover would not now be able to do so as usually part of the condition of the major standardbred stallions coming to the southern hemisphere was that they were bred artificially. 398 Mr Coffey agreed that the complete liberalisation of artificial insemination procedures improved the quality of the horses. He said that in terms of Australia's national pride, it was nice to think that horses bred in Australia were competitive with the rest of the world: "competing on an international stage competitively". Mr Coffey agreed that a level playing field was absolutely fundamental. 399 Mr Coffey agreed that he had not really had anything to do with the thoroughbred industry and that he had a very limited knowledge of it. 400 Mr Coffey agreed that when all restrictions on artificial insemination were lifted, Alabar Stud's output in terms of mares "served" increased significantly: it went from 500 or 600 to 1,500 or 6,000 at the present. 401 He did not agree that there was still a fair bit of transporting of horses that needed to be done. This was because usually the owners brought their own mares. 402 He agreed that in terms of breeding, the numbers had dropped from a peak of around 1,500 sires in about 1980 down to about 300 now. He agreed that the decline in the number of mares was slightly less than the decline in the number of stallions. 403 He agreed that there had been some consolidation among the studs over the last 15 years and some of the smaller studs had now converted into semen bases: presently there was a small pool of major farms but a bigger pool of semen bases, that is, "bases where we send semen to". By the expression "semen base" Mr Coffey meant a base where mares could be bred with transported semen. He said there were two such bases in Tasmania, about four in Western Australia and in Queensland, a couple in South Australia and half a dozen in each of New South Wales and Victoria. 404 In summary, Mr Coffey's evidence squarely raises the question of the relevant differences between thoroughbred and standardbred horses? While I can assume that thoroughbred and standardbred horses are not relevantly different physiologically, I am not persuaded that the economic consequences of permitting AI, by agreement, in relation to standardbreds would apply to the different thoroughbred industry. Mr Coffey's and Mr McFarlane's evidence illustrates the differences.

Mr William Saunders 405 Mr Saunders is a journalist who manages and owns the Cyberhorse website and thereby developed and acquired knowledge about the sale, breeding and performance of many breeds of horses. He commenced breeding thoroughbred broodmares in about 1987. During the period 1990 to 2009 the company through which Mr Saunders bred broodmares owned a third share in a thoroughbred stallion. As at December 2010 the company owned seven broodmares, each of which Mr Saunders bred every second year, and a share in a stallion. In cross-examination Mr Saunders said that he meant that he chose to breed on average only three to four of his seven broodmares each year. He said that he limited his breeding to every other year on the basis that the costs of doing it every year were prohibitive. 406 Mr Saunders said that since the late 1990s he had been breeding thoroughbred foals with the expectation that he would continue to own them to race or to breed other thoroughbreds. Accordingly, he said, he did not need to keep in mind the likely or possible value of the foal at the yearling sales when selecting a stallion to breed with a broodmare. Mr Saunders clarified this to mean that he was not constrained to get his horses accepted into a certain sale or otherwise to do things at a profit for a breeding business. If one was not constrained by those rules of commerciality, fashionability of the stallion and the pedigree of the broodmare and so forth, or even the resulting foal's ability to be accepted into a certain sale in order to maximise its value, then one can breed with stallions and mares that other people may not consider commercial because what he was trying to breed was a racehorse not a sale proposition. When selecting a stallion to breed with a broodmare Mr Saunders said he considered the following matters: the geographical location of the stallion; the pedigree of the stallion and the mare; the racing record of the stallion and its progeny; the cost of the stallion's service fee; the physical features of the broodmare and the stallion; and the value of the stallion and the mare. 407 Between 2005 and 2010 Mr Saunders had sent his broodmares to breed with stallions at studs in Victoria. He did not send his broodmares to studs located interstate or at great distances away within Victoria because of the cost of transport and the trauma and stress caused to his animals. 408 Mr Saunders said his breeding costs regularly included service fees, transport fees, agistment fees and veterinary fees. On average, each service cost less than $10,000. His mares tended to remain on the stud for approximately two to three months at a cost of approximately $20 per day per broodmare (excluding GST). The cost of transporting his broodmares to studs within two hours from his farm was about $200 per broodmare (excluding GST) one way. There were also additional costs for agistment of the foal when it was born. He tended not to send mares to stud with foals on them to limit the risk of injury or disease to the foal. 409 If thoroughbred foals produced by artificial insemination were registrable in the ASB, Mr Saunders said he would favour the use of artificial insemination to impregnate his broodmares rather than direct service. 410 Mr Saunders said that if he were permitted to breed his mares by means of artificial insemination there would be a significant economic benefit to his breeding business. He would not need to pay the further costs of transportation of his broodmares or the agistment costs for the mare and foal. He would be able to feed his broodmares at his stud at a lower cost than the daily agistment fee. His broodmares and foals would not be exposed to the risk of injury or illness from transportation to and from stud and while living on the stallion's stud farm. Also he could select sires located interstate to cover his broodmares without incurring the incremental costs and risk of injury resulting from transporting broodmares and their foals for long distances. As a result, he expected he would be able to expand his breeding operations. In particular he expected he would spend the money he saved by artificial insemination on impregnating all rather than half his broodmares each year and breed or purchase some more broodmares. 411 If artificial insemination were permitted he would have a much larger range of stallions to choose from to breed with his mares. He would seek to purchase semen from around Australia and overseas, rather than from studs only located within a two-hour drive from his farm. He would have a preference for semen with superior bloodlines (or ancestors) which suited the pedigree of his mare. 412 Mr Saunders expected that thoroughbred service fees payable for semen used in artificial insemination would be lowered because of the increased availability to Australian breeders of semen from interstate and from foreign horses in direct competition with semen from local horses. This was his assumption. He said that he would not be concerned if a thoroughbred horse produced by artificial insemination may not be eligible to race in overseas thoroughbred horse races. In his breeding enterprise he focused on producing racehorses which would perform well in Australian metropolitan races. In his experience only a small proportion of thoroughbred racehorses bred in Australia participated in overseas races. 413 In oral evidence in chief Mr Saunders said that artificial insemination was permitted in warmbloods in Australia, indeed there was very little else used, and in the rest of the world. There was also significant importation of warmblood semen into Australia. 414 In cross-examination, on the question of the service of a subpoena on him in relation to the proceedings, Mr Saunders first answered counsel by denying he was present at the property when the process server attended to serve the subpoena but later admitted that that was a lie. He agreed that that was disrespectful to the Court. 415 Mr Saunders agreed that he had written one article vigorously supporting what he believed to be the correctness of Mr McHugh's position. He was anxious to get a copy of the statement of claim for the purposes of this article and he asked for a copy of it before the proceedings had commenced. 416 Mr Saunders said that he saw no difficulty at all in the argument that the rule against artificial insemination should be changed even while the rest of the world continued to outlaw it. In re-examination he said his belief was that if artificial insemination were permitted in Australia, with the second-highest number of broodmares in the world, there would be certain stallion owners internationally who would look at the Australian market and actually send semen to Australia during their non-breeding season and make additional sales as a result. If the economic opportunity was there somebody would probably break ranks. As Australian breeders were more prepared to take that action, the chances were that the international market would open up and Australian breeders would have a greater choice available. 417 Mr Saunders was shown an article, written by Mr John Tuckfield and published on Mr Saunders' website and he said he agreed with the contents of the article read as a whole. 418 Mr Saunders agreed that Mr McHugh had told him before the case began that if he, Mr McHugh, succeeded in that case the rest of the world would follow. 419 Mr Saunders' belief was that the various institutions on the breeding side of the fence, the big stud owners, the racing authorities, the sale companies, had an arrangement which was designed to perpetuate a particular state of affairs which they found advantageous. 420 His understanding of what Mr McHugh was trying to achieve was that if a breeder should choose to take the commercial risk of using artificial insemination and having a less valuable foal as a result, perhaps offset by virtue of lower production costs, he should have the perfect right to do so. 421 Mr Saunders did not accept from the commercial breeder's point of view there would be a commercial risk, for so long as Australia was on its own in artificial insemination, putting into the market a foal bred by artificial insemination. His belief was that a buyer of a horse would not make any distinction as to its method of conception if the horse was an acceptable physical specimen to them when they came to buy it. He said the only thing you can do with a racehorse is race it: you cannot race a pedigree. 422 From his horse breeding activities Mr Saunders generated income by selling the resulting progeny for more than they cost to produce and also by racing the horses and producing some income from prize money. He agreed that the cost of keeping a horse for racing had been a loss-making activity overall. 423 He was essentially saying that if the cost of the stallion service, either through natural service or through artificial insemination, was to come down because of competition or greater competition then that had to increase any breeder's opportunity to make a profit from their breeding activities. It was all to do with keeping overheads to a minimum. 424 He agreed that he would love to win a major metropolitan race with one of his horses. He also agreed that if he had a good enough horse he would love to see it race against the best in the world if the opportunity arose. He said that every owner and breeder of a horse would love to see it achieve the highest possible ranking and a Group 1 status was what everyone aspired to. Mr Saunders agreed that if he did have a valuable racehorse, if it was a stallion or a colt, part of the dream would include selling it for stud purposes or even using it for stud purposes and to tap into the top end of the market if possible. 425 If horses bred by artificial insemination were allowed in Australia but not anywhere else, Mr Saunders could see no reason why those horses would not be allowed to run against horses bred by direct cover. 426 Mr Saunders accepted that if artificial insemination were available in Australia but not elsewhere, that might be a reason that persons racing direct cover horses might want to continue to use direct cover. 427 Mr Saunders also accepted that if a race ceased to be a black type race because an artificially bred horse were allowed to race in it, that may be a problem for people who had horses racing in those kinds of races. However he had not had a runner in a black type race and only aspired to that level so he doubted that it would affect his activities. 428 Mr Saunders did not agree with the view that if artificial insemination were permitted it would be essential to put limits on the extent to which a stallion could provide services in any year, otherwise it would entrench the strength of the major studs. 429 In re-examination, Mr Saunders explained that putting a limit on the number of services the stallion could do by artificial insemination would be about as fruitful as putting a limit on the number of services that a stallion could achieve by natural service. Shuttle stallions were covering about 250 mares per year and that was getting close to artificial insemination numbers. But the real issue was that when you compared that to what happened with standardbreds, in the first year that artificial insemination was introduced, there were stallions producing 450 foals a year (which was still less than the thoroughbred people were getting with natural service now). What happened was that the price of the standardbred yearlings plummeted because there were too many on the market. If a very successful stallion were able to produce not 200 plus foals but 500 plus foals that year "they would be giving them away on street corners". So his view was that the breeders themselves would go elsewhere "because what is the point of having one Redoute's Choice horse in a sale which has got 500 of them in it?" Mr Saunders did not believe that the business of limitation had any merit at all because he believed that if too much production was going to depress the price then it would have already happened. 430 Mr Saunders said he was not in favour of a system which forced him to spend money on activities which were not intrinsic to the breeding of the horse and which exposed the mares and foals, if he travelled them, to more risk than he was prepared for them to encounter. 431 Mr Saunders agreed that he found following thoroughbreds at the races exciting. He found breeding thoroughbreds more exciting than breeding warmbloods. He agreed that many people want to follow the pedigree and bloodlines of horses. 432 Mr Saunders agreed that if a stallion sired more major winners then that would increase the stallion's value. 433 He agreed that he had never personally investigated the set of procedures necessary to set up to do artificial insemination. 434 He agreed that studs hoped to win business from each other. 435 In summary, the ASB respondents drew attention not only to Mr Saunders' concession that his earlier evidence under oath had been a lie but also to his statement that he believed "passionately that breeders should have the freedom to breed horses as they wish"; that he had published an article vigorously supporting Mr McHugh's position; and that he had previously received financial sponsorship from Mr McHugh. It was submitted that Mr Saunders' evidence should be disregarded except where it was against the interests he sought to promote. This included his recognition that "it would be disadvantageous if Australia was to go it alone in allowing AI horses into its stud book". The applicant submitted that the criticisms made of Mr Saunders' evidence did not support a submission that his evidence should be completely disregarded. 436 In my opinion not only does lying to the Court about the matter of the service of the subpoena require that Mr Saunders' evidence be approached with great caution but, more importantly, in his evidence Mr Saunders was an advocate and, consistently with that role, some of his evidence was theoretical. I do not place weight on that material. Where the factual evidence Mr Saunders gave is consistent with the evidence of other breeders I have taken it into account.

Mr Aleco Vrisakis 437 In addition to practising law Mr Vrisakis has, since 1981, been engaged in the breeding of thoroughbred horses. His strategy in breeding thoroughbreds is to buy yearling fillies, principally in New Zealand, as well-bred and well-conformed as he could afford, to race them and then breed from them. Throughout, he has used bloodstock consultancy services for advice as to the purchase of fillies, broodmares and stallion shares and for advice as to the mating of his mares. 438 Mr Vrisakis said that he has had moderate success as a thoroughbred breeder and race horse owner, having purchased as yearlings or bred many winners and several black type winners or place getters. 439 He has sold yearlings at the three principal yearling sales in New South Wales. He also occasionally sold yearlings at the principal Magic Millions sale at its Gold Coast sales complex. 440 On the basis that, as a rule of thumb, to make a profit on the sale of a yearling it was necessary to achieve a sale price three times the service fee of the sire, in order to cover the actual costs of producing the yearling, Mr Vrisakis said he sold some yearlings at a profit. 441 In his thoroughbred breeding enterprise, Mr Vrisakis selected stallions to cover his mares by taking a number of factors into account including: the cost of the stallion's service; the racing performance of the stallion; the phenotype of the mare and of the stallion, separately and together to form a view as to their physical compatibility as parents of the foal he wanted to breed; the pedigree of the stallion and of the mare, separately and in combination; and the location of the stallion. As to the last of these points, Mr Vrisakis said it was a disadvantage, not only in cost, but in possible stress or injury to the mare and foal in utero to undertake a long road transport journey to the stud at which the stallion stood. 442 Mr Vrisakis said that at the beginning of the 1980s it was normal for a stallion to cover 40 "outside" mares per season, those mares being owned other than by the stallion owner, and around ten mares of the owner or stud at which the stallion stood. Over the last two decades there had been a large increase in the number of mares covered by top commercial stallions. Over the same period, Mr Vrisakis said the service fees for thoroughbred stallions in Australia had increased substantially. At the top end of the market the increase in service fees had been pronounced. He gave as an example $30,000 for the leading stallion in Australia in the 1980s up to $330,000 (including GST) in 2007/2008 for an equivalent stallion. 443 Mr Vrisakis said that from about the year 2000 he became increasingly aware that he could not compete as a commercial thoroughbred breeder. There were very few yearlings in the Inglis Easter Yearling catalogues sired by stallions with a service fee below $40,000, the upper limit which he could afford to pay. It increasingly became his experience that he could not make a profit by selling yearlings at the lesser sales. 444 In 2009 Mr Vrisakis reduced his thoroughbred breeding enterprise to one in which he would breed principally to produce foals to race himself. But there were still circumstances in which he sold foals he had bred. In that year he sent only four mares (of which he was only a part owner of two) to stud and in 2010 he sent to stud two mares that he owned and two mares of which he was a 50% owner. 445 Mr Vrisakis said his preference in breeding his mares had always been to send them to studs in New South Wales in order to avoid the costs of interstate transport and risks in the case of mares in foal. There was also the additional cost of agistment. He had however sent particular broodmares to Queensland and Victoria to be covered. 446 Mr Vrisakis said he was of the opinion that artificial insemination would provide certain benefits and would enable him to re-enter the commercial thoroughbred breeding market. He expected (not as a matter of expert opinion) it would cause a substantial lowering of the costs of breeding. First, the cost of semen would be substantially less than service fees because the number of straws of semen a stallion could produce far exceeded the number of mares that a stallion could cover. Stallion owners would be able to maintain gross income by selling semen straws for much less than the service fee and competition among stallion owners, no longer limited by the number of mares that could be covered by natural service, would drive down the price of semen straws. Second, mares could be inseminated in situ thus reducing or even eliminating the costs and risks of transport, the costs of agistment at a stud or specialist farm, the costs of special or additional vaccination of mares, the risk of foals and to an extent mares contracting a contagious disease at a stud or agistment farm, the risk of infection that could occur as a result of natural service, and the opportunity cost involved in a broodmare not giving birth to a live foal each year. 447 Mr Vrisakis explained that in his view there was a reasonable basis for the hypothesis that a supplier of semen would lower its price because the supplier would be selling into a different market than the present market. His hypothesis has been that if the stallion can produce many more straws of semen than mares to cover then the owner of the stallion can afford to sell semen for a lower price than the cost of a natural service. He said there were two things. Many more stallions would be accessible to breeders. Also, if artificial insemination were accepted worldwide it would vastly increase the number of stallions available to breeders. So while there would be a factor of a successful stallion being more accessible driving up demand on the normal principles of market forces driving up price, on the other hand there were many more stallions competing and there was never only one stallion that was suitable to be mated with a particular mare. 448 A further advantage of artificial insemination, Mr Vrisakis said, was that semen could be frozen and could be kept to use over many years including after the stallion's death or during infertility of the stallion. Also if artificial insemination were permitted it would be possible to take semen from top performing colts and keep them racing. At present most top performing colts retired to stud well before completing a racing career and racing was thereby deprived of the enjoyment of them racing and of the attendant wagering. In cross-examination, Mr Vrisakis agreed that it would be an important development or innovation to the thoroughbred racing and breeding industry to have a circumstance where a horse like Kingston Town could have its semen collected and frozen before gelding and be able to effectively breed by its frozen semen. He agreed it would have added, importantly, to the sires available to the breeding industry. He did not agree that that would work quite a radical change to the thoroughbred racing and breeding industry as it was currently known. 449 Mr Vrisakis said that if artificial insemination were permitted he would purchase semen from interstate stallions in Australia, and he gave certain examples. If semen from foreign stallions were available for purchase in Australia to use in artificial insemination he would consider purchasing it, depending on the cost, the compatibility of his mare and the stallion's physical characteristics and pedigree. He would no longer need to be concerned by the geographic location of the stallion that he wanted to use in his thoroughbred breeding program. The number of stallions from which he could choose would increase greatly. If artificial insemination were permitted he would not simply choose to purchase the semen of the most popular stallion he could afford: he would continue to select a stallion based on the semen cost and the other factors he presently took into account in selecting stallions to cover his mares. 450 Mr Vrisakis said that the probability of success improved as the number of sires from which a breeder could select increased. 451 Mr Vrisakis said that he did not agree that the physical covering of mares by stallions is part of the "charm or mystique" of thoroughbred breeding and racing or part of what has given them their goodwill and hence their value. 452 He said that the use of artificial insemination would not affect the chance and skill that now existed in producing racehorses by physical mating. The same skill in parent selection and the same randomness would apply although each of those factors, to the advantage of the breeder, could be assisted by the breeder having a wider choice of sires from which to select. 453 The statement that artificial insemination would enable Mr Vrisakis to re-enter the commercial thoroughbred breeding market was challenged in cross-examination by reference to his financial information before the Court. Mr Vrisakis said that he believed that if artificial insemination were permitted he would greatly reduce the costs he had to bear and it would enable him to have access to a wider range of stallions at a lower price and he formed the opinion that if those things would happen he would have a very good prospect of being able to breed thoroughbred horses on a profitable basis. He said it would be irrelevant in working out whether he should come back into the industry to know the size of the losses he had been suffering beforehand. He said he did not need to know how much he had lost: he needed to know what the factors were that had caused the loss. He believed he did know that. 454 In cross-examination, Mr Vrisakis said he did not have documents which would enable him to tell whether he made losses as a small commercial horse breeder in 2005 and 2006. For 2006 he accepted that it was his income from his legal practice which enabled him to survive. For the year ended 30 June 2007 he accepted that he relied on his professional income from legal practice to survive. He agreed that he did not have documents which would indicate one way or another whether he made a loss for 2007 as a small commercial breeder. For the year ending 30 June 2008 he agreed that his primary production activities showed a substantial loss and he was supported by his professional income. He did not have documents enabling him to discern whether he made a loss for 2008 on his small commercial horse breeding activities. The same position applied for the year ended 30 June 2009. 455 Mr Vrisakis agreed that some of the horses he had bred had been sold at significant sales and ultimately raced overseas. He also agreed that some of the horses he had bred had been sold to international buyers in some instances. He believed that international buyers were attracted to the major thoroughbred yearling sales in Australia and helped to boost the prices for yearlings generally. 456 Mr Vrisakis agreed that if artificial insemination were permitted in Australia, in the sense that thoroughbreds bred by artificial insemination were permitted to race in Australia but where a horse bred by artificial insemination was not permitted to race in any other thoroughbred jurisdiction, then a yearling produced in Australia by artificial insemination would be not as attractive to an overseas buyer. He said that some overseas buyers would like to race in Australia. He agreed that such a yearling would not be attractive to an overseas buyer who had the intention of racing the horse overseas immediately or an overseas buyer who had an intention or at least a possible intention of racing the horse initially in Australia but subsequently overseas or an Australian buyer who had an intention of racing the horse overseas. 457 Mr Vrisakis said in his view if breeding by artificial insemination and racing such horses were permitted only in Australia the premium sales would nevertheless accept a yearling bred by artificial insemination from a broodmare having the capacity or quality of Black Caviar. This was because the owner of Black Caviar may come to the conclusion that the best mating for that mare was a world champion horse that had succeeded overseas but not in Australia and did not shuttle to Australia but whose semen was available. That would be a very compelling reason to breed the mare by artificial insemination to what appeared to be the most suitable stallion match for the mare. 458 He said it was his genuine belief that the prize money on offer in Australia was at such an attractive level that if he owned Black Caviar and came to the conclusion that the very best mating of Black Caviar was an overseas stallion whose semen was available, even though the progeny would not be eligible to race overseas, but would be eligible to race in Australia, there was plenty of prize money and he might breed it not to sell it but to race it himself. 459 In further cross-examination Mr Vrisakis said that he would take into account the potential for a yearling bred by artificial insemination to have a lower commercial value (in circumstances where those yearlings could not be raced anywhere else in the world) but that fact would not necessarily be determinative. He also said that if artificial insemination were permitted in Australia he would definitely use it even if it was not permitted around the world. Mr Vrisakis accepted that if he was breeding to get into one of the top sales; he was contemplating breeding by artificial insemination; and horses bred by artificial insemination were not permitted to race anywhere else overseas, he could not say one way or the other that he would or would not use artificial insemination. 460 Mr Vrisakis said the only experience he had had with artificial insemination was in relation to frozen cattle semen and he was not aware of any differences between any issues relating to frozen horse semen compared to frozen cattle semen. 461 Mr Vrisakis accepted that auction houses were aggressively competitive in their attempts to attract buyers. He did not have any direct knowledge of competition between the Australian auction houses and the other big auction houses around the world. 462 In summary, the ASB respondents submitted that Mr Vrisakis ultimately resiled from his position that he would use AI in a counterfactual world, finally conceding that he could not say whether he would or would not. He is not currently a breeder; and he would not contemplate re-entering breeding unless and until service prices fell. The proposition that service prices are likely to fall in a counterfactual world where artificial insemination was permitted in Australia only, was not demonstrated. The applicant submitted that Mr Vrisakis is a breeder; his evidence is that in current conditions he found he was unable to compete as a "commercial" breeder of thoroughbreds because of the losses he incurred breeding thoroughbreds, combined with the fact of the domination of top commercial stallions in the yearling sales attracting higher average prices per yearling and keeping out the progeny of stallions standing with service fees that he could afford. 463 I accept the evidence of Mr Vrisakis. To the extent that an attack was made on his credit, I reject it. Having said that, his evidence was largely as to what he would do to get back into the industry if artificial insemination were permitted. He also recognised that he was being asked to make a number of assumptions. To that extent his evidence had a theoretical aspect. He was not attempting to give evidence as an expert.

Mr Kenneth Dyer 464 Mr Dyer gave evidence in relation to harness racing and artificial insemination in relation to standardbred horses. Although now retired, he had had a very long history of involvement in harness racing as a senior official. 465 He said that standardbreds were a breed of horse known for their ability to race at a trot or pace at speeds for racing. He said the standardbred horse was not a pure breed but rather a horse breed drawn from various stock, including thoroughbred horses, which had the ability to trot or pace in the pressure of competition. He agreed in cross-examination that a number of different breeds have contributed to the foundation stock of the standardbred. 466 He said that artificial insemination had been technically available since the 1920s but became more popular in the United States in the 1950s to early 1960s. 467 Mr Dyer then referred to the history of the regulation of artificial insemination for the breeding of standardbreds between 1947 and 1999. He said that the introduction and deregulation of artificial insemination, the improvement of techniques to preserve semen and the removal of restrictions on semen transportation had removed the geographical and temporal considerations in the selection of stallions to mate with mares within the standardbred breed in Australia. Accordingly, there had been an increase in a mare's mating options as the diversity and number of stallions from which a broodmare owner could select a sire to breed had expanded. Australian studmasters could distribute their stallions' semen to breeders over diverse geographical locations and breeders could access by air or road transport, chilled and frozen semen from stallions of their choice, even if they were located in remote and distant locations. Artificial insemination in conjunction with semen transportation had given all standardbred breeders, big and small, greater access to higher quality stallions and new and more diverse bloodlines from interstate and abroad. 468 Mr Dyer said that since artificial insemination had been allowed and restrictions on its use gradually lifted, the quality of standardbred horses in Australia had improved, in particular by greater access to semen from other farms, interstate and abroad. This could be seen in the great improvement in the speed of Australian standardbred horses. There had been a reduction in the mass movement of mares around the country at the beginning of the Australian breeding season because mares could be impregnated at home or at a nearby veterinarian clinic and there had been a reduction in costs and risks associated with transporting foals and mares long distances to stud. 469 Other changes noted by Mr Dyer in relation to standardbreds were an increase in the pool of potential sires even in the remotest parts of Australia; stallions with low libido or low fertility were able to impregnate more mares than they were able to when only natural mating was permitted; and there had been a reduction in the need for physical infrastructure and farm labour on stud farms in order to house and care for the mares during the breeding season. He also said that artificial insemination had helped the harness racing and standardbred industries quell the spread of equine diseases because horses no longer needed to be transported to stud to be impregnated. 470 In cross-examination, Mr Dyer accepted that during the 1990s attendances at harness racing in New South Wales had declined a little. He had been involved in an attempt to increase the appeal. Attendances were going up and down but there was a drop each year. Mr Dyer said his view was that the reason for declining attendances was out of town racing, that is the move from Harold Park to, for example, Menangle. He agreed that since the early 1990s the number of trainers involved in harness racing had declined overall; the number of drivers had declined and the number of bookmakers had declined. Mr Dyer said his perception was that thoroughbred racing was regarded by the public as more prestigious than harness racing: it was generally acknowledged that thoroughbred racing got more publicity; there was more money involved in thoroughbred racing and there was an aura of success about it in the newspapers and the media. Mr Dyer's personal view was that harness racing was a more even contest on the track than thoroughbred racing. Mr Dyer accepted that there were a lot of factors contributing to evenness "and artificial insemination is one of them". In re-examination Mr Dyer said that other factors were the move to Menangle, the size of the track and the circumference of the track had made evenness in racing at that level better and the evenness had been accentuated by the changes in the handicapping system. 471 Mr Dyer agreed that the cost of purchasing a standardbred horse for sulky racing or purchasing a yearling for standardbred racing had increased over the last 20 years; that stud fees had increased over the last 20 years; and the prize money had gone up as well. In re-examination Mr Dyer said that the cost of purchasing yearlings had increased because, for a start, there were probably better bloodlines. As to the increase in stud fees Mr Dyer said in re-examination that owners and studmasters had imported a lot of high quality stallions from overseas and they looked to get their money back very quickly and increase their fees. Another factor was that the overseas-based stallions which had had some success in the United States and Europe charged exorbitant rates of service fees for frozen semen. 472 Mr Dyer said that other factors which had improved times in harness racing over the last 15 or 20 years were access to imported bloodlines either by actually bringing a stallion to Australia or by getting frozen semen for artificial insemination from the United States and from Europe. The bloodlines of Australian and New Zealand horses had improved. 473 In his involvement in the resolution to remove the prohibition on transportation of semen off the farm in 1993, Mr Dyer agreed he was influenced to some extent by what was being permitted in the United States and Canada and Europe. Other reasons were that during the 1980s those involved in the standardbred industry started to introduce DNA fingerprinting of stallions to prove the identity of the foal. Another factor was that artificial insemination had been well and truly tried and the procedures and technology had been in place for 20 or 30 years in other places. 474 Although Mr Dyer agreed there had been a decline in the number of stallions standing in Australia in the standardbred industry he did not agree that there had been a reduction in the number of sirelines. 475 Mr Dyer accepted that there was a rule still in force that only one fertilised ovum may be transferred from the donor or mare to the recipient mare at each breeding cycle until a successful pregnancy resulted. He accepted that part of the tradition of harness racing was preserved by such a rule. Tradition also informed Mr Dyer's view in support of the rule against sperm sorting. Mr Dyer was also of the view that cloning of standardbreds should be banned. He agreed that tradition was one of the considerations informing that view. 476 Mr Dyer agreed that the various kinds of artificial breeding that were still prohibited produced a horse that, at least from DNA testing, was identical in that the DNA test will not show up any difference. 477 In summary, the respondents seek to distinguish the position and experience of standardbreds. They say that standardbreds are not defined by reference to their pedigree in the same way as are thoroughbreds. They also seek to show that artificial insemination is not a good thing, on the merits, by reference to genetic considerations et cetera, which in my view is not a question that the Court has to answer except in the sense of what it is that might occur if the impugned provisions were held to be contrary to s 45. I accept that the history and use of artificial insemination in standardbreds may illuminate the physical side of the issue in relation to thoroughbreds, but I am not persuaded that the positions of the two industries are sufficiently similar economically for the events which occurred in relation to the consensual lifting of the prohibition on artificial insemination in relation to standardbreds to be translated to the future without the impugned provisions for thoroughbreds.

Dr John Digby 478 Dr Digby was the Keeper of the ASB between 1988 and 2004. He had qualified and practised as a veterinarian from the 1950s. He said the primary objectives of his work as Keeper were to ensure that the ASB had accuracy and integrity in relation to the parentage and the records of parentage of thoroughbreds; the official year of birth of thoroughbreds; and the identification of thoroughbreds for the protection of the two classes of persons whose dependence on the true identification of racehorses was fundamental, namely racehorse owners and punters. While he was Keeper he was required to and did attend various overseas conferences and meetings including all relevant ISBC meetings. He was the Australian representative at those ISBC meetings and was usually accompanied by representatives of the Joint Proprietors. 479 Dr Digby described covering (direct breeding) under stud conditions and contrasted covering "conducted in a truly natural way in the wild". 480 Dr Digby said that before 1985, a thoroughbred stallion covered 40 to 50 mares in a season and it was extremely rare for a thoroughbred stallion to cover over 100 mares in one season. He had become aware over many years however that the number of thoroughbred stallions covering 100 plus mares was increasing dramatically, and he estimated the increase began in about 1990. In the 1995 season, according to the ASB stud book website, eight stallions covered 100 or more mares. In the 2009 season, 66 stallions covered 100 or more mares. Of those 66 stallions, 46 covered between 100 and 159 mares, 16 covered between 151 and 199 mares and four stallions covered over 200 mares. By the 2002 breeding season, the ten most active thoroughbred stallions in Australia collectively covered 1,720 mares. 481 The figures for shuttle stallions in the 2002 breeding season for the 12 most active shuttle stallions ranged between 141 to 88 mares covered in Australia and between 321 to 269 mares in total, that is, in both the hemispheres. 482 Dr Digby said that the thoroughbred stallions covering over 100 mares were also responsible for a disproportionately large percentage of the total number of mares covered each year. In the 2002 breeding season 64 shuttle stallions, representing 6.2% of all stallions at stud in Australia in that season, covered 22% of all mares covered in Australia. The 10 most active stallions, representing 0.86% of all stallions at stud in Australia, covered 6.5% of all mares covered. In the 2008 breeding season 866 stallions covered 26,521 mares and the busiest 120 stallions covered 14,284 mares. In relative terms, 14% of the stallion herd covered 54% of all the mares covered in Australia. 483 By reference to the number of mares covered by that stud, Dr Digby said a small number of studs dominated the market. (Dr Digby was not using the word "market" in a technical sense.) He said the major commercial studs accounted for a high share of mares to be covered. In his written report he said that most of the thoroughbred stallions covering over 100 mares were owned by a small group of studs, which included Coolmore, Darley, Arrowfield, Vinery, Eliza Park, Widden and Glen Logan. In 2008, with reference to the ASB stud book website, Dr Digby said that stallions standing at Coolmore and Darley covered 18.4% of the number of mares covered; stallions standing at Coolmore, Darley, Arrowfield, Vinery and Eliza Park covered 27.9% of the number of mares covered; and stallions standing at Coolmore, Darley, Arrowfield, Vinery, Eliza Park, Widden and Glen Logan covered 26.3% of the number of mares covered. In cross-examination Dr Digby agreed that the big studs in Australia included Woodlands, Patinack, Collingrove and Emirates. 484 Dr Digby also said that the increase in the numbers of mares covered by some stallions had been accompanied by a decline in the number of stallions standing at Australian studs. Between the late 1980s to 2009, commencing in the mid 1990s, the numbers had decreased from 1,400 stallions at stud in Australia to 812. 485 Dr Digby then contrasted the conception rate per season against the conception rate per ovulation cycle: because not all mares were impregnated by a single covering the total number of coverings required to be performed by a stallion in a breeding season was significantly higher than the number of individual mares the stallion covered during the season. A stallion covering 100 mares a season achieving a 60% conception rate per ovulation cycle would have to perform 162 coverings to achieve a 98% conception rate for the season. The stallion with an 80% conception rate per ovulation cycle would have to perform 124 coverings to achieve a 99% conception rate for the season. 486 Dr Digby said that in the 2002 breeding season the ASB estimated that $188 million was spent on stallion service fees. Of this, $112 million was spent on shuttle stallions. These figures were the product of the number of mares covered and the service fees advertised for the relevant stallions. The top 15 studs attracted $16.8 million in service fees. The total prize money available that year was $318 million. 487 Dr Digby said that the ASB and the Australian Non-Thoroughbred Register contained the official parentage, age, pedigree and identification records of all racehorse foals born in Australia. He said that until the 1980s, when blood typing of horses was introduced to verify the parentage of horses, the ASB was reliant on the returns process to maintain the integrity of the ASB. Later the DNA typing of horses was introduced to replace blood typing for the verification of the parentage of horses. He said that the one part of the returns process that the integrity of the ASB was reliant on without any possibility of verification was the certification by breeders that artificial insemination had not been used to impregnate a mare. 488 Dr Digby gave a breakup by state and territory of the location of the 812 stallions and the 24,206 broodmares they covered in 2009. 489 Dr Digby said that a horse conceived by artificial insemination from a thoroughbred sire and dam was not officially recognised as a thoroughbred. This requirement was mandated by the ISBC, by the Federation Agreement and by the rules of the ASB. By international agreement, to be accepted into a thoroughbred stud book, foals must be conceived by direct breeding. 490 In 1989 Mr Digby wrote a reply to a paper published in Class Race Horses in Australia and New Zealand "Artificial Insemination - Friend or Foe?", which gave a short history of what he described as being one of the most controversial issues to have come before the ISBC, being whether artificial insemination should be permitted in thoroughbred racing. The ISBC, which represented ten racing countries producing 98% of the world's thoroughbreds, debated the topic exhaustively at seven successive annual meetings before finally recommending the absolute and definitive prohibition of artificial insemination in thoroughbreds in September 1982. The following month, Dr Digby said, the International Conference of Racing Authorities in Paris confirmed the decision and it was written into the Federation Agreement. Dr Digby also wrote that subsequent to the 1982 decision, it was drawn to the attention of the international authorities that between 1973 and 1978 several thoroughbreds in West Germany had been bred by artificial insemination. The West German Direktorium was advised that unless those horses were withdrawn from the German Stud Book, then that Stud Book would no longer be recognised by the international authorities. More recently, he wrote, British and French stud book officials reviewing Stud Books in Eastern European countries indicated that the Soviets should remove from their Stud Book all horses bred by artificial insemination; to ensure international recognition of that Stud Book. 491 Dr Digby said there was not one single feature of a horse, conceived by covering an approved thoroughbred stud book mare with an approved thoroughbred stud book stallion, which would determine whether or not that same horse had been conceived by artificially inseminating the same mare with semen donated by the same stallion. There would be no distinguishing differences in: conformation; colour or patterns of hair growth; behavioural patterns and amenability to training; performance pattern or the skills required to compete in racing or non racing competition. The only way of differentiating any two such horses each with both parents in an approved thoroughbred stud book was by having the knowledge that one was conceived by artificial insemination. 492 As to the international recognition of Australian thoroughbreds if artificial insemination occurred in Australia, Dr Digby said that in his experience the ISBC and IFHA would rely on individual member countries to make their own decisions and take independent action on the acceptance of Australian horses to race in their own country. Dr Digby's view was that the decision whether to accept Australian thoroughbreds or not accept them would be one for individual countries to make. 493 In his second report, Dr Digby responded to a number of statements and affidavits filed in the proceedings. He did not agree with Mr Ford that the rule that all thoroughbred racehorses must be bred, carried and born naturally had always historically been the case. Dr Digby said that the natural breeding requirement in the ASB was first introduced to his knowledge in the December 1949 issue; the current requirement that thoroughbred racehorses must be bred, carried and born naturally stemmed from Rule 15A of the ARR, the ARR having been first adopted in 1965; and the definition of thoroughbred set out in Article 12 of the Federation Agreement was agreed to in principle in September 1982. I note that although Dr Digby said, accurately, that the ARR were first adopted in 1965, the relevant date for present purposes is 1980 when ARR 15A took effect. I also note that the rule against artificial insemination in the Federation Agreement preceded the agreement in principle to the definition of thoroughbred in Article 12 of the Federation Agreement in September 1982. 494 Dr Digby disagreed with Mr Ford that members of the ISBC had accepted that generally all decisions of the ISBC should be reached by unanimous vote. 495 Dr Digby did not accept Mr Ford's statement that if the rules relating to artificial breeding within the ASB rules were materially amended or removed Australia would no longer conform to Article 12 of the Federation Agreement and that as a result the ASB would lose its approved stud book status. Dr Digby did not agree that this result would automatically follow as it would require a vote by the ISBC to remove Australia from the approved stud book list and his understanding was that for the ban on AI to be changed required a unanimous decision. He said that a unanimous decision was required for the ASB to lose its approved stud book status. 496 Dr Digby disagreed that a consequence of the ASB losing approved status was that Australian bred thoroughbreds would be excluded from participation in races conducted by other federation racing jurisdictions. Dr Digby said that amendment to Article 12 would not be necessary in order for Australian horses to be able to compete abroad: individual member countries may need to amend their domestic rules to the extent they currently provided that only horses from approved stud books were permitted to be registered to race. 497 Dr Digby said that to his knowledge there was no past instance or example of an approved stud book being demoted from approved stud book status or for the exclusion of the member country and its horses. 498 Dr Digby disagreed with Mr Ford's statement that the requirement that thoroughbreds be naturally covered and born was part of the intrinsic and definitional aspect of the nature of a thoroughbred or part of that pedigree and performance of the product constituted by the thoroughbred horse in the thoroughbred breeding and racing industries. Dr Digby said that the relevant definition of a thoroughbred was not developed or agreed to by the ISBC until 1982, long after the development of the thoroughbred breed or thoroughbred racing in England in the eighteenth century. 499 Dr Digby disagreed that natural covering itself was the mystique of thoroughbred breeding. 500 Dr Digby disagreed with Mr Ford that a separate register of the ASB for thoroughbreds produced by artificial insemination would jeopardise the status of the stud book register of the ASB as an approved stud book. 501 Dr Digby said that at the moment horses entered on the non-thoroughbred register of the ASB compete against the horses registered on the approved Stud Book register. He said that Article 13 of the Federation Agreement clearly allowed non-thoroughbreds to compete against thoroughbreds. 502 In summary, Dr Digby's evidence is primarily useful from an historical perspective. His evidence as to how the international bodies would or might behave is of little weight compared to the respondents' evidence. His information was not up to date. I would reject any challenge to his credit generally although reading his material gives one a strong impression that he has long been in favour of artificial insemination and that partiality requires his evidence to be evaluated carefully. I do not place any weight on the fact that in none of Dr Digby's reports or affidavits did he disclose that he had been involved in discussions with Mr McHugh before the case started as to tactics on how to persuade the ASB to change its rule on AI. I reject the submission made by the ASB respondents that Dr Digby's evidence was confused.

The first, second and sixth respondents' lay witnesses

Mr Michael Ford 503 Mr Ford is the Keeper of the ASB and swore two affidavits in that capacity. He had held the position of Keeper since 1 February 2004. He was Deputy Keeper between 1985 and 2004 and Assistant Deputy Keeper between 1984 and 1985. 504 He explained that the entity responsible for the maintenance of the ASB operated as a department of the Australian Turf Club Ltd and was located at Randwick racecourse. 505 In his first affidavit Mr Ford addressed first the nature and history of thoroughbred horses. Having referred to a number of attempted definitions having to do with bloodlines Mr Ford said: The steady development of the Thoroughbred population continued until the second half of the nineteenth century, from which time the population expanded exponentially, both numerically and geographically. This resulted from an increase in breeding activity in England, Ireland, the United States, France and Australia, in response to the increased and various attractions of horse racing. These attractions included the popularity of racing as a spectator sport; as a natural medium of gambling, given the multiple contingencies available within any one event (which have developed in modern betting opportunities, which include products such as the quaddrella [sic], the double, the trifecta, the quinella and other exotics); and as a source of potential profit, recreation and social advancement for the owners of Thoroughbreds. 506 Mr Ford said that pedigree and performance were the consistent criteria by which claims to the status of thoroughbred were assessed. He agreed he did not put forward as a criterion the method of conception. 507 Mr Ford said that Godolphin Barb, Darley Arabian and Byerley Turk were the only foundation stallions whose lines survived today. Darley Arabian dominated thoroughbred breeding and racing, with over 95% of thoroughbreds throughout the world being descended from his line. Darley Arabian was born in 1700 and died in 1730, having been imported in 1705 from Aleppo, Syria. 508 Mr Ford annexed to his affidavit pages from a book entitled The Classic Racehorse by Peter Willett first published in 1981 which referred to "the extraordinarily concentrated evolution of the breed of the racehorse from parent stock existing in England between two and three centuries ago." No official definition of the term had been made until 1970. The same author also referred to "centuries of breeding based on selection for racing ability hav[ing] produced a high degree of genetic uniformity for the characters affecting performance in the modern racehorse" and also referred to the history of the thoroughbred in the last 100 years as involving a population explosion in the second half of the nineteenth century when the breeding industries in England and Ireland, the United States, France and Australia began to respond to the mass appeal of horse racing. The author said "the popularity of racing as a spectator sport, as a gambling medium, and as a source of profit, recreation and social advancement for the owners of thoroughbreds, has increased at such a rate in both the traditional horse-racing countries and in other countries, like Japan, which were relative newcomers to the sport, that breeders have had a powerful incentive to increase production progressively". 509 Mr Ford said that thoroughbreds within Australia and internationally were currently owned and trained principally for use in racing, however they were also used in other riding disciplines such as showjumping, steeplechasing, combined training, dressage, polo and foxhunting. Mounted police divisions used thoroughbreds and hobby riders used them recreationally. Thoroughbreds are also crossbred with horses of other breeds to create new breeds or improve existing ones including the American Quarter horse, the standardbred and the Morgan. Thoroughbreds are a "hot-blooded" breed, bred for agility and speed and trained to have a vigorous and animated nature. The thoroughbred had a genetic uniformity which made it a dominant influence when mated to other breeds of horses. 510 Thoroughbreds were officially designated one year older on 1 August every year in Australasia. The date was set arbitrarily to facilitate the standardisation of competitions by reference to age groups. 511 Between 1992 and 2006 there was an average foal crop of approximately 18,300 thoroughbreds each year. There was a decline of 9% in the number of foals in the 2007 season because of the impact of the global financial crisis. In the 2009 season, 13,256 thoroughbreds were named by the Registrar of Horse Races for racing, that being the number of new registrations for the 2009 season which ran for the period 1 August 2009 to 31 July 2010. That registration refers to the official naming of a thoroughbred for racing or breeding purposes and is carried out by the Registrar of Racehorses. From an average foal crop of 18,300 approximately 10,500 thoroughbreds actually raced, that is, an overall rate as a percentage of thoroughbreds registered of approximately 56% of foals born each year. Since the total actual number of thoroughbred horses born each year was likely to exceed the number of those horses which were registered, the actual overall utilisation rate of thoroughbreds for racing was likely to be less than 56% of foals born each year. 512 In 1988, the first shuttle horse came from the United States and stood in Australia, covering 82 mares during that year. Between 1992 and 2006 approximately 60 shuttle stallions came to Australia from overseas racing jurisdictions each year. The figures declined in 2007 and 2008 and in 2010 42 shuttle stallions came and stood in Australia. One impact of the standing of shuttle stallions in Australia has been a reduction in the number of permanently imported stallions. 513 Mr Ford then addressed the nature and history of thoroughbred racing. He referred to the foundation of thoroughbred racing continuing to be established in the 17th and early 18th century in England. By the end of the 18th century the English classic races had been established. The distances of these classic races led to a change in breeding practices as breeders concentrated on producing horses that could race at a younger age and which possessed greater speed. By the middle of the 19th century, selective breeding for speed and racing ability led to improvements in the size of horses and winning times. 514 In Australia the first formal race meets were organised in Sydney by 1810 and by 1825 the first mare of proven thoroughbred bloodlines arrived to join the thoroughbred stallions already here. 515 Mr Ford said that thoroughbred breeding and racing had been characterised, since the mid-19th century onwards, by idiosyncratic rules and practices. One example was that all thoroughbred racehorses must be bred, carried and born naturally. That was his understanding. 516 Mr Ford said that modern thoroughbred breeding and racing were increasingly characterised by internationalism due to increased sophistication in transport and communications. This had led to a greatly increased degree of transfer of horses between racing jurisdictions. 517 He referred to the horseracing authorities of the United States, France, Great Britain and Ireland meeting in 1961 to coordinate their activities relating to the protection of the integrity of horse races and to promote their aim of organising competitions to select the best horses to improve the quality of breeding. He referred to the International Conference first held in 1967 and now held in Paris annually which brings together the main racing authorities in the world and to the IFHA which was formed in 1993, amalgamating approximately 60 members. The IFHA comprised currently 59 member states and it organised an annual international conference which updated the Federation Agreement endorsed by the Conference in 1974. 518 In 1976 the ISBC conducted its first meeting. Mr Ford said that over time, members of that Committee had accepted that generally all decisions should be reached by unanimous vote. A paper presented by the Operations Director of Weatherbys on behalf of the chairman of the ISBC in October 2002 on the early history of the ISBC referred to members accepting that, over time, they "should strive to reach unanimous decisions wherever possible". Mr Ford said that in practice this meant decisions were unanimous or there was no decision. He also agreed that the chairman endeavoured by gauging the mood of the meeting and taking account of the positions put by different members to arrive at some sort of result by way of consensus rather than one that involved some members' interests not being taken account of. Still further on this point, Mr Ford agreed that the chairman looked for a consensus and if the consensus was arrived at proceeded to make a decision based on that consensus, and where a consensus could not be reached then it would be likely that there would be no decision: probably the matter would be deferred for further consideration. In that case the existing arrangements would remain and everyone would have agreed to retain the status quo on that particular matter. Mr Ford agreed that it would be unusual, in his experience, that a decision would be reached by the ISBC over the dissent of a member. 519 Mr Ford agreed in cross-examination, with reference to the paper presented by the Operations Director of Weatherbys in October 2002, that it was still the position adopted by the ISBC that members should recognise that each is responsible for stud books in their own areas and cannot be forced into decisions which national considerations would not allow. 520 Mr Ford referred to the Asian Racing Conference established in May 1960. Australia became an official member in 1961. 521 Mr Ford said that as a result of these international conferences, methods had been developed to expedite the travel of thoroughbreds between racing jurisdictions for the purposes of breeding and racing and this had led to greater participation by overseas thoroughbreds in races in other jurisdictions. He said that international conferences had also raised international awareness of overseas racing meetings. He referred to an event such as the Melbourne Cup being watched and participated in by the northern hemisphere racing jurisdictions and that that race had recently prominently featured international thoroughbreds. 522 Mr Ford in his affidavit then turned to the nature and history of the ASB and the status of the ASB as an approved stud book for the purposes of the Federation Agreement. 523 Mr Ford said that at one stage in excess of 500 race clubs were operating. Principal Racing Clubs evolved and gradually those clubs assumed responsibility for resolving issues relating to racing and formulating local rules within each state which rules were expected to be followed by all clubs. He said this led to the formation of the Australian Rules of Racing and the Local Rules of each club. 524 In 1859 there was published volume 1 of the Stud Book of New South Wales. A second volume was published in 1868 and the third volume in 1873. In Victoria volume 1 of the Victorian Stud Book was published in about 1859. There were four volumes, the last published in 1875. In 1878 the first ASB was published. From 1904 onwards the Principal Racing Clubs in Australia recognised the ASB. In 1910, the AJC and the VRC purchased the copyright in the ASB in equal shares. This led to the exclusion of many horses of doubtful origin, including horses whose breeders did not maintain breeding records or submit regular Stud Book returns. 525 In 1912 the Stud Book Committee, comprising the AJC and the VRC, decided it would accept for inclusion only those new broodmares whose pedigrees could be traced to an accepted taproot and whose sire's pedigree the Committee approved. 526 In 1921 the Blood Horse Breeders Association of Australia requested that the principal auction houses restrict their catalogues only to Stud Book stock. 527 In 1932 the New South Wales, Victoria and Queensland Principal Clubs agreed to restrict their classic races to horses that were entered, or eligible for inclusion, in the ASB. In 1941 the South Australian Jockey Club and in 1942 the West Australian Turf Club also adopted this course of action. The ban was not lifted until 1996 when blood typing was able to resolve any identification queries thereby enabling non-Stud Book horses to compete in the classics as long as their parentage had been successfully established. 528 Mr Ford said that the value of the ASB rested in the integrity and reliability of the records contained within it and was also critically dependent on its status as a stud book approved by the ISBC. 529 Prior to 1980, horses could be registered for racing without pedigree. In 1980 a rule was implemented to prevent horses without registered parents from being officially named. This was to close the records on horses of doubtful origin. Those horses would not thereafter be found in a recognised stud book. 530 Having set out Article 12 of the Federation Agreement, Mr Ford said that Australia had wholly adopted Article 12 and had done so through ASB Rules ix, xi and xii. There was some uncertainty on Mr Ford's part as to whether Article 12 was passed or adopted in 1974 or 1976. It seems likely that there was an in principle agreement to a revision of such a definition in 1982. 531 The ASB has been an Approved Stud Book since 1974. Mr Ford's understanding was that status as an Approved Stud Book entailed that horses of that nation were accepted by any other approved authority in the world and that the nation itself accepted horses from approved authorities into the domestic country. Further, his understanding was that exclusion or removal from the Approved Stud Book deprived the studbook of those advantages: horses from that country were not accepted for racing or breeding within the other nation states which were signatories to the Federation Agreement. 532 Mr Ford annexed to his affidavit extracts of the minutes of the ISBC meetings from 1976 to 2009 recording discussions relating to the passing of Article 12 and relating to the rules governing artificial insemination. Mr Ford noted that the 1974 form of Article 12 was first modified in 1987 and was again modified in April 2009. The April 2009 version remained the form of Article 12 as at May 2011. 533 Mr Ford then addressed the rules relating to artificial insemination and breeding within the ASB. 534 Mr Ford said that the goodwill and value of thoroughbred breeding and racing had been generated against the background of the rules which had defined it and those rules included rules as to the horses which were permitted to be registered in the ASB and in other international equivalent stud books. He said that chance, skill and money affected the arts of breeding, training, riding and betting. A thoroughbred produced by a breeder, limited in access to sires and mares for physical or financial reasons has as much chance of success as those produced with all of the benefits of money and access and physical location. Mr Ford said this was part of the charm or mystique of thoroughbred breeding and racing. 535 Mr Ford then addressed the implications of amending the current rules within the ASB relating to artificial insemination. 536 Mr Ford considered that if the rules relating to artificial breeding were materially amended or removed Australia would no longer conform to Article 12 of the Federation Agreement and as a result the ASB would lose its approved stud book status. He also considered that a likely consequence was that artificially bred thoroughbreds and thoroughbreds bred by natural covering within Australia would be excluded from participation in races conducted by other Federation racing jurisdictions. He also considered that a likely further consequence was that owners of thoroughbreds bred in overseas racing jurisdictions, especially those jurisdictions which were members of the ISBC, would send fewer or no horses to participate in Australian horse races. He believed that overseas owners of thoroughbreds would decline to participate in Australian races. This would be compounded if black type races lost their status as a consequence of artificially bred racehorses being permitted to compete in Australia. 537 Mr Ford also referred to his opposition, as Keeper, to any practice which was inconsistent with the accepted principles of the international thoroughbred breeding and racing community. Further, Mr Ford also considered that the current rules relating to artificial breeding within the ASB "continue to have a sound justification in terms of preserving the fabric of Thoroughbred breeding and racing as it has been practised in Australia for many years which is the fabric which generated the goodwill and value which it has enjoyed." He considered that the rules continued to have a sound justification in preserving a core feature of the breeding and racing of thoroughbreds; that is, that thoroughbreds were naturally covered and born. He said this was, essentially, part of the pedigree and performance of the "product" constituted by a thoroughbred horse and the thoroughbred breeding and racing industries. 538 Mr Ford also said that part of the mystique and inherent skill of thoroughbred breeding was the mating of a mare with a stallion to produce a foal. Any rule change which carried the possibility of a significant reduction in these features would, in his view, be tampering with rules which formed part of the intrinsic nature of thoroughbred breeding and racing within Australia and elsewhere and part of the combination of features which had generated the appeal and value of thoroughbred breeding and racing within Australia and elsewhere. 539 In cross-examination Mr Ford said that the once or twice he had seen the physical mating of horses in the breeding shed he found it appealing. He disagreed that the same element of mystique would attach regardless of the method of conception of the progeny. He said that he considered the mystique part of the whole process of the physical act of conception. He did agree that the mystique had something to do with the element of chance in relation to the product. However although Mr Ford accepted that the chances as to whether a foal was going to be a winner or not was not dependent on whether it was produced by artificial insemination or natural breeding, and that it was that element of chance about the future performance of the progeny that formed part of the mystique of the racing industry or racing business, he did not accept that mystique arising from that element of chance was not affected one way or the other by the method of conception: he still considered that mystique was part of the whole process: the chance, the skill and the mating. In cross-examination Mr Ford said that being naturally covered and born was a core feature of the breeding and racing of thoroughbreds and without it you were taking away a large part of the fabric of the industry. 540 In relation to the question of the Australian Stud Book establishing a separate register in which horses produced by artificial breeding could be registered, Mr Ford said he had declined Mr McHugh's request on the basis that it would place Australia in conflict with international practice and norms, and jeopardise the status of the ASB as an approved stud book within Appendix 8 to the Federation Agreement. Further, Mr Ford said he was aware that the Australian Stud Book did not want to assume responsibility for the introduction of an alternative register in which artificially bred horses could be separately recorded, should such a register ever be established. It would involve a diversion of money, time and other administrative activities to a project to which the Australian Stud Book was opposed. 541 Mr Ford said he was not aware of any evidence which justified a conclusion that removal or amendment of the rules relating to artificial breeding within the ASB would not result in Australia being placed in disconformity with the international racing community. For that reason, he was of the view that the Australian Stud Book must oppose any practice which was inconsistent with the accepted principles of the international breeding and racing community. 542 In his second affidavit Mr Ford dealt with rule 1.8 of the ASB which he referred to as the same stallion rule. He said that the effect of the rule was that the semen of a stallion that a breeder returned to the ASB for that particular year must not be used for artificial insemination in that same year. While the same stallion rule was not prescribed in the Federation Agreement Mr Ford considered it to be one means of giving effect to and enforcing Article 12 of the Federation Agreement. The same stallion rule was first introduced in 1985. It had remained the same since it was last restated in the rules as updated in October 2004. In cross-examination Mr Ford accepted that it appeared that a rule to a similar effect may have been introduced in 1980. He also accepted that so far as he was aware rule 1.8 of the ASB was not required by Article 12 of the Federation Agreement. He was not aware of any other stud book authority that had a rule to the effect of rule 1.8. 543 Mr Ford accepted in cross-examination that there was no difference between the end products of the mating of a thoroughbred stallion and a thoroughbred mare by direct cover as opposed to by artificial insemination. The only reason the product of artificial insemination was not a "thoroughbred" was because of the prohibition on artificial breeding. Mr Ford also accepted that the rule against artificial insemination was introduced into the stud book in order to address concerns about the integrity of the records of the stud book, in particular to address concerns about possible falsification of records of parentage or possibly simple human error. 544 Mr Ford was asked about immediate reinforcement and accepted that it involved human intervention but said that it was considered part of the natural breeding process. 545 In cross-examination Mr Ford agreed that in Australia all horse races open to the public that were conducted on the flat were governed by the ARR and accepted that there was no competing system of thoroughbred racing in Australia that was not governed by the ARR, apart from the possibility of picnic races or other small events not covered by the TAB. Mr Ford also agreed that in order to conduct horse races that might attract the interest of the TAB, particularly in metropolitan areas, and which were open to the public, a person would require significant investment in infrastructure in the way of a racing track and grandstands and so on and they would either have to construct those or lease them from an existing participant. 546 Mr Ford accepted that without the reference in ARR 15A to registration or acceptance in the ASB, the ASB would not have a role in terms of identifying horses that could be registered for racing. Its role of recording thoroughbred horses and its role as identifying them for the purposes of being registered through ARR 15A was the essential reason for its continued existence. 547 Mr Ford accepted that there was nothing in the Federation Agreement, particularly Article 12, to preclude a stud book authority from keeping a separate register of artificially produced horses. 548 Mr Ford was asked a number of further questions about the establishment of a register for artificially bred horses. He was taken to an email he sent on that topic on 23 April 2009. That email did not deal with questions of limiting stallion book sizes and genetic impact but Mr Ford was raising with Mr Ingham the establishment of a register for artificially bred horses in light of an anticipated letter from Mr McHugh on that matter. Mr Ford's email referred to the TBA being vehemently opposed to the ASB keeping such a register as it would compromise its integrity and undermine the Australian breeding industry. From an email dated 27 April 2009 I infer that Mr Ford and Mr McGauran of the TBA had a telephone conversation at about this time in which Mr Ford was told that the TBA, after a ring around of directors, said they would not support the ASB keeping a separate register of artificially bred horses and in fact they would be forced to seek legal action to prevent this, if necessary, as they believed it would undermine the integrity of the ASB, and damage the reputation of Australian breeding overseas. 549 Mr Ford's email of 23 April 2009 concluded as follows: NEXT STEPS A. Joint proprietor representatives from both boards and Keeper to meet with McHugh? B. Written submission to be requested from McHugh? C. For proper consideration of the submission: D. Economic impact study to be commissioned, to be paid by who? E. Reaction of international stakeholders to be collected: i. Keeper for stud book authorities, at International Stud Book Committee in September 2009, advance notice in August ii. ARB chief executive for racing authorities in October 2009 F. Due consideration by Joint Proprietors to be at the meeting, not email or telephone; G. ASB legal team to be briefed about a possible challenge to its artificial insemination rules from Items 26 to 36. Mr Ford said these were just seven steps that he threw out for the Joint Proprietors to consider and he was not sure whether he meant to take all of them or one of them or none of them but they were just ideas that he had sent to them. 550 In evidence was a document entitled "ASB Keeper of the Stud Book Response to Each Point made in the McHugh Submission" dated May 2009 prepared by Mr Ford for the Joint Proprietors in response to Mr McHugh's written proposal of about that date. Mr Ford agreed that he was identifying in the document arguments and issues that might need to be addressed by the Joint Proprietors in responding to Mr McHugh's proposal. 551 In that document Mr Ford expressed the view that the appropriate role for the ASB was to act as an impartial registry of thoroughbred racehorses or such other horses as it thought fit to register from time to time and that it was not for the ASB to decide which horses should participate in thoroughbred races in Australia. To the proposition: The prudent course of action for the proprietors of the Stud Book would be to operate purely as an impartial or neutral registry to embrace multiple registers within that function; and to leave the issue of racing eligibility to the racing regulators. Mr Ford commented: "This distinguishes the ASB role from ARB's role." To the proposition: Where multiple registers operate, thoroughbred racing regulators have selectively specified those registers which qualify for racing. Mr Ford commented: Agreed but artificially bred horses cannot race with Thoroughbreds. Notion distinguishes ASB role from ARB role as in it should not matter to ASB whether these horses race or not. Similarly in answer to a proposition which included any legal action that might arise, Mr Ford commented: "ASB does not stop artificially conceived horses from racing". 552 By email dated 7 May 2009 Mr Ford asked the France Galop representative on the ISBC what would be the position of his stud book or racing authority if the Australian Stud Book kept a register of artificially bred horses. 553 By email also dated 7 May 2009 Mr Ford wrote to Mr Latham who was the international secretary to the ISBC and said he was seeking information, including what would be the position of the relevant stud book or racing authority if the Australian Stud Book kept a register of artificially bred horses, from the USA, France, New Zealand and Argentina as a result of Mr McHugh's request. 554 Mr Ford wrote a paper dated 12 June 2009 entitled "Australian Stud Book Submission to Australian Racing Board on Bruce McHugh Request for a Register of Artificially Bred Horses", which was sent to Mr Harding, the chief executive of the ARB and was intended to represent the views of each proprietor of the Australian Stud Book. Under the heading "Australian Position" Mr Ford wrote: The joint proprietors of the Australian Stud Book consider that McHugh is free to breed horses artificially and have their records kept by another organisation. However, at present these horses would not be accepted into the Australian Stud Book or the Non-Thoroughbred Register. The proprietors consider that the Australian Stud Book ought not to keep such a register because it sends the message that the Australian Stud Book implicitly sanctions the artificial breeding of racehorses. While ever the International breeding and racing community define a Thoroughbred as being bred naturally, the keeping of a register for artificially bred horses may compromise the national and international integrity of the Australian Stud Book, an organisation held in the highest regard by its peers. In the same paper Mr Ford said: Unless and until the International Agreement is altered, horses produced in Australia by means of artificial insemination would not be regarded as Thoroughbreds in other parts of the world. These horses and their progeny would not be able to compete internationally in an official race conducted by a Thoroughbred authority. Further, horses which are the product of artificial insemination would be worthless for Thoroughbred breeding in other parts of the world, thereby endangering an Australian export business estimated to be worth AUD $140m. In cross-examination Mr Ford said that he was saying that artificially bred horses would be worthless and that the thoroughbred export market would be endangered, in his opinion. This was a reference to some countries not accepting, or possibly not accepting, Australian thoroughbreds if Australia accepted artificially bred horses within its racing system. 555 In the same document Mr Ford wrote that the Joint Proprietors considered it would be a dereliction of duty to do anything which might jeopardise the well-earned status of Australia as a well-respected member of the international breeding and racing community. Mr Ford accepted that the only basis on which he put forward the statement was a conversation he had had by telephone with Mr Iuliano of the American Jockey Club where Mr Iuliano said: Unofficially, or just his opinion, in relation to the ASB keeping a register of artificially bred horses, Matt emphasised that the ASB should not do anything which gives the perception of eroding its integrity in regards to the value of Thoroughbreds. Should the ASB keep such a register, it could be perceived as tacitly giving approval of the breeding of racehorses artificially. 556 In relation to whether the introduction of artificial insemination in the thoroughbred breed might lead to some narrowing of the gene pool, Mr Ford accepted that it was probably a factor at the time he thought may be of consideration and he had seen one or two scientific studies on the topic in the period he had been at the ASB. He accepted that the question of narrowing the gene pool was referred to from time to time in the debate about artificial insemination in thoroughbreds. 557 By letter dated 22 June 2009 Mr Ford responded on behalf of the Joint Proprietors to Mr McHugh's letter of 1 May 2009. That letter said, in part: At this point in time, the Australian Jockey Club Limited and Victoria Racing Club Limited are of the view that establishing an additional register for artificially bred horses would not be consistent with the legitimate interests and objectives of the Australian Jockey Club Limited and Victoria Racing Club Limited, as joint proprietors of the Australian Stud Book. It follows that the Australian Jockey Club Limited and Victoria Racing Club Limited are not minded to establish a registry for artificially bred racehorses, as joint proprietors of the Australian Stud Book, or otherwise. However, the joint proprietors of the Australian Stud Book do, from time to time, reconsider the rules relating to the artificial breeding of equines, including in consultation with the Thoroughbred breeding industry, with the stud book authorities of other countries and with persons such as yourself. 558 Mr Ford prepared a document headed "Reaction of Major Overseas Stud Book and Racing Authorities if the Australian Stud Book Established a Register for Artificially Bred Horses". Under the heading "Questions to overseas authorities" the following questions, amongst others, were set out: 4 Would the authority support a move to remove Australia from the International Stud Book Committee? 5 Would the authority support a move to remove Australia from the International Confederation of Horse Racing Authorities? 6 Would the authority support a move to remove Australia from the Asian Racing Federation? Mr Ford said that he did not recall receiving an answer to any of these questions. It was not clear to which overseas organisations Mr Ford had sent the questions. It seems likely that the organisations were those in USA, France, New Zealand and, possibly, Argentina. 559 In cross-examination Mr Ford was asked questions about whether his letter to Mr McHugh dated 22 June 2009 refusing Mr McHugh's request that the ASB establish a separate register for horses bred by artificial insemination adequately set out the matters of which Mr Ford now gave evidence as to the reasons against establishing such a register. It was put to him that neither the ground of placing Australia in conflict with international practices and norms nor the ground of jeopardising the status of the ASB as an approved stud book were set out in the letter to Mr McHugh. Mr Ford said those matters were covered by the third paragraph of the letter which read: Those interests include, but are not limited to, maintaining the integrity of Thoroughbred horse racing in Australia and internationally, developing the Thoroughbred breed into the future, and facilitating the movement and racing of Thoroughbred horses internationally. 560 Mr Ford was asked to make the following assumptions: 1. The ASB Rules are amended such that AI bred horses of Thoroughbred parentage/pedigree are recorded in a separate register maintained by the ASB or another entity. 2. All the requirements in the ASB Rules, apart from those relating to AI breeding, such as micro-chipping and DNA testing, apply to horses in that separate register. 3. AI bred horses of Thoroughbred parentage/pedigree are therefore distinguishable from Thoroughbreds produced by direct cover. 4. The Australian Rules of Racing are amended such that horses in that separate register are permitted to race in the same races as Thoroughbreds in Australia. Mr Ford accepted that, in the case of a separate register for artificially bred thoroughbreds, he was not aware of a provision of the Federation Agreement that would be a basis for an overseas racing authority refusing to allow a horse in the present register to race overseas. Those assumptions would not affect the ability of overseas shuttle stallions to be permitted to come to Australia to serve Australian mares by direct cover or the ability of Australian shuttle stallions being permitted to go overseas and to operate there as shuttle stallions serving foreign broodmares by direct cover. Mr Ford accepted that those assumptions would not prevent foreign buyers from attending auction sales in Australia or otherwise buying Australian thoroughbreds produced by direct cover. 561 Mr Ford was taken to a small bundle of documents dealing with the contingency plans or "Stud Book Readiness" to ensure that the Australian Stud Book could maintain accurate records if ever it had to deal with artificial insemination. The document was written in 2007, revised in that year and then printed out in 2009, probably in light of the pending case to be brought by Mr McHugh. Mr Ford said he did not circulate the document but it was prepared on the basis that the Australian Stud Book did not have a choice and that it was required by a court decision to accept artificially bred horses. It was basically a technical, logistical response. It did not attempt to deal with any international repercussions but dealt with what the Australian Stud Book may have to do. Mr Ford was not aware of any other documents the Australian Stud Book had dealing with the contingency of recording of artificially bred horses either in the stud book or in a separate register so far as any international considerations might be concerned. In re-examination Mr Ford said that the contingency plan was originally prepared by Mr Digby sometime prior to 2004 and basically it was his paper. The Digby contingency plan proceeded on the assumption of worldwide permissible artificial insemination, as Mr Digby saw it happening with everyone changing at the same time. 562 Mr Ford agreed that if the Court decided that the present rules prohibiting the registration of artificially bred thoroughbreds were unenforceable then one of the things that the Joint Proprietors would do would be to make all appropriate representations at the international level, including to the ISBC, for the matter to be considered sympathetically and it would be explained to them that the situation had come about as a result of a court decision. Probably the ASB and the Joint Proprietors would ask the overseas stud book authorities for their consideration and time to address the issue within Australia and to present a proposal to them for dealing with that situation. 563 He agreed that part of the process would be endeavouring to work out difficulties which may arise in particular jurisdictions in a cooperative fashion but said that he could expect that some overseas authorities would reject Australian horses. He said "It's not within the bounds of my imagination." He agreed that notwithstanding such rejection or before such rejection occurred the Australian Stud Book or the Joint Proprietors would be making representations to those stud book authorities to maintain the status quo. He agreed that the overseas stud book authorities would probably give the Australian Stud Book and the Joint Proprietors time to consider the issue, but the way the rules were the effect could be immediate. Mr Ford agreed that the situation of registering artificially bred horses could not be expected to arise for some time after such a court decision and that would afford the Australian Stud Book the opportunity to explore how best to comply with a court order and at the same time comply with its international obligations. He agreed that from his experience matters relating to the integrity of stud books were looked on by the ISBC with great care and consideration. He expected that such a court decision would require the most detailed consideration at the ISBC level. He said they would spend considerable time on the matter. 564 It was put to Mr Ford that, assuming a court declared the relevant rules had no force or effect in law, until such time as the Australian Stud Book took a step to either record artificially bred horses in the ASB or took some other step inconsistent with Article 12 there would be no basis for suggesting that Australia no longer had an approved stud book. His response was to say that from the date the court made the decision, if it made that decision, that stud book would not comply with Article 12. 565 Mr Ford agreed that a decision of the ISBC in relation to removing the approved status or confirming that the ASB no longer complied with Article 12 would only be made after hearing Australia's position and that such decision would have to be unanimous. However he did not envisage a situation in which, in those circumstances, the committee would have to vote to exclude Australia as a stud book. In his view Australia would automatically be no longer an approved stud book by not complying with Article 12. 566 As may be seen, much time was spent on the past decision-making of the ISBC. In my view the fact that certain things were said at meetings was not of much assistance in resolving the issues before the Court. In part this was because a good deal of the material was old but also because the state of the debate threw little light on the present legal issues. I note also that none of the past decision-making dealt with a case where a country's stud book provisions had been held to be anti-competitive. Thus the ISBC had never faced that question. Mr Ford accepted that if new issues arose that needed to be dealt with by the rules, in Articles 12 and 13, the ISBC might well consider amending them or adding to them. 567 I accept Mr Ford's evidence. I find that he gave his evidence carefully and thoughtfully. Of course I must take into account, as I do, that Mr Ford was giving evidence in his capacity as Keeper of the ASB and, therefore, he was speaking officially. In particular I accept his evidence as to the international consequences of a "third register" in Australia. I also found on Mr Ford's evidence my conclusion that there would not be an automatic exclusion from the list of approved Stud Books of the ASB as a non-conforming ASB but that consideration would be given to the issue before, as I find on the probabilities, deciding so to exclude the ASB. 568 As to the issue of "mystique", which formed part of Mr Ford's evidence, the Macquarie Dictionary online offers: noun 1. an air of mystery or mystical power surrounding a particular person, object, pursuit, belief, etc. 2. an incommunicable or esoteric quality; a secret known only to the devotees of a cult, etc. [French] It stands in high contrast to the Bitzer definition of a horse, approved by Mr Gradgrind in Charles Dickens' Hard Times Chapter 2: Quadruped. Graminivorous. Forty teeth, namely twenty-four grinders, four eye-teeth, and twelve incisive. Sheds coat in the spring; in marshy countries, sheds hoofs, too. Hoofs hard, but requiring to be shod with iron. Age known by marks in mouth. What was meant by the term "mystique" in the evidence was, in my view, reference to the intangible and unquantifiable qualities of thoroughbred breeding and racing which form part of its interest, attraction and value. 569 Three other lay witnesses were called by the first, second and sixth respondents, Mr Monteith, Mr Chester and Mr Pritchard-Gordon.

Mr Dale Monteith 570 Mr Monteith is a director and the Chief Executive of the VRC. He had responsibility for the strategic direction and day-to-day management of all aspects of the VRC's activities, including its 23 race meetings each year and especially the Melbourne Cup Carnival. In 2009-2010 there were 24 race meetings and 199 races in total at those race meetings, with a total of 2,263 starters. Of the 199 races, 13 were Group 1 races, 12 were Group 2 races and 12 were Group 3 races. An amount of $35.56 million in prize money was paid out. 571 From 1864 to 2001 the VRC operated as the principal authority responsible for the conduct of thoroughbred racing in Victoria. Racing Victoria Ltd (RVL) now has that principal responsibility. 572 Mr Monteith said that the VRC determined the total prize money, above the minimum, for each race, by topping up the prize money available for that race (or electing not to do so) and also determined the nomination and acceptance fees for races, within the boundaries set out in the Rules of Racing of Racing Victoria (comprising the ARR of the ARB and the Local Rules and Rules of Race Betting of Racing Victoria). 573 Mr Monteith said that one of the key aspects of the VRC's operations was its international focus. This included the participation of overseas thoroughbreds in VRC races, overseas sponsorship of VRC events, overseas visitors to VRC events and international wagering on VRC races. He said that one of the key aims of the VRC was to embrace the internationalisation of thoroughbred racing. He said that thoroughbred horseracing had almost always had an international aspect, but during his time in the industry this had become increasingly prominent over time because transport and quarantine arrangements had improved which had made overseas horse travel for racing more affordable. 574 Mr Monteith said the international focus of the Melbourne Cup Carnival was demonstrated by the main sponsor of the event, Emirates Airline (Emirates). Under the sponsorship agreement between Emirates and the VRC, Emirates agreed to assist with promoting the Melbourne Cup Carnival internationally. In 2010, a record eight international thoroughbreds (out of twenty-four) competed for the AUD$6.175 million on offer in the Melbourne Cup race which was won by an American bred, French trained, Australian owned horse ridden by a Hong Kong-based French jockey. In addition, dignitaries from twenty-eight countries attended the 2010 Melbourne Cup. Fifty-one international media outlets were represented at the 2010 Carnival, almost 20,000 overseas visitors attended race meetings at the 2010 Carnival, with more than 5,000 overseas visitors on Melbourne Cup Day. Mr Monteith said that media coverage of the Melbourne Cup from the international program destinations show that the Melbourne Cup race reached an international audience of approximately 15.5 million viewers. 575 Mr Monteith said the aim of VRC's overseas marketing was to attract overseas thoroughbreds to its races, overseas attendance at its race meetings and overseas sponsors, who in turn drew attention to the Melbourne Cup and other races. He said that the first year the VRC had international thoroughbreds was 1993 and every year since then international thoroughbreds had competed in the Melbourne Cup and had run places in many of those years. International thoroughbreds had won a further three Melbourne Cups since 1993. 576 Mr Monteith's personal view was that if: the current rules in the ASB relating to artificial breeding were amended or removed so as to permit horses produced as a result of artificial breeding to be registered in the ASB and not to be distinguished from thoroughbreds produced through natural cover; and the ARB was obliged to permit artificially bred horses to race with thoroughbreds in all Australian thoroughbred races and there was no such similar amendment or removal of the equivalent rules internationally, then the VRC's business would be detrimentally impacted. 577 His belief was that overseas breeders may not want their thoroughbred sires to be involved in Australian breeding and would withdraw those services or the availability of their stallions for breeding purposes in Australia if the ASB were changed in the way outlined. This was because the owners would not be able to register their thoroughbreds involved in the Australian breeding in an international stud book. Also his view was that the Melbourne Cup would plunge into oblivion on the international scene if it did not have international runners. Mr Monteith said he believed that was a very genuine risk to the VRC's ability to attract international runners. 578 He referred to the international agreements and said that in his opinion where one country was unable to fulfil its obligations under those agreements there must be a huge risk, fundamentally that the horses would not come and compete. The VRC and the Victorian racing industry would suffer significantly in financial terms and also in terms of public interest. Media publicity was generated by those international horses each year and contributed significantly to the public interest in the event which had grown from 200,000 people over the four days prior to 1993 to upwards of 400,000 people now attending Flemington during the four days of the carnival. 579 He said it was the international competition which had reinvigorated the Melbourne Cup Carnival over the last twenty years. He accepted however that he had undertaken no study or analysis that established that the increase from 200,000 to 400,000 people was as a direct result of the participation of overseas racehorses. 580 He said "our business is now built around the international competition; without that we would suffer significant financial impact which would impact further on prize money levels that we're able to provide during the Melbourne Cup Carnival and throughout the rest of the year." He said that wagering turnover had been stimulated by international competition. He referred to "all of our efforts over the last twenty years to attract the international horses, not only to run in the Melbourne Cup but to run in other races in Melbourne during the Spring Carnival as a lead up to the event". 581 In cross-examination Mr Monteith said that the international agreements he was referring to were the IFHA agreements relating to the ISBC, the ISBC rules and general agreements in terms of the Pattern committee in terms of group races throughout the world under IRPAC. He said he did not believe there was any provision of the IFHA agreement or of the ISBC rules that prevented or would prevent overseas horses racing in Australia in races in which AI-bred horses participated. He also did not suggest there was any provision of any agreement in relation to the grading of horse races internationally that would result in Australian races losing their current grading if they included AI-bred horses. 582 Mr Monteith was asked in cross-examination to assume that at some date in the future there was a Melbourne Cup event in which, say, three AI-bred horses were entered and accepted and the prize money remained at its present level. He was asked whether he would have any reason to believe that the Melbourne Cup would not still attract the quality and quantity of overseas horses it presently attracted. He said he did not know what the international authorities' reaction would be but he could only assume that there was a risk, a fundamental risk potentially to impact the Melbourne Cup, and for that matter racing in Australia. He had made no enquiries of international bodies in relation to such a scenario and he had made no enquiries or spoken to any overseas racehorse owners about what their intentions might be in that sort of scenario. 583 In relation to the classification of races on the racing calendar, Mr Monteith said that the classifications were recommended by the Australian Pattern Committee (APC) to the ARB which made the final determination on race classifications. He said that each race on the racing calendar was classified in one of the five types of classifications: Group 1, Group 2, Group 3, listed or unlisted race. The first four classifications together are called "black type" races. Mr Monteith said the APC endeavoured to establish and maintain a pyramid structure within black type races: the pyramid comprised 12% of black type races as Group 1 races, 15% of black type races as Group 2 races, 19% of black type races as Group 3 races and 54% of black type races as listed races. He said that once the classification of races was approved and published by the ARB, it was accepted by IRPAC, subject to ratification by the Society of International Thoroughbred Auctioneers, for publication in The Blue Book, thereby giving international recognition to Australia's top races. The Blue Book is a publication of Jockey Club Information Services Inc (USA) which listed the highest standard of thoroughbred races in the world. 584 Mr Monteith said that VRC's aim was to run as many black type races as possible and the VRC took steps to improve its races so that the classification might improve. Around 36.5% of races conducted by VRC were classified as black type races (70 out of a total of 192 races in 2010 - 2011). 585 The minimum prize money levels for group and listed races were $350,000 for Group 1 races, $175,000 for Group 2 races, $115,000 for Group 3 races and $80,000 for listed races. There were also generally minimum prize money levels for unlisted races run in each State, as determined by that State's principal racing authority. Over and above the minimum prize money levels, the VRC was responsible for setting the prize money levels for its races. 586 Each year, the VRC received a "prize money grant" from RVL, which was a lump sum amount funded by the industry's wagering joint venture with Tabcorp. The VRC's prize money grant from RVL for 2009-2010 was about $22,500,000. However by virtue of the additional money the VRC earned out of the Melbourne Cup Carnival primarily, and sponsorships, the VRC was able to pay $35.6 million as prize money in 2009-2010 compared to the $22.5 million provided by RVL. 587 Mr Monteith gave evidence that for Victoria as a whole, over the past three racing seasons, approximately 35% of races have been oversubscribed. For the VRC, approximately 23% of races have been oversubscribed for the last three racing seasons. 588 Mr Monteith said that the speed and performance of a thoroughbred horse had nothing to do with the way in which it was conceived. In answer to a question whether a punter watching Black Caviar win yet another race might say they would not have been interested in the race if the horse had been produced by artificial insemination, Mr Monteith said he understood that most punters did not look at how a horse was bred, they looked at the horse and its performance on the track when they were putting their money on it. 589 Mr Monteith said there was no doubt that the number of horse owners had increased significantly in recent years and that it did sustain the industry. 590 Mr Monteith accepted that the facilities that were needed to conduct thoroughbred racing, particularly in metropolitan centres, involved considerable investment. 591 He also accepted that anyone contemplating setting up a rival horse racing competition in Australia would have to take the step of having a licensed racing track and a source of funding. They would need sponsorship eventually. They might look for broadcasting rights negotiations with media outlets. They might look to trying to hire on some basis the infrastructure that the existing racing clubs have but, Mr Monteith said, whether the race clubs would actually make them available was debatable: generally speaking most of the racetracks in Victoria at least were up to the limit in terms of capacity. 592 If the VRC were approached by a rival thoroughbred racing code for the use of its facilities, Mr Monteith said "we are at capacity now, so we wouldn't consider any other approaches." Mr Monteith agreed it would be unlikely that someone seeking to set up a competing thoroughbred racing organisation in Australia would be able to do so without constructing their own racecourse and accompanying facilities. He said you could probably say that and you could definitely say it for Victoria. 593 Mr Monteith considered that the analysis Mr Ford had provided to him in relation to standardbreds was not complimentary of AI in terms of its influence on the harness racing industry, in terms of how many horses were actually bred by Australian stallions compared to overseas stallions, but also the state of the harness industry was nowhere near as healthy as the thoroughbred industry in Australia: it was ten times less than what you would find for the thoroughbred industry. 594 The analysis itself was where Mr Ford said, amongst other things, that Australian sires whether naturally or artificially, were the least preferred stallion by standardbred breeders. He provided figures to show that at a normal harness race meeting 78% of runners had a United States born sire (reflecting where the stallions actually stood) and only 6% had an Australian born sire. In contrast, for the thoroughbred breeding industry, of the stallions that stood at stud in 2008, 60% had Australia as their country of birth. Also artificial insemination amounted to 82% of all coverings in the Australian standardbred industry. Mr Monteith had no recollection of whether that document was ever provided to the ARB. 595 In summary, Mr Monteith gave evidence as a representative of the Joint Proprietors of the ASB. I accept his evidence. It was particularly cogent in relation to the grading of races, the international aspects or aspirations and the source of prize money.

Mr David Chester 596 Mr Chester is the sales director of Magic Millions. Previously he had been Acting Managing Director for a short period and before that Chief Executive Officer of Magic Millions for approximately ten years. 597 Magic Millions began trading as a thoroughbred auction house in 1980. Its primary competitor in Australia is Inglis. Its other major competitor was New Zealand Bloodstock Limited. Mr Chester said that Magic Millions also increasingly competed with international auction houses for sales to overseas buyers, primarily buyers located within Asia. Those international auction houses were Tattersalls, Goffs Bloodstock Sales Ltd, Keeneland Association Inc and Fasig-Tipton Co Inc. 598 Mr Chester said that an important business objective of Magic Millions was to consistently sell quality thoroughbred racehorses which can secure and win black type races and achieve championship status. 599 He said that yearling auctions were the most important of Magic Millions' auctions and there were four main yearling auctions per year in Australia (on the Gold Coast and in Adelaide, Perth and Launceston) and one per year overseas (in Ipoh, Malaysia). Magic Millions held a number of smaller supplementary auctions throughout the year. 600 Magic Millions' flagship auction for yearlings was held annually in January at the Magic Millions' sales complex at Bundall on the Gold Coast. 601 In 2010 at its Gold Coast sale Magic Millions sold 529 yearlings with a clearance rate of 83.7% based upon a total of 632 yearlings offered for sale. This was at the select session only. The clearance rate of the other sessions dealing with lesser quality yearlings may have been significantly less. Magic Millions offered both a higher number of yearlings for sale than its competitors at other major sales events and had the highest clearance rate. The average yearling price was $128,831, with a sale high of $925,000 for one yearling sale. The turnover for yearlings sales at the Gold Coast sale in 2010 was in the order of $68 million. 602 Through sourcing and collating information on new foals and pregnant broodmares throughout Australia, including compiling a field report for each yearling, each thoroughbred was assigned a pedigree rating which was the basis for determining whether a thoroughbred would be offered for auction at a particular sale. 603 Generally, the Magic Millions sales team did not like to include in a sale too many thoroughbreds sired by the same stallion. Where there was an excess of supply of thoroughbreds sired by the same stallion, the pedigree rating of the yearling may be set at a lower level. This would generally translate into a lower sale price at auction. 604 Magic Millions received approximately 2,000 nominations each year for thoroughbred yearlings to be included in Magic Millions' Gold Coast Yearling Sale Catalogue and there were places for approximately 900 thoroughbreds for sale at the auction. If a thoroughbred was nominated but not accepted for sale at that auction, Magic Millions offered those owners positions in other Magic Millions auctions. 605 Magic Millions produced sales catalogues for each of its auctions, which are available approximately six weeks before its sale. Catalogues provided extensive details about the lineage of each yearling offered including how many foals/winners the dam had produced and the race and progeny record of a sire. The sales catalogues complied with internationally recognised catalogue standards set by the International Cataloguing Standards Committee of which Australia became a member in 1985. In addition to hard copy catalogues, Magic Millions advertised all its sales online. The website had an interactive online catalogue service and catalogues may be searched by a number of different options and combinations. 606 Magic Millions attracted buyers of thoroughbreds from within Australia and overseas. In relation to overseas buyers, Magic Millions circulated a Weekly International Update to its overseas buyers' networks reporting the racing results of horses sold to international buyers. Magic Millions offers buyers incentives to attend its flagship auction. Mr Chester travelled to a number of countries each three times a year for the purpose of promoting Magic Millions' auctions. Those countries included Korea, Japan, Singapore, Thailand and Hong Kong. 607 Mr Chester referred to Magic Millions' membership of the Society of International Thoroughbred Auctioneers. 608 Mr Chester estimated that approximately and on average 30% of yearling sales revenue at Magic Millions' major auctions each year was from international buyers. He did not put forward any sales records produced by Magic Millions to support that figure. The majority of international buyers took the thoroughbred they purchased overseas for racing. In Mr Chester's view the summary tables of AusHorse, as well as Magic Millions' own sales records, would tend to understate the percentage in respect of international buyers due to local Australian agents purchasing and settling on behalf of overseas clients. 609 Mr Chester agreed that since 2007 the dollar value of overseas buyers at the Magic Millions January sales had been in a serious and sustained decline and that the percentage figure recorded for 2011 (17%) was only slightly over half of the 2009 figure (30%). Mr Chester also agreed that the average approximate percentage of yearly sales revenue from international buyers had been in serious and sustained decline since 2007. With reference to the summary tables of AusHorse, Mr Chester agreed that for the Gold Coast January sales over the six-year period 2006 to 2011 there were very few buyers from North America; none from South America; significant numbers from Singapore and Hong Kong (where there was no breeding industry); a proportion from the United Arab Emirates; large numbers from other Asian countries; and significant numbers from New Zealand and from South Africa. 610 In cross-examination, Mr Chester said most of the foreign buyers were not really that interested in racing horses in Australia and most of the horses Magic Millions sold to foreign buyers were exported overseas eventually. He did not agree that horses within Australia had become more attractive to foreign buyers because of the strong dollar. He did not agree that there was a significant proportion of Hong Kong buyers who bought to race in Australia. 611 Mr Chester agreed that only the very best horses will ever get the opportunity to race at Ascot and similar places and that was a very small proportion of the total number of yearlings that Magic Millions would sell. Out of the thousands of yearlings that Magic Millions sold, a tiny number only will ever make it to race at Ascot or those kinds of race tracks. However he did not agree that there were very few domestic buyers who purchased thoroughbreds to race in the world's top thoroughbred races. He said buying a yearling was a bit of a dream and when you walk into the sale ring you think you are going to buy the Golden Slipper winner rather than a horse that is going to win a maiden at Bendigo. His view was that everyone that comes into a sale ring was dreaming of buying a champion horse. 612 He said that, in his experience, overseas buyers increased the level of competition at Australian thoroughbred auctions and thereby tended to increase the average sale prices. However, overseas buyers also had the option of buying from Magic Millions' international competitors. Accordingly, Mr Chester considered that the key to maintaining overseas sales in the present climate was to encourage buyers to attend the Magic Millions sales and ensure that Magic Millions had the best possible thoroughbreds available for sale. 613 On the Magic Millions' website, under the heading "Why buy Australian" was the following: Australian horse sales offer pedigrees/bloodlines of International quality, including the most prominent bloodlines from USA, England, Ireland, Japan and France. Australian horse Sales offer the best dollar values as compared to buying in US Dollars or Pounds Sterling. Australian horses have outstanding success records in all export markets including Singapore, Malaysia, Hong Kong and New Zealand. For example, Hong Kong Australian horses lead all other imports on a percentage of winners basis. Australian bloodstock is well regarded throughout the world, with total exports increasing by almost 100% since 1997, with the number of imports decreasing, indicating the popular demand for Australian thoroughbreds worldwide. Prizemoney in Australia is a key indicator of the economic health of the industry. In the past six years prize money has risen by over 50%, indicating a strong and growing industry. Australia is one of the leading nations in distributing prizemoney amongst owners, with the third highest total prize money in the world, totalling $308 million at an average of $14,535 per race. 614 The Australian Racing Fact Book reported the extent of thoroughbred imports and exports for Australia as a whole. It showed that in 2009-2010, around 1,833 thoroughbreds were sold to overseas buyers. The majority of the overseas buyers (705) were from New Zealand, with buyers from Singapore, Malaysia, Hong Kong, China and Macau each accounting for more than 100 sales. Korea, South Africa and the Philippines had also been big importers of Australian thoroughbreds over the years. 615 Mr Chester's belief was that if the current rules in the ASB relating to artificial breeding were amended or removed so as to permit horses produced as a result of artificial breeding to be registered in the ASB and not be distinguished from thoroughbreds produced through natural cover and the ARB was obliged to permit artificially bred horses to race with thoroughbreds in all Australian thoroughbred races and there was no such similar change to the equivalent rules internationally, Magic Millions would lose bids and sales from international buyers in Australian auctions because international buyers would not be able to race horses that they purchased in Australia in overseas races. 616 Further, removal of international bidders would be likely to reduce the prices paid at auction for yearlings by domestic buyers because there would be less competition for Magic Millions' yearlings (from international buyers). 617 In addition, Mr Chester believed that domestic sales would fall because Australian horses would not be eligible for international racing and some of Magic Millions' current domestic buyers purchase thoroughbreds to race in Australia's and the world's top thoroughbred races. Also, some of Magic Millions' current domestic buyers purchased thoroughbreds to own and train for one to two years in Australia and those thoroughbreds were then sold to international owners once the thoroughbred was slightly older. Those buyers would no longer be able to sell the horses to international buyers. Mr Chester said this could be 200 to 300 horses a year out of the thousands that Magic Millions sold. 618 In cross-examination Mr Chester said he was totally opposed to the introduction of artificial insemination because it would have major effects not just on international buyers but on people with smaller studs with less commercial stallions which could not survive if AI came in. There were floating companies that take mares down to the Hunter Valley and to stallions in Victoria. He said they would go out of business as there would not be the movement of horses and Australian racing will not be recognised on the world stage. 619 On the assumptions that AI-bred horses were permitted to race in Australia with direct cover of thoroughbreds but the rest of the world maintained the ban on AI-bred horses being raced in those countries and that AI-bred horses were recorded in a separate register leaving the naturally covered thoroughbreds in the approved ASB, Mr Chester had no expectation that overseas buyers would refuse to purchase Australian thoroughbred yearlings produced by direct cover and registered with the ASB, if the ASB remains an approved stud book. On those assumptions there would be no reason for foreign buyers to boycott Australian yearlings produced by natural cover. Those domestic buyers who wanted to buy thoroughbreds in order to race overseas would continue to patronise Magic Millions sales and domestic buyers who bought to on-sell to international purchasers when the yearling was slightly older would have no reason not to buy yearlings from Magic Millions. 620 On those assumptions there would be a market for AI-bred yearlings in terms of those foreign purchasers who did not want to race those yearlings overseas and with the domestic buyers who did not want to race those yearlings overseas. Mr Chester accepted that if there were a full brother to Black Caviar got by AI there would be significant interest from buyers in buying that horse in Australia. Mr Chester accepted that if, on those assumptions, New Zealand allowed Australian AI-bred horses to race then the New Zealand buyers would be a potential source for a market for Australian AI-bred horses. Similarly, if South Africa were to allow AI-bred horses to race that would also be a significant component for a market for AI-bred horses. 621 In cross-examination Mr Chester accepted that if the sales were dominated by yearlings by a small number of stallions, buyers who might be looking for yearlings from a stallion not represented in the sale might not come to the auction and that would reduce the overall attractiveness of the sale. 622 Mr Chester accepted that if there was to be a doubling of the number of yearlings from top commercial stallions there would be a market but it might not be as high as you would wish, considering the service fees. If there was an oversupply there would be a substantial reduction in price. Depending on how many you had, it would flood the market with any individual stallion where you had too many of its yearlings and that would substantially reduce the number of yearlings that Magic Millions would be able to sell from other stallions. In turn that would substantially reduce the overall attractiveness of Magic Millions' sales and that, therefore, was not a situation that Mr Chester would allow to arise. 623 Mr Chester agreed that a large proportion of yearlings at Magic Millions' auctions did not end up recouping their service fees. Mr Chester qualified this by saying that at the major sales it was not a significant number or proportion. Overall at the sales, including the major sales, Mr Chester accepted that probably 40% to 50% would not recoup their advertised service fees. It followed, Mr Chester accepted, that there would be an even larger proportion of yearlings that failed to recoup their service fees in addition to their breeding costs. 624 In summary, I accept Mr Chester's evidence, particularly about the involvement of foreign buyers and foreign money in the auctions of yearlings in Australia. I take into account that he was keenly against the introduction of artificial insemination in part because he saw that breeders of less prominent stallions would no longer have a place and also because the transport industry for horses which relied on carrying mares to stallions would "cease to exist".

Mr Grant Pritchard-Gordon 625 Mr Pritchard-Gordon is a bloodstock consultant trading under the business name Badgers Bloodstock Consultants Llp. 626 He buys and sells bloodstock on behalf of his various clients, which involves: assessing the thoroughbred market and making a recommendation to the client as to which thoroughbreds to buy or sell and at what price; generally managing his clients' thoroughbreds, including advising on the rearing, training, matings and marketing of their thoroughbreds; and providing independent advice on all aspects of the thoroughbred industry. His clients included thoroughbred trainers, breeders and racehorse owners located around the world including Argentina, Australia, Chile, England, France, Ireland, New Zealand, Russia, South Africa and the United States of America. He was also a member of the board of the Thoroughbred Breeders Association of the United Kingdom, which he said was the only body in the United Kingdom representing thoroughbred breeders. 627 He said the bloodstock industry was an international industry. The top end of the worldwide bloodstock market was dominated by international owners, breeders and trainers who sourced horses from all parts of the globe in order to gain advantage over the opposition. Many of these individuals raced horses on several continents and not just in their country of residence. 628 Mr Pritchard-Gordon said that he travelled to Australia two or three times a year and he tried to attend the Magic Millions Gold Coast yearling sale in January and the Inglis Easter yearling sale in April. On several occasions he had also attended the yearling sales in Melbourne, Adelaide, Perth and Launceston. He also regularly travelled to New Zealand for the Karaka sales in January/February and also to several thoroughbred sales throughout Europe, South Africa and North America. 629 Mr Pritchard-Gordon said he had been aware of the globalised nature of the bloodstock industry since his entry into the industry in 1975 and he had noticed in the past decade or so a trend in the industry becoming even more globally intertwined. The trend was the subject of an interview he gave on 9 May 2008. He then said, in part: As an agent, do the markets of Australia and Europe converge? Inevitably the markets converge at the top end where many of the major players are active at sales in both hemispheres. I am not just talking of the Darley, Shadwell and Coolmore involvement in Australasia. The coming Inglis broodmare sale includes mares owned by major international farms in Juddmonte and Newsells Park. Both farms are dipping their toes into Australia for the very first time. Then there are the individuals who race in both hemispheres and buy in the Australian market place. Agents such as Adrian Nicholl, Hubie de Burgh and Dermot Farrington have brought considerable investment from Europe, while I have been pleased to have helped Europeans, South Americans and South Africans make major purchases in this market. However, it is not just one way. Breeders such as Bob Scarborough, the late-great Jim Fleming, Philip Esplin and John Messara have long been buying high value stock in Europe and North America. More recently we have Bruce Neale, Dean Fleming, Paul Makin and Nathan Tinkler taking up the baton. Yes, the answer is that the marketplaces throughout the world are now as one ... populated by breeders who are now very informed of what is happening in the racing and breeding industries throughout the globe. The catalyst has been the major advances in telecommunications and media, giving everyone the ability to source required information instantly. 630 Mr Pritchard-Gordon gave a number of examples of the significance to his clients of a thoroughbred's ability to move freely around the world. His clients' intentions for the thoroughbreds he had referred to were, he said, typical of the aspirations and intentions for many of his clients. If a thoroughbred were not able to move freely between countries he considered that the thoroughbred would hold less attraction for his clients regardless of their other attributes. He would find it very difficult to recommend a thoroughbred that was for some reason unable to breed or race overseas. 631 In cross-examination, Mr Pritchard-Gordon said that by the expression he used in the 2008 interview "converge at the top end" he was seeking to convey that there was a global vision from some large operations. He was not saying that the market for thoroughbreds at the top end was coming to be dominated by a small number of international players but that there were "less organisations at the top than there are the bottom; that's just a normal market." 632 Mr Pritchard-Gordon said that if the outcome of the present proceeding was that the current rules in the ASB relating to artificial breeding were amended or removed so as to permit horses produced as a result of artificial breeding to be registered in the ASB and thus to be the indistinguishable from thoroughbreds; and artificially bred horses would be permitted to race with thoroughbreds in all Australian thoroughbred races; and there was no equivalent amendment of the analogous rules internationally, he very much doubted that his international clients would ask him to come to Australia to buy bloodstock as the lack of marketability overseas of Australian bloodstock would make them worthless outside of Australia. In oral evidence, he said that a majority of his clients would have a global vision of the bloodstock world and he came to Australia to buy bloodstock which may then be transported to other parts of the world. If the three assumptions were to come to pass it was his opinion that he would not be asked to come to Australia to buy the bloodstock because those people would not be able to export them as thoroughbreds to another part of the world. 633 They were unlikely to be allowed to race in any other country against thoroughbreds for there was very little likelihood that they would be accepted as thoroughbreds by any other jurisdiction. If Australian races lost their black type status because Australia's thoroughbreds no longer fitted the internationally prescribed definition of thoroughbred Mr Pritchard-Gordon considered that his clients would no longer send thoroughbreds to race in Australian races. 634 As Australia's "thoroughbreds" would no longer fit the internationally prescribed definition of thoroughbred he would recommend that his clients never breed a thoroughbred with an Australian thoroughbred as the resulting progeny would not be an internationally recognised thoroughbred and would be worthless to the bloodstock industry outside Australia. He said that he considered that horses bred by artificial breeding in any form were unlikely to be recognised by other thoroughbred jurisdictions. The use of AI was currently considered as totally unacceptable to stud book authorities, so the development of more extreme practices such as cloning or embryo transplants would most likely only worsen any isolation of the Australian industry. Mr Pritchard-Gordon said these matters were purely his own opinion and he had not discussed the matter with anyone else. 635 In relation to the separate distinction or identification of AI horses in the ASB, Mr Pritchard-Gordon's opinion as to the likely reaction of his clients in relation to the direct cover identified horses was that he thought his clients would have to bear in mind what the likely thought processes would be for the racing authorities and the stud books in various countries they had proposed to take the horses to: it may well be that his clients would think that this was or would be a grey area and that the stud books may feel that although they were separately identified it still did not really fulfil the local stud book's requirements for it to be a thoroughbred. It was a risk his clients could not take in case the ruling went against them. He had not discussed these matters with these clients; they were purely his own opinion. 636 In cross-examination however, Mr Pritchard-Gordon said he was not aware that the United Kingdom and Australia included a non-thoroughbred register nor that the international agreement provided for such registers or that horses in those registers raced with thoroughbred horses. In cross-examination he agreed that if there was a separate register for AI horses, that horses in that register could race and the approved register did not cease to be an approved register, and the foreign racing jurisdictions would not withdraw their approval of the ASB or horses within it, if his clients were entirely satisfied that the stud books and the racing authorities would agree to it then they would have a lot of their questions removed. He added that it would require a "unilateral" statement from the ISBC and the international racing authorities before you could remove all the concerns he assumed his clients would have. By "unilateral" it seemed Mr Pritchard-Gordon was referring to a unanimous decision by the authorities in the international arena. 637 Mr Pritchard-Gordon said that the top end of the bloodstock market was dominated by international owners. He agreed that, to the best of his knowledge, in the United Kingdom there were many small breeders who struggled to make a profit and many indeed who did not make a profit and the same would apply in Australia. There were many who could not afford to pay $330,000 to have their mares covered. There were many who would not be likely to think that they could afford to pay $30,000 to have their mares serviced. In addition to paying those service fees they would have to incur the cost of transporting the mare to the stud; the cost of veterinary fees while it was at the stud; and the cost of agistment while the mare was at or near the stud. 638 He agreed that increasingly Australia was highly regarded in the international thoroughbred breeding and racing industry and that the leaders of the Australian racing and breeding industry were well regarded and recognised in the major racing countries. 639 He agreed that the vast proportion of thoroughbred horses exported from Australia go to either New Zealand, South Africa or to Asian countries. He agreed that Hong Kong, Macau and Singapore had no thoroughbred breeding industry of their own and he was asked whether he expected that those countries would be indifferent to whether those horses were conceived by direct cover or artificial insemination. His answer was that he thought that under current circumstances they would only accept horses from natural cover. He agreed that that could have no impact on their breeding industries because they had none but he said they would be competing with other horses from around the world. 640 Mr Pritchard-Gordon accepted as a matter of principle that there was no difference in the resulting foal whether natural cover or artificial insemination was employed. 641 His view was that if AI were to be introduced he believed there would be considerably fewer stallions. 642 Mr Pritchard-Gordon accepted in principle that one of the advantages of artificial insemination to small to medium-sized breeders was the potential to access top stallions which might not otherwise be available because of distance, for example. He also accepted that if artificial insemination were available then a broodmare owner would have a wider range of stallions to choose from as sires for the mare or mares. He agreed that someone in the remote part of the country who might only have road access to a relatively small number of studs would potentially have access to the semen of all stallions in that country at least. 643 He agreed that for someone to whom the transport cost was a significant disincentive because of their limited means, the option of obtaining the straws of semen if AI were available was a choice that they did not have if they could only get the mare covered by direct cover. 644 Mr Pritchard-Gordon did not accept that the thoroughbred breeding industry in Australia in relation to the provision of stallion services already had the characteristics of an oligopoly. He did accept that the most popular and sought-after stallions in Australia tended to be owned by or be under the control of a small number of significantly large studs at the present time. He said that just in the last three or four years the leading stallions had been with the most powerful studs. But he said there was no oligopoly situation: there was massive competition between those studs. He accepted that the studs because of their size and power could afford to acquire the best stallions and that the yearlings produced by those top stallions tended to dominate the major auction sales. 645 Mr Pritchard-Gordon accepted that the following were large commercial studs: Coolmore; Arrowfield; Darley; Widden; and Eliza Park but only in Victoria. He agreed that the larger studs were very well represented in the top twenty stallions measured by coverings for the 2010 season as at 7 July 2011. He accepted that the major studs, which included Coolmore, Arrowfield, Darley, Widden and Vinery were represented by a significant number of clearly popular stallions commanding significant service fees in that year and that it had not changed much in the 2011 breeding year. But he also said there were stallion studs which were relatively small which had attracted a lot of mares. 646 In an article published in 2003 Mr Pritchard-Gordon said: The principal yearling sales are already swamped by certain fashionable sires that have covered an obscene number of mares. There will be many breeders this autumn who will wince to find upwards of 20 other representatives of the same stallion in the same sale competing to find buyers, with several breeders returning home with severely punctured expectations. This could only get worse with the universal acceptance of AI. The inherent value of bloodstock has been a direct result of scarcity of the commodity, so any move away from natural service must inevitably hit the breeding industry in the pocket - take a look at the trotting industry and learn the lessons. 647 Mr Pritchard-Gordon said this was his opinion in 2003 and it remained the situation that there were still certain sales that were dominated by certain stallions. In relation to the trotting industry, at the time, in 2003, he believed that the trotting industry was in decline in the United States of America but he did not look at the trotting industry in Australia. 648 Mr Pritchard-Gordon agreed that entry into the principal auction sales in Australia was limited to the two major auction companies Magic Millions and Inglis. He said there was a lot of competition between them but outside those two, apart from New Zealand Bloodstock, he seemed to accept there was very little competition at that level in Australia for the sale of thoroughbreds. He agreed that Inglis and Magic Millions picked and chose the yearlings that would make the most money for them and they could limit the numbers that they accepted. If the breeder of a yearling wanted to sell the horse and did not have the horse accepted by either Inglis or Magic Millions, the owner had little choice but to retain the horse, although about 3,000 or 4,000 yearlings were sold a year in regional sales or by private treaty. He also added a lot of people breed to race the horses themselves. 649 Mr Pritchard-Gordon agreed that the owner of a good broodmare would seek to access the services of the best sire they could afford and that was ultimately dictated by price. 650 He said that people with limited financial resources but who engaged in the thoroughbred breeding industry and the racing industry were the lifeblood of the industry: they provided the product for racing and, he added, the dream. He considered that it was good for diversity in the racing industry to have the participation of small breeders. 651 He said that at present there could not be a lower entry market: horses could be bought for $500 and there were horses which had been through the sales for $1,000 which had been winning group races recently in Australia he believed. 652 Mr Pritchard-Gordon agreed that Arrowfield, Coolmore, Darley and Vinery had a massive investment in the form of buildings and other facilities including breeding facilities, yards, accommodation for visitors and horse floats and that that massive investment had been built up in order to support an industry dependent on direct covering. 653 He did not accept that breeders who had previously patronised those studs and who switched to using artificial insemination would go to other sources as, he said, that would run the risk that those horses would not be known: anyone using AI would be keen to use stallions which were already in existence and proven to be successful. 654 Mr Pritchard-Gordon would include as major or top or internationally powerful studs Coolmore, Darley, Arrowfield and, it seems, Vinery. He would classify as included in a second tier: Eliza Park; Lyndhurst; Bowness; Widden; Yarraman; Glenlogan; Wattle Brae; Blue Gum Farm; Chatswood Stud Holdings; Kitchwin Hills; Patinack Farm; Emirates Park and Mungrup, amongst others. 655 In summary, I accept the evidence of Mr Pritchard-Gordon although I note it largely consisted of his opinions. He was referring to a globalised industry in relation to the top end of the market. His personal opinions about the consequences of the various assumptions he was asked to make were of little weight except as a reflection of what he assumed his clients' reaction would be, without speaking to them about those assumptions.

Mr Romanet 656 Mr Louis Romanet is the chairman of the International Federation of Horseracing Authorities (IFHA). 657 The International Conference of Horse Racing Authorities was first held in Paris in 1967. From 1967 to 1994 Mr Romanet held the position of joint secretary of that Conference. The Conference developed a document which became the Federation Agreement which was designed to record international best practices as agreed between participants in the Conference. In 1994 the conference was replaced and succeeded by the IFHA of which Mr Romanet has been the chairman since its creation. 658 He said that in the time that he had been involved in thoroughbred racing, both in France and internationally, he did not recall a period or a country in which the horses produced by artificial insemination were ever permitted to participate in thoroughbred races. 659 In relation to Group races, Mr Romanet said that horses which achieved the first three finishes in races that carried any of the Group 1, Group 2, Group 3 and listed races ratings received black type status in sales catalogues and by reason of this alone had a higher breeding value, particularly since they could attract international interest from potential purchasers. He added that horses which achieved the first three finishes in any of the races listed in Part II of the Standards Book also received black type status in sales catalogues. 660 Mr Romanet said that one of the first issues considered by the ISBC was the establishment of a universally accepted definition of a thoroughbred. The definition originally took a period of about seven years of consideration and discussions between members to be developed before being adopted in Article 12 in the Federation Agreement. 661 He referred to amendments being made to Article 12 in 2004 and the minutes of the meeting of the Executive Council of the IFHA in March 2004 included a statement by the then representative of Australia to the members of the Executive Council that breeders had adopted a unanimous position against artificial insemination and, therefore, the subject was not to be debated anymore in the future. 662 Mr Romanet was asked to assume that horses bred by artificial means (including artificial insemination) could not be precluded from running in thoroughbred horse races conducted in Australia; that Australia would no longer be able to agree to Article 12 of the Federation Agreement; that the ASB would no longer satisfy the criteria for an approved stud book; and to the extent that they were predicated upon the definition of "thoroughbred" in Article 12, Australia was unlikely to be able to agree to other articles. 663 It was Mr Romanet's understanding that for an amendment to Article 12 to be initiated and recommended by the ISBC any such recommendation would need to be unanimously supported by other members of the ISBC, which was unlikely to happen. His understanding was that even if the applicant in the present proceedings were successful and there was a request made to amend Article 12 so as to permit the inclusion in approved stud books of horses produced by means of AI, this request would not obtain the unanimous consensus of the ISBC. 664 In addition, in Mr Romanet's opinion, IRPAC would likely have to consider whether or not races conducted in Australia should be listed in Part III of the Standards Book or even excluded from the Standards Book altogether if the present proceedings were successful. If either of those were to occur, no horse achieving a first three finish in a race conducted in Australia would be able by reason of that to attain black type in sales catalogues. 665 In cross-examination, to the proposition that the Federation Agreement did not compel any member country to do anything other than to include the provisions that it had adopted from the agreements or the relevant articles in its domestic rules, Mr Romanet said that depended on the subject: there were some subjects which depended on the local rules of racing but other subjects depended on some of the committees. He gave as an example the grading of racing and where, if you want to participate in the grading system around the world, you then have to follow the rules which were defined by IRPAC. 666 He said it was not the IFHA which regulated the stud books but the ISBC. So far as he was concerned, in relation to the prohibition of AI, the IFHA agreement reflected ISBC. It was the ISBC which established the rules and then recommended them to the Federation, who would then include them in the international agreement. If a stud book did not follow the rules, they would lose their status as a thoroughbred stud book. The ISBC decided and then the Federation put it in the international agreement. Mr Romanet had never been a member of the ISBC. 667 Mr Romanet agreed that Australia was a major thoroughbred breeding and racing jurisdiction and indeed that most of the countries around the world except Australia saw their foal crop decreasing. Australia was the major place in Asia to export horses and was probably the country with the biggest potential to grow and develop its exportations in the future, especially with the opening of racing and breeding in China. 668 Mr Romanet said that there were different rules in France for thoroughbreds and for Arabians, because the thoroughbred was a pure, international breed. Recently France created a register for a non-thoroughbred, which was for the jumping horses, because France had a lot of jumping horses which were not thoroughbred. 669 Mr Romanet agreed that there was no reference in the Federation Agreement to any process amounting to automatic removal of the approved status of a stud book but he said that if the problem arose of permitting horses produced by artificial insemination to be included in the stud book, it would be referred by the Australian Stud Book to ISBC and a decision would be taken. He did not think he could say it would retain its status in the meantime. 670 In Mr Romanet's view any horse that was produced by AI would automatically lose its status of thoroughbred and all those horses would be excluded so that would damage international thoroughbred ranking and would damage the grading of races. That would exclude those horses from leaving their country. He could not speak for the status of the ASB as that was a matter for the ISBC. 671 He said that the EU allowed the French Stud Book Committee to exclude horses got by AI. Further, if France allowed any such horses from outside France to race then France would have to allow AI in France. It would create a new situation internationally but as far as the French were concerned "we have absolutely no intention". 672 Mr Romanet did not appear to accept that there was no provision in the Federation Agreement which would operate to prevent horses registered in a separate register for AI-bred horses racing in Australia against horses registered in the approved thoroughbred stud register. He said it was impossible in France. Further, if the horses were not thoroughbreds, because created by AI, then that would create a problem for the recognition of Australian graded races (if those AI-bred horses raced with those in the present stud book). 673 In Mr Romanet's view presently there was no international debate about the need for AI for the breeding of thoroughbreds. 674 In summary, I accept Mr Romanet's evidence, particularly the detail he gave about the relationship between the Federation Agreement and the ISBC. Mr Romanet was also in a good position to speak about the APC and how, in his view, the grading of races would be affected by the inclusion in races in Australia of horses bred by artificial insemination.

Mr Winfried Engelbrecht-Bresges 675 Mr Engelbrecht-Bresges, the Chief Executive Officer of the Hong Kong Jockey Club (HKJC), One Sports Road, Happy Valley, Hong Kong gave evidence on the position of the HKJC in the event that thoroughbreds bred by artificial insemination were allowed to register in the ASB. 676 The HKJC was responsible for the administration of all aspects of thoroughbred horse racing in Hong Kong. Mr Engelbrecht-Bresges has been the Chief Executive Officer since February 2007 and before that time he was appointed, in 1998, the Director of Racing, and in 2000 the Executive Director, Racing. He had been a member of the Executive Council of the Asian Racing Federation since 2007. From January 2007 to May 2009 he was the Chairman of the Council of the Asian Racing Federation. 677 Mr Engelbrecht-Bresges said that Hong Kong was not listed as a party that had agreed to Article 12 of the Federation Agreement and was not listed as having an approved stud book because Hong Kong did not have a thoroughbred breeding industry. Hong Kong was entirely dependent on imports of thoroughbred horses from the other major breeding nations in order to provide new participants in local races. There were about 1,200 thoroughbred horses approved by the HKJC to race in Hong Kong. 678 The HKJC had Rules, particularly rule 37, for the registration of the name of a horse which has been permanently imported into Hong Kong. The HKJC also permitted horses from countries, including Australia, to participate in races in Hong Kong. By rule 38 of the HKJC Rules, any horse domiciled outside Hong Kong may be registered but any such horse may not run for any race unless there had been deposited at the Registry Office a certificate of pedigree signed by the official Stud Book authority of the country in which the horse was foaled. In cross-examination he accepted that there was no reference to a thoroughbred as defined in Article 12 of the Federation Agreement but said it was so obvious that these horses have to come from recognised stud books. 679 An import permit was granted by a ballot under the supervision of the Board of Stewards, and horses which were not from a recognised stud book would not be granted an import permit as a condition of import. Horses which run international races do not need a permit because they are under foreign ownership. But if it comes to horses which come into Hong Kong, they have to have a permit. 680 The HKJC conducted 740-760 races each year. Of these, 32 were group/graded and listed races for the purposes of Part I and Part II of the International Cataloguing Standards Book. 681 Mr Engelbrecht-Bresges said Hong Kong was a major importer of thoroughbred horses and about 40% of the 1,200 horses permitted to race in Hong Kong were imported from Australia. In 2009/2010, Hong Kong imported 179 horses from Australia at a value of about AUD$31.9 million. Also a significant number of owners had horses in training in Australia to qualify them for Hong Kong. 682 Hong Kong imported the remainder of its thoroughbred horses from New Zealand (33%); Ireland (12%); Great Britain (7%); USA (4%); and others (4%). 683 He said Australian horses were also attractive to owners in Hong Kong because the racetrack conditions in Australia were generally similar; many Australian horses were generally good sprinters and suitable to the many sprint races in Hong Kong; Australia was geographically closer to Hong Kong than Europe and the United States of America and in general Australian horses found it easier to acclimatise in Hong Kong than horses from the northern hemisphere; the HKJC permitted Australian horses to compete in Hong Kong races; and the HKJC permitted Hong Kong horses to participate in races in other jurisdictions including in Australia. 684 Mr Engelbrecht-Bresges said that to the best of his knowledge and belief there had not been any active consideration given by the IFHA to amending Article 12 of the Federation Agreement so as to remove the exclusion of horses produced by means of AI since he had been a member of the IFHA's Executive Council. 685 He recalled that at the Asian Racing Federation conference in Bangkok in 2001, the then Keeper of the ASB, Mr Digby, raised the notion of removing the ban on AI as a point for discussion. A transcript of the discussion at this meeting was annexed. 686 Mr Engelbrecht-Bresges was asked to assume that if the applicant in the proceedings were successful: artificially inseminated thoroughbreds would be registered in the ASB alongside non-artificially inseminated thoroughbreds with no way of distinguishing between artificially inseminated and non-artificially inseminated thoroughbreds; horses bred by artificial means, including artificial insemination, could not be precluded from running in thoroughbred horse races conducted in Australia; Australia would no longer be able to agree to Article 12 of the Federation Agreement; to the extent that the criteria employed by the ISBC for approving studbooks reflected the requirements of Article 12 of the Federation Agreement, the ASB would no longer satisfy the criteria for an approved stud book; and to the extent they were predicated upon the definition of "thoroughbred" in Article 12, Australia was unlikely to be able to agree to other articles. 687 On those assumptions, and on the assumption there would be no changes to the Federation Agreement regarding the definition of "thoroughbred" and related provisions, Mr Engelbrecht-Bresges believed that the HKJC would still continue to uphold the international position under the Federation Agreement as a result of which the HKJC would not permit the registration in Hong Kong of any Australian horses of thoroughbred parentage produced by means of AI which were imported permanently to Hong Kong; the HKJC would not permit the registration in Hong Kong of Australian thoroughbreds which were the product of natural covering but which raced in the same races in Australia as AI-bred horses; the HKJC would not permit any Australian horses of thoroughbred parentage, whether produced by means of natural cover or AI, to race in Hong Kong races; the HKJC would not permit Hong Kong-based horses to race in Australian races in which AI horses were participating; the HKJC would no longer agree to simulcast major Australian races (or any Australian races at all) if the races were open to AI horses; and the HKJC would no longer purchase Australian horses to then sell to HKJC members. He considered that each of those consequences would arise because any attempt to accommodate Australian thoroughbred horses in those circumstances would be inconsistent with both the international position under the Federation Agreement and the HKJC's very strong focus on enhancing the international recognition of its thoroughbred racing industry, which would necessitate compliance with the international position. 688 In cross-examination, Mr Engelbrecht-Bresges agreed that Australia was a very significant thoroughbred racing country and it was of particular significance to Hong Kong because of the large number of Australian thoroughbred racehorses that either raced in Hong Kong or were imported into Hong Kong for racing and vice versa. He said there was a regular exchange of horses especially for the international races. 689 In relation to prize money he said if you look at the prize money in Hong Kong, it was very relevant for the Australian racing industry, because one of the reasons for the significant increase in yearling prices over the last years was the significant increase of prize money in Hong Kong. He explained, in re-examination that when the HKJC bought horses for its members, with the increase in prize money the HKJC had increased its limit on buying horses. So, for example, it bought horses in Australia for A$650,000 at a yearling sale, it bought horses in the Karaka sales for NZ$700,000, so therefore, there was a link between quality and prize money and the incentive of owners to buy horses of a certain quality. 690 Mr Engelbrecht-Bresges said that, because of the existence of the ISBC, stud book matters were more discussed within the IFHA than within the Asian Racing Federation. He had never been a member of the ISBC. 691 Mr Engelbrecht-Bresges was asked whether, if there were a decision of the Court that the rules of the stud book and the rules of racing in Australia, by imposing a ban on AI-bred horses from racing, were anti-competitive or in restraint of trade and could not be enforced, he would agree that that would be an unprecedented situation to arise in relation to international racing. He replied that he thought this could be an unprecedented situation, but discussions in relation to artificial insemination and the consequences if one stud book would not follow these kinds of principles had been probably around for 15 or 20 years and the outcome was always very clearly that AI-bred horses would be not seen as thoroughbreds and would not be permitted to participate in races by other jurisdictions. AI-bred horses could be run in other races, but not in races organised under the rules of racing defined under the IFHA. Black type races necessarily had to be for thoroughbreds which were defined under Article 12. Races where horses raised from artificial insemination and horses which were bred by natural cover participated would not be permitted under the IFHA and they would not be recognised as thoroughbred races. 692 Mr Engelbrecht-Bresges said that as a result of such a court decision in Australia, the Hong Kong racing authorities would simply cease dealing with Australia in relation to thoroughbred horses, although not those presently in the ASB. If the stud book in Australia would permit artificial insemination it would only become relevant in the year following. So the foals would probably be generated from 2012, and he assumed that then the stud book would lose its status and the stud book would not be any longer seen as registered. From there on he thought it was clear that it meant that these horses, from a non-register or non accepted stud book (Australia) would not be allowed to be permitted to be imported into Hong Kong. 693 Mr Engelbrecht-Bresges said that Hong Kong had built up significant coverage of the races around the world, and it would be a significant reputational risk and branding risk if, suddenly, due to the decision of one country permitting horses bred with artificial insemination to run in these races, the HKJC would lose this international group standard of these races, and this was why the HKJC would then take the decision. "For us, the positioning, the branding of Hong Kong races as world class is definitely higher than we [sic] where we resource the horses from." 694 He disagreed that there would be a difference, at least, in the way other member countries of the ISBC might consider the matter, between a deliberate decision of a stud book authority to allow artificial insemination and one that had been imposed on it by a court decision. Mr Engelbrecht-Bresges said: "[E]very federation would take a court decision not lightly, but, having said this, the international horseracing federation and thoroughbred racing is a global industry which … is dependent on basic principles to stay as a member within this federation." Even if there was a court-imposed decision these horses would not be permitted to run in races organised by the International Horseracing Federation. 695 In cross-examination, by videolink with Hong Kong, Mr Engelbrecht-Bresges read out the following resolution of the Racing Committee made on 26 May 2011 which Mr Engelbrecht-Bresges said was reflected in his witness statement made on 27 May 2011: a. the HKJC would not permit the registration in Hong Kong of any Australian horses of thoroughbred parentage produced by means of AI which are imported permanently to Hong Kong; b. the HKJC would not permit the registration in Hong Kong of Australian thoroughbreds which were the product of natural covering but which raced in the same races in Australia as AI-bred horses; c. the HKJC would not permit any Australian horses of thoroughbred parentage, whether produced by means of natural cover or AI, to race in Hong Kong races; d. the HKJC would not permit Hong Kong-based horses to race in Australian races with participation of AI horses; e. the HKJC would no longer agree to simulcast major Australian races (or any Australian races at all) if the races are open to AI horses; and f. the HKJC would no longer purchase Australian horses to then sell to Hong HKJC members. 696 Mr Engelbrecht-Bresges was asked to assume, first of all, a court decision in Australia declaring the current rule in relation to the ban on AI unenforceable and that the parties in Australia responsible for the rules of racing and the stud book would endeavour to comply with the decision of the court and that the course that might appeal to the Australian regulators of racing would be to establish a separate register in which to record horses bred by artificial insemination. He was asked whether he agreed that the status of the approved stud book continuing on with only thoroughbreds produced as a result of direct cover would not be affected so far as the ISBC or other member countries were concerned. He replied that he thought it was up to the ISBC to make this kind of decision but from his understanding it would be very difficult to have two registers. He added that one issue was the register and then the next issue was if the horses would run in races against each other. 697 He was asked, on the assumption that he was incorrect in his understanding that the definition of thoroughbred found in Article 12 is to be incorporated into Article 1, whether he agreed that then there was nothing in Article 1 that would have the result that horses produced by artificial insemination racing in grouped or graded races would cause those races to lose their graded status. He replied that he was convinced that the Pattern Committee would withdraw the status because in the international corporation the implications were significant. For that reason he concluded or understood that these races would not stay as international-graded races, looking at the international racing community. 698 I accept the evidence of Mr Engelbrecht-Bresges as to the attitude of the HKJC on the information that it had before it.

Mr Clem Murphy 699 Mr Murphy is a member of the senior management team of the Coolmore Group, which owns and operates thoroughbred studs around the world. He has been involved with Coolmore for thirty-two years, initially as an accountant and subsequently as a bloodstock consultant and as part of the senior management team. 700 Currently Coolmore stood around 30 stallions in Ireland, 15 in Kentucky, 15 in Australia and several in New Zealand. In Australia Coolmore has around 30 to 40 horses in training, while in Ireland that figure was a couple of hundred. 701 Mr Murphy said he visits Australia and New Zealand twice in each year to visit the major yearling sales conducted by auction houses Magic Millions, Inglis and Karaka. He also spent time visiting each of Coolmore's farms, discussing issues with the staff and management and reviewing and inspecting all the animals including all foals and yearlings located on Coolmore's properties. He said he also met with trainers engaged by Coolmore and inspected their training set up and procedures. He also attended public thoroughbred auctions in Australia and New Zealand. 702 Approximately six times a year, Mr Murphy visits the USA for major thoroughbred auctions. He is also a director on the board of the Breeders' Cup, an organisation which conducts an annual racing championship held in the USA each November. 703 Coolmore transported a large number of thoroughbred horses all over the world to compete in major races such as the Melbourne Cup, the English Derby, the Kentucky Derby, the Arc de Triomphe, the Japan Cup and races in Hong Kong. As owners of a large number of horses there was a satisfaction to winning the major races at these venues. Furthermore if a colt that was a male entire won one of these races, then that colt was likely to be a financially valuable asset when it retired to become a stallion at stud. 704 Mr Murphy said that if one of the races he had mentioned lost its prestige, for example it was no longer a Group 1 race, then Coolmore would not have the same level of interest in winning that race. For example if the Melbourne Cup or the Cox Plate were no longer to be classified as a Group 1 race then Coolmore would not be interested in running its horses in that race. 705 Coolmore had raced some very talented Australian racehorses in Europe and their wins had been important to the Australian thoroughbred racing and breeding industries, as they have shown that thoroughbreds which had been successful in Australia could compete successfully against thoroughbreds in other countries around the world. The effect of this was that those thoroughbreds when retired to stand as stallions become potentially a lot more attractive to stand in both the southern and northern hemispheres. This also increased the earning potential of the stallion as it could stand in both the southern (September-December) and northern hemisphere (February-June) breeding seasons. 706 Mr Murphy's belief was that if auction houses around the world started selling horses that fell outside the definition of thoroughbred as expressed in the IFHA rules then Coolmore would have no interest in attending sales of non-thoroughbred horses. Coolmore was a big seller and buyer of thoroughbred horses around the world. 707 Mr Murphy said that in Australia there were about sixty-five Group 1 races in each racing season and only small changes are made in this pattern from year to year. These races helped create a market for the sale of thoroughbred progeny based on the recognised performance of a thoroughbred or its ancestors. 708 Mr Murphy's belief was that if because of the introduction of AI in Australia there were a decline in the ability to make comparisons between races held in Australia and the rest of the world then it would be inevitable that the horses which raced in Australia would have no attraction to the international market. 709 In cross-examination Mr Murphy agreed that there were many stallions owned by Coolmore, about 50%, which did not shuttle to Australia in any particular breeding season. He agreed that if access to the full array of Coolmore and Darley stallions became available to Australian broodmare owners they would have significantly more choice than they currently have in terms of the stallions to be mated with their mares. He also agreed that as a general matter, diversity of bloodlines was a desirable outcome. 710 Mr Murphy said that he would expect that thoroughbred breeders' bodies around the world would take notice of Coolmore's views. As to whether racing authorities in the countries in which Coolmore operated took notice of Coolmore's views on important matters he said he thought they might take notice, but he did not know whether it would have any influence on what decision they were going to make. 711 He agreed that Coolmore had invested very heavily in Australia, not only in terms of bloodstock, but also infrastructure and other facilities and those facilities themselves would be worth tens of millions of dollars. Some of those facilities were designed for the purpose of direct covering and these were investments that Coolmore would want to protect. 712 He said that if AI were introduced to Australia, operations like Coolmore and the major stud farms in Australia would have to rethink their business and probably move elsewhere. 713 In summary, Mr Murphy is plainly a man with many years relevant experience. His evidence, which I accept, was of interest primarily because of the international nature of the business of Coolmore and similar businesses. There can be no doubt that at the top end thoroughbred racing is directly international.

Mr Charles-Henri de Moussac 714 Mr de Moussac has been involved in the thoroughbred breeding and racing industry for twenty-five years as a breeder and now manager of a thoroughbred stud in France. He stands four stallions and houses approximately 70 broodmares, half of which are owned by clients of the stud and the other half owned by his family. Each year it is his usual practice to sell all of the colts as either weanlings or yearlings and keep a few fillies in order to renew the families. From time to time the stud buys a yearling filly or a broodmare mostly at auctions such as Arqana in France, Keeneland in the USA or Tattersalls in the UK. He is also a shareholder in Arqana. 715 Mr de Moussac is Chairman of the French Stud Book Committee, Vice-Chairman of the French Thoroughbred Breeders Association (where he is in charge of international matters) and on the board of France Galop as Vice Chairman in charge of flat racing, which administers thoroughbred racing in France. He also said that France Galop conducts the stud book through one committee and administers thoroughbred racing in France through another committee. 716 In his opinion the thoroughbred breeding and racing market is an international market and he has always seen it as an advantage to participate in the breeding and racing markets of other countries such as the USA, UK, Ireland and Australasia. In the past he had had a lot of success with combining US thoroughbreds and European thoroughbreds. In the past it had been his practice to train some of his best fillies in France after the age of four, attempt to win a black type race and then to export those fillies to the US where they were retired and served by US stallions. This was successful because the industry treated black type races around the world as comparable, and US participants could assess the quality of a European filly's success by reference to those races. Sometimes he sent his three year old fillies over to the US to race as four year olds in the US then retired them there where they would remain for two to three breeding seasons and their resulting progeny sold in the US or in Europe. 717 Mr de Moussac said that in his experience most major participants in the thoroughbred industry moved horses to different countries and raced and bred overseas. 718 He said that while prize money was always an attractive incentive to run a horse in a leading race it was the additional value that came with winning (or even placing) in a race which carried black type status, especially Group 1 races, that gave those races an additional incentive. It was because of this that he believed that black type races were very important to the thoroughbred industry as it was the only way to quantify the ability of a thoroughbred. 719 The IRPAC determined ratings of black type races in each country and they were reviewed every year depending upon the quality of the performers in each race that year. The performance of the participants in the race and the rating it received partly determined whether that race continued to receive black type status. The determination of black type races gave the whole system credibility and enabled comparisons between horses around the world. 720 Mr de Moussac said that the French "TBA" had always and currently still did support Article 12 of the French thoroughbred stud book rules which said that for a horse to be registered it must be bred by natural breeding. He said the French policy in this matter was the reflection of the international rules and he referred to Article 12 of the Federation Agreement. The rules of racing in France also stated that for a horse to compete in France it must be registered in the French Stud Book. Article 64 specified that a horse bred by AI from thoroughbred parents, or if its parents had been bred by AI, may not race in thoroughbred races in France. His understanding was that if Australia introduced a rule permitting a thoroughbred to be bred by AI then Australian horses would not be allowed to compete in French racing as the French rules stipulated that a horse must be bred by natural means pursuant to the international agreement. As a result France Galop would not allow horses bred by AI to compete in races in France. 721 His opinion was that if Australia were to allow horses to be bred artificially and those horses to be registered in the ASB, Australia would be isolating itself from the industry internationally. All the other countries of which he was aware, including the major thoroughbred breeding and racing countries, being the UK, Ireland, France, the US, Japan, Argentina and Brazil, did not allow artificial insemination practices for the breeding of thoroughbreds. He said that if the thoroughbred industry was just a domestic industry based solely within each country then he would not be a participant in that industry. 722 His understanding of the Federation Agreement was that if a member adopted an article in full or in part then they must make provision in their own rules reflecting that article and that did not say anything more about any other articles that they did not accept. 723 Mr de Moussac agreed that Australia was a major thoroughbred breeding and racing jurisdiction. He agreed that the ASB was regarded as being a very well-kept stud book with a high level of integrity, using the latest technology. 724 To the question "If Australia's stud book were to lose its approved status, that would have an effect not just in Australia but in relation to other countries dealing with Australia in relation to thoroughbred racehorses?", Mr de Moussac answered "No". He gave the same answer "No" to the question "You do not think that if Australia ceased to have an approved thoroughbred stud book, other countries that send horses to Australia for racing might have reason to review their practices?" I understood his opinion to be that the loss of approved status for Australia's stud book would be Australia's problem and not the problem of other countries dealing with Australia. He said "I think from the point of the French Stud Book, they would say it's bad luck for the Australian Stud Book and for the racing industry." 725 Mr de Moussac was asked to assume that a court in Australia decided that the rules of the ASB in relation to artificial breeding were unenforceable; following such a court decision the Australian Stud Book created a separate register for AI-bred horses; the approved ASB did not lose its approved status; and any horses bred by AI in that new separate register may race against horses in the approved ASB in races in Australia. On those assumptions it was put to him that there would continue to be no risk that Australian thoroughbreds recorded in the approved register would not be accepted for racing in other countries. His answer was he did not know for sure because you would have a product from AI and a product of natural breeding racing together. He thought there would be a risk. Some other countries would not accept it. In his view he thought the position would be that any Australian horses would not be allowed to race in France. He thought that the French Stud Book would review the whole situation. He thought that all the countries which were part of the ISBC would review the situation. He was not able to say what the outcome of that consideration by the French Stud Book Committee would be but he was able to give his personal suggestion as to what might be the case and, he added, the feeling of the breeders which were elected at the board of France Galop. 726 On the assumption that the ASB remains an approved stud book for the purposes of the Federation Agreement; that in Australia there was a separate register kept for AI-bred horses as well as the continuation of the approved stud book, Mr de Moussac was asked whether, in his understanding, the stud book authority of the member country could not refuse to accept horses from the Australian approved stud book to race in its jurisdiction merely because of the existence of a separate register of AI horses. His answer was that as long as the ASB was approved by the ISBC the horses from the stud book could compete in French races. 727 I accept Mr de Moussac's evidence. He was well-placed both in terms of his commercial activities and his role as an administrator in the French system to explain why and on what basis he thought that thoroughbred racing and breeding was international. His understanding or belief as to the reaction of the relevant French bodies to AI-bred thoroughbreds in Australia was of some weight.

Mr Tim Johnson 728 Mr Johnson is the owner and managing director of Ealing Park Pty Ltd (Ealing Park) which operates a thoroughbred horse farm of about 400 acres in Victoria. Ealing Park was a member of the Thoroughbred Breeders Victoria Inc and it was thereby also a member of the TBA. 729 Mr Johnson is the president of the Thoroughbred Breeders Victoria. Thoroughbred Breeders Victoria has approximately 300 to 350 members out of approximately 1,300 breeders in Victoria. 730 In 2010 Ealing Park looked after approximately 90 thoroughbred broodmares. In that year Ealing Park also sent three broodmares to New South Wales thoroughbred stud farms in the Hunter Valley with the intention that those broodmares foaled down and were then served by a stallion based near the stud farm. Following a positive forty-five day pregnancy report the mares return to Ealing Park. On average those broodmares were away from Ealing Park for approximately 65 days. In addition, Ealing Park also receives about 40 to 50 broodmares each season which come from South Australia, New South Wales, New Zealand and Singapore. Each year Ealing Park has around forty permanent broodmares in residence. 731 Ealing Park ceased standing stallions in 2010 as a commercial decision that it was unable to attract the horses required to justify the work involved. 732 Ealing Park on average sold approximately four to five weanlings each year. Ealing Park also sold 10-12 yearlings each year in Melbourne. If Ealing Park were unable to sell weanlings or yearlings at auction, then the owner often retained them and Ealing Park sent the weanlings or yearlings back to the owner to look after. Ealing Park sold all of the progeny owned by it as either weanlings or yearlings at sales. 733 Ealing Park made approximately 90% of its income in agistment and associated services, including sales preparation and foaling down services. Ealing Park provided agistment and provided access to veterinary services and received agistment and foaling fees. 734 The majority of Ealing Park's clients were content for their mares to be walked on to adjoining studs or studs in the local area. If the owner selected a stallion interstate then Ealing Park organised for the mare to be sent to that facility and there were three such mares in 2010. 735 Mr Johnson said that the Asian market stimulated the Australian domestic market. In Hong Kong there was no breeding market and in Singapore the breeding market was limited. As a result those racing industries looked to Australia to supply quality thoroughbreds. In his experience Australia and New Zealand were the breeding grounds for Asian thoroughbred racehorses. He provided a published report by the Australian Breeding and Racing Magazine for 27 June 2011 showing the number of winners overseas during the previous weekend's racing which were bred in Australia. 736 In Mr Johnson's view, allowing horses bred by AI to be registered in Australia would contract the industry. At present, local Australian farms accounted for the needs of most local broodmares because the owners of those broodmares were often unwilling to incur the cost of sending their mares interstate. If artificial insemination were introduced broodmare owners may have access to more stallions without transporting their broodmares. This would lead to a situation where the local factor was taken out of the equation and locality would not play a part. In his view, as a result, stallions within that locality would be sidelined and/or become undesirable. Since broodmare owners would have access to semen from all over the world, local stallion farms would be unable to compete with big stallion farms which had bigger marketing budgets and higher profile stallions available. Local stallion farms would not have the same opportunity to compete as they did not have the marketing budget to compete with the big players. Therefore whoever controlled the most sought after semen would be able to exert control over all markets across Australia. 737 In cross-examination Mr Johnson distinguished between proven stallions, that is, those that were able to command high service fees, and stallions which were not proven. He also distinguished between what he described as the thoroughbred capital of Victoria, the Shire of Strathbogie, including the Euroa district, and other areas in Victoria. 738 He said there were a limited number of proven stallions standing in studs in the Euroa district and those that were proven to be successful would continue to be in demand for their services. Some stallions that were not proven would be in less demand than they presently were. This was because "you reduce the fact that certain stallions command a certain number of mares because of their physical location" [sic]. The less well proven stallions standing in Victoria would be facing greater competition potentially. The outer lying regions would have horses that would not necessarily be needed anymore, for example horses in Gippsland, the Western District and the Mallee which regions were not deemed renowned as thoroughbred breeding places but where there were farms that had stallions. They would be far more at risk of decreased demand, if artificial insemination were introduced, than the breeding hubs. 739 If artificial insemination were introduced, the bigger stallion farms would be able to lower the price for their semen to non-competitive pricing and a smaller farm would not be able to match that pricing bearing in mind the capital costs that they outlayed to secure the horses that they have on their one or two stallion farm. 740 Mr Johnson accepted that so long as the unproven stallions remained unproven, under the current rules they attracted some demand from local mares because the owner of the mare preferred to keep the mares in their own district rather than send them to the stallions a greater distance away. Depending on the price, the mare owner would have a greater choice in that they would have access to "high quality" stallions. At present the advantage that the local stallion had was that it was local and also that the service fees attached to the proven stallions might be out of the reach of the local broodmare owner. To a large degree the selling point of the local stallion owner was the advantage because of costs and associated risks of transporting mares further afield, that is, to differentiate his stallion at his fee as opposed to another one at a similar fee further away. Mr Johnson agreed that what he was saying was that the local stallion farmers may be less competitive and less viable if broodmare owners had a wider choice arising from the availability of artificial insemination. 741 If artificial insemination were introduced Mr Johnson said that internally Australian races would not lose their grading status but internationally there could be a chance that they would. 742 In cross-examination Mr Johnson accepted that importing the semen would reduce the costs. 743 If artificial insemination were permitted only in Australia in relation to thoroughbreds Mr Johnson accepted there would be a ready source of semen available from other countries to meet any demand in Australia but said the demand would be greater for horses within Australia. 744 In cross-examination, Mr Johnson distinguished between stallions you want to attract because they had bloodlines that led you to believe would give you every opportunity to have a successful stallion, on the one hand, and other stallions you want to attract because you deem them to be marketable and to elicit income. 745 Mr Johnson said in cross-examination that the majority of breeders in Australia were small breeders (standing two or three mares); for most people breeding was not about making money but perhaps about being involved in a glamorous industry; and those people were the backbone of the industry; and it was an industry built on participation. 746 I accept Mr Johnson's evidence as to what he saw as the factors presently controlling the choice of stallions by the owners of thoroughbred broodmares and as stating his views on what the effects of permitting AI would be.

Mr Mark Webster 747 Mr Webster, the managing director of Inglis, swore two affidavits. 748 In his first affidavit, Mr Webster said that the largest part of Inglis' revenue was derived from a commission fee charged to vendors for acting as selling agents of the vendors' stock. Its core business was as an auctioneer and selling agent, operating on a commission-based structure which was 8% in respect of the sale of thoroughbred yearlings. 749 Inglis' primary sale and income earner was the Inglis Easter Yearling Sale. Its main competitor in the thoroughbred auctioneer market was Magic Millions. 750 Mr Webster said that Inglis had focused on building its brand, international reputation and recognition overseas. The company advertised in magazines, newsletters and on international television around the world and in particular in Hong Kong and Asia on specific thoroughbred racing channels. The company also conducted trade missions to Europe and Asia to promote Australian thoroughbreds. 751 Inglis had found that recently Australia had been a relatively buoyant market in comparison to other thoroughbred markets around the world. He believed that there was a global trading environment where you had to push your product of quality thoroughbreds to remain competitive. Inglis was increasingly aware that the thoroughbreds they sold must have a global appeal. The point of difference for Australian thoroughbreds was speed and precocity. The downside to that focus had tended to mean that in recent times Australian thoroughbreds had struggled to be competitive in distance races which had been dominated recently by horses bred in places such as New Zealand, Japan or Europe where the focus was more on producing horses with stamina. 752 He said that in 2012 Inglis would for the first time conduct a session selling yearlings bred in Australia but to northern hemisphere breeding time, that is, between February to August of each year. The session initially was anticipated to be for about 12 yearlings and Inglis expected that figure would increase to around 25-30 yearlings in 2013. 753 The catalogue for the Inglis Easter Yearling Sale was sent to approximately 10,000 customers and clients, this included around 2,000 which were sent to international buyers. Mr Webster said that if purchasers were buying thoroughbred horses to race them only, then the value would drop. The residual value was very important because purchasers saw a thoroughbred as an investment with the ability to win prize money if the horse was a successful racehorse and also appreciate in value if a thoroughbred was well-bred, meaning that it was related to other thoroughbreds which had been successful racehorses. Purchasing colts could also have significant appeal to domestic purchasers because if a colt was successful as a racehorse in Australia, and then could compete successfully in the northern hemisphere, the resultant stallion could go to stud in both the northern and southern hemispheres and thus provide its owner with income from two markets all year round. If the possibility for a colt to do that did not exist then the thoroughbred breeding market would change and the value of colts would drop significantly, as would the participation of international players in the Australian market. In cross-examination Mr Webster accepted that there were only five or six colts in this category. He said this was a guide as to how few horses actually did make it to the top, whether the horse was competing internationally or at Group 1 domestically. 754 Mr Webster described the selection by Inglis of thoroughbreds for sale. He said that Inglis were always conscious of offering thoroughbreds from a wide selection of stallions for the reason that if there were too many for sale by any one sire then that changed the market's attraction to the sale as a whole. Generally Inglis liked to limit any one stallion to no more than 10% of the total number of lots offered in a sale. 755 Mr Webster also described the information database maintained by Inglis, which was updated every day with everything that thoroughbred did. 756 He said that Inglis had international suffixes attached to each thoroughbred and this made them attractive to the international market. 757 He said that an artificially bred horse would not be comparable to the thoroughbreds Inglis were currently selling because under the international rules of racing an artificially bred horse would not be defined as a thoroughbred so they would not be comparable and would not be entitled to race in, for example, Hong Kong. 758 His view as to whether the inclusion of artificially bred horses in Australian thoroughbred races would have any impact in terms of the value of Australian horses generally was that if the artificially bred horses were racing in the same races as thoroughbreds that would be disastrous for the Australian breeding and racing industry. Australia would no longer be considered to be a participant in the international rules of racing and as a member of the IFHA. 759 Inglis complied with international cataloguing standards set by the Society of International Thoroughbred Auctioneers (SITA) and Inglis would be unable to catalogue artificially bred horses and the success or otherwise of those horses in races in Inglis' catalogues in accordance with those international standards. And that would obviously have an effect on the value because the pedigree of a thoroughbred, particularly a male that is an entire or a female that is suitable for breeding, and their success on the racetrack in internationally recognised races, particularly stakes races, is what determined their value as breeding prospects in the future. 760 If they lost that international status they would have a very much diminished value. If a naturally conceived thoroughbred were to compete in the same race as an artificially bred horse that race would no longer have the Group 3 race standing in accordance with the Blue Book under the international rules. Therefore the thoroughbred itself would not get the full recognition that it would normally get in winning a Grade 3 race that had international standing. 761 That race may be degraded and not have any black type status in which case the only value to the winning owner of that horse would be the prize money they earned on that day. There would be no residual value in that horse from a breeding perspective. 762 Mr Webster agreed that so long as there was no demotion of Australia out of Part I of the Blue Book or a demotion of certain races because AI horses were involved and Australia would not be disadvantaged, then those adverse consequences as far as naturally bred horses were concerned would not take place. 763 Mr Webster was asked in re-examination whether he had done further research in the last year and a half in relation to AI and he said that he had been to Europe, to Royal Ascot, visited studs in the UK and Ireland, went racing in France and he had also been to Singapore, Hong Kong and Japan and asked opinions of members of the industry, whether they were small breeders or racing officials, about their willingness to consider AI breeding. The general response that he received was very negative and there was a genuine view that there was no need to change. All the feedback he received was negative and that helped him to form his view there would be a lack of willingness of other countries to follow Australia if Australia went down the AI path. 764 Also in re-examination Mr Webster said that AI horses would not be included in existing thoroughbred sales because he would have grave concerns that a lot of Inglis' international clients would be confused: to avoid any confusion Inglis would separate the yearlings and conduct AI auctions on other days in separate catalogues. 765 Mr Webster was asked to assume that AI-bred horses were permitted to race in Australia but the rest of the world maintained the ban on AI-bred horses being raced in those countries. He accepted there would be some buyers who wanted to race their horses in Australia and they would be in the market for those AI yearlings but he could not quantify it. 766 He agreed that about 80% of yearlings sold were sold to Australian buyers. However he did not agree that the vast majority of those Australian buyers would not buy those horses to race them overseas. He repeated that it was not just the racing but also the breeding after racing that was a consideration in the initial purchase. He agreed that it was possible that there were at least some foreign buyers who would buy yearlings at Inglis auctions to race them only in Australia. He did not agree that that category of purchaser would be in the market for AI-bred horses. It was possible they could be in the market but it was not an assumption that they would because racing in Australia or racing any horse was just the start of the process. It was the breeding of that animal when they had finished racing that was important and that affected the initial price and it affected the level of interest in purchasing a horse and it may well be that the purchaser would like the progeny produced to be available for international competition. He also said that if the rule in Hong Kong was changed to allow AI horses to compete it did not automatically flow on that the participants in the industry would purchase horses that did not have any ongoing residual value or global appeal. 767 Mr Webster said that the basis of the international cataloguing standards and ratings were set out in what the industry called the Blue Book maintained by IRPAC. He agreed that for so long as Australia remained in Part I of the Blue Book, its races would be comparable with races of other countries and for Australia to be removed from Part I of the Blue Book or indeed out of the Blue Book altogether would require a recommendation by IRPAC and ratification by SITA. If Australia's races were to be demoted in any way that process would have to take place. 768 He said he had not had any personal experience with artificial insemination on a commercial basis. He referred to breeding quarter horses for five years where he found artificial insemination to be an ineffective tool, with quite low fertility rates when he did not have a resident veterinarian. 769 In his second affidavit, Mr Webster provided a table showing gross sales and lots sold to international buyers at major Inglis yearling sales for 2010 to 2011. As a percentage of gross sales the international buyers represented between 10% and 23% with the higher numbers being referable to the Melbourne Premier Yearling Sales and the Australian Easter Yearling Sales. For the 2010 Australian Easter Yearling Sale the sale gross was $86,690,500 and for 2011 $80,119,273. In relation to the percentage of lots sold, the range was between 10% and 23% with the higher percentages being generally referable to the Australian Easter Yearling Sales. For the Melbourne Premier Yearling Sales the total lots sold in 2010 and 2011 were 521 and 539 respectively. For the Australian Easter Yearling Sales for 2010 and 2011 the total lots sold were 445 and 390 respectively. 770 In cross-examination Mr Webster accepted that the numbers of yearlings from top commercial stallions that were being sold at present was about the number that the market would bear without there being a significant decline in price. 771 Mr Webster's evidence was the Inglis counterpart to the evidence in relation to Magic Millions given by Mr Chester. I accept Mr Webster's evidence. In particular, he gave evidence, which other witnesses did not give as clearly, as to the effect on the initial purchase price not only of the more immediate prospects of making money from racing but also of the subsequent breeding activities.

Mr Messara 772 Mr John Messara is the sole director of Arrowfield Stud Pty Ltd which operates a thoroughbred stud farm in the Hunter Valley. It moved to its current farm in 1995. Since 1986 Arrowfield had stood around 20 stallions from overseas, principally on a shuttle basis. At its peak in 1995 Arrowfield stood 11 stallions and in 2011 stood 9 stallions at its stud farm. 773 Arrowfield stallions accounted for 48% of all Group 1 winners which had graduated from the Inglis Easter Yearling Sale by aggregate and average from 2005 to 2009. Arrowfield stallions accounted for 13.8% of all stakes winners from the same sale over the same period. 774 Proceeds from the sale of service fees to Arrowfield stallions accounted for approximately 60% of Arrowfield's annual income. It also earned income from the sale of yearlings and weanlings and from agistment. 775 In 2011 Arrowfield owned or controlled through joint ventures approximately 170 broodmares. Joint ventures made up approximately 50-60% of Arrowfield's broodmare holdings. The balance was made up of mares wholly or partly owned by Arrowfield. All of the broodmares in joint ventures or owned, partly or solely by Arrowfield, were resident on Arrowfield's stud farms near Scone. Arrowfield sent approximately 95% of the resulting progeny from broodmares resident on Arrowfield Stud to be sold as yearlings or weanlings at public auction in Australia and predominantly at the three leading auctions, being the Inglis Easter Yearling Sale, the Magic Millions Gold Coast Yearling Sale and the Inglis Premier Yearling Sale in Victoria. 776 Mr Messara said that out of the major thoroughbred studs in New South Wales, being Arrowfield, Coolmore, Darley, Widden, Vinery and Emirates, three of them were owned by overseas interests. 777 In Mr Messara's opinion, the overseas demand for Australian thoroughbred horses depended on the quality of the racing in this country. Australia had one of the most competitive thoroughbred racing industries in the world and because of that Australian bred thoroughbreds were attractive to overseas buyers. Over the last two decades Australian breeding had steadily become more international through the importation of bloodlines via both stallions and mares. Over the same period Australia had developed its export market. 778 Arrowfield purchased interests in around 15-20 yearlings each year, and it also bought in to prospective stallions that had raced or were currently racing. 779 The pedigree of any thoroughbred was very important as it provided the best sign the family produced superior athletes and those were the families that buyers around the world wanted to invest in. People liked to buy from proven families and would spend more money to obtain progeny from those proven families. This assessment was predicated largely on the comparable black type races which, as a prospective purchaser, gave you confidence that the horse would or was likely to succeed at the highest level of competition. 780 Mr Messara's belief was that overseas purchasers would not be interested in buying Australian thoroughbreds if Australia's races were not recognised internationally. He also believed that all of Australia's breeding operations would be viewed with suspicion by the rest of the world if Australia's races or Australia's breeding were no longer to comply with the international rules of the sport. 781 Mr Messara had been expressing opinions in opposition to artificial insemination in thoroughbred breeding since at least 2001. He had not had any direct experience with fertility issues using artificial insemination and the conclusions he had reached came about by reading and speaking to participants around the world, being vets and other breeders in the thoroughbred industry that might know something about AI, and even people in the trotting world. He was taken in cross-examination to a paper he had given in November 2001 and said that he still maintained his position of opposition to AI although he now thought that some of the alleged benefits that he had stated in that paper did not exist. He had changed his opinion about the efficiency of conception with AI and in relation to enhanced control of venereal diseases by AI; and to the perceived benefit of accessibility to international stallions. 782 His concerns essentially now were with the top echelon mares whose progeny were sold at the stud sales by Inglis and Magic Millions, that is the estimated 4,500 mares that produced foals (the foal numbers being about 85% of that number of mares) that were sold in the major sales in Australia and where the service fee was $2,500 or higher. 783 Mr Messara considered that one of the consequences of the introduction of AI would be that many small farmers might have to abandon stallion activities because the mares they would otherwise get would go to the most proven stallions with unrestricted numbers. 784 Mr Messara said the impact in terms of asset devaluation was less than he would have conceived at the time. He agreed that to the extent that broodmare farms provided agistment and other services to broodmares belonging to people who had their own farms they would suffer a loss of business but he added that a lot of that business would still flow because of mare owners wanting to get their mares in foal and wanting to access fresh semen, given his current belief as to the inefficacy of frozen semen and difficulties with cooled semen. 785 There was tendered by the applicant the following on which Mr Messara was cross-examined: Messara Warns AI in Aust "Would Be Lunacy" Thursday, 19th November 2009 Arrowfield Stud chief John Messara, in his 1st public comment on the controversial Artificial Insemination litigation begun this week in Australia's Federal Court, stated the "consequences of the introduction of AI would be different to those which are contemplated by its proponent Bruce McHugh" (former leading bookmaker & Sydney Turf Club chairman). Messara emphasised that "rather than creating more competition, it would concentrate stallion power in the hands of the few farms who control the proven stallions at the top of the list." He explained: "To date, conception by natural means has placed a lid on the number of mares each stallion can serve, but if that lid is lifted through AI the consequences could be dire for the industry. With breeders flocking to proven horses, huge numbers of mares would be inseminated by a small number of the most commercially desirable stallions & in this way there would be less competition, rather than more competition, among stallion owners. So while the stallion fees might reduce to accommodate the much larger books, the revenue of the big farms would increase substantially & that would lead to bigger profits, increased concentration of industry power & reduction of competition." Messara also noted: "Then you have the impact on the gene pool. The few thousand mares that comprise the active band in Australia will be served by a handful of stallions; logic dictates that AI would be harmful to the diversity of the breed." Messara also stated: "Of course, if AI were ever to be introduced into thoroughbreds in Australia, horses produced by means of AI & their progeny would not be regarded as thoroughbreds in other parts of the world & would not be able to compete internationally & would therefore be useless for breeding purposes internationally as well. This has the capacity to destroy the commercial viability of the thoroughbred industry in our country." Messara concluded: "AI is not without its advantages in reducing the transmission of disease & assisting sub-fertile breeding stock, but the disadvantages far outweigh the possible benefits & I believe it would be lunacy to introduce AI into Australia." 786 Mr Messara's affidavit went almost entirely to the international aspects of horse breeding and horse racing. In contrast, much of his oral evidence related to his long-standing opposition to AI. The bulk of that was tendered as Mr Messara's opinion. I accept his evidence as stating his opinion.

The medical evidence concerning artificial insemination

Dr Stuart Keller 787 Two reports by Dr Keller were in evidence. Dr Keller, an equine veterinarian, is the senior veterinarian of Tamworth Equine Veterinary Centre, which he founded in 2005. He has extensive experience in the field of veterinary science of horses and the speciality fields of equine surgery and equine reproduction by artificial breeding technologies, such as embryo transfer, artificial insemination and the freezing and distribution of stallions' semen for artificial insemination. He has worked with horses of many breeds including thoroughbreds, standardbreds, stockhorses, quarter horses, draughthorses, Appaloosas, Paints and miniatures. He had 20 to 30 thoroughbred owner clients, being a mixture of breeders and racehorse owners. Some of those owners might only breed one or two mares and some had commercial bands of broodmares in the order of 20 to 40. 788 Dr Keller said that thoroughbred horses evolved in the seventeenth century in England from the crossing of three Arabian stallions with a mixture of the "native" English mares. He said thoroughbreds were bred primarily for racing but also competed in showjumping, dressage, combined training (eventing) and polo. Thoroughbred characteristics included an average height of about 15 to 17 hands, chiselled heads, high withers, long necks, lean bodies and long legs. 789 He said that thoroughbred mares were generally retired to stud as three-year-olds and commence to breed in their fourth year after racing. Stallions usually retired to stud as three or four-year-old horses after racing. One thoroughbred mare can average eight to ten foals in her lifetime, depending upon whether she was bred every breeding season. 790 Dr Keller described equine reproduction. He referred to the oestrus cycle which described the periods of fertility in a mare. Each cycle lasts on average 21 days and includes a period of about four to five days in which the mare was sexually receptive and fertile, called the oestrus. 791 In thoroughbreds, the covering season is 1 September to 31 December. Pregnancy lasts in mares around 11 months from the date of conception. Four to ten days after the mare gives birth to a foal, the mare showed her first oestrus cycle. Breeding mares on their first cycle tended to be avoided. The mare's next cycle may be advanced by hormone treatments so that the mare can be impregnated as quickly as possible in September. 792 Many thoroughbred mares were still feeding their foals when transported to stud. Foals were not weaned from their mothers until they were about six months of age. 793 Due to the pressure to have the majority of mares bred and pregnant in the first two months of the breeding season (September, October) veterinary techniques had been adopted to stimulate the onset of cyclical oestrus, including increased daylight exposure using lighting systems and hormonal medication to eliminate prolonged transitional oestrus patterns. 794 Dr Keller said that direct covering of a mare generally involves the manual restraint of the mare. Preparation of direct covering generally consisted of bridling the mare, and in order to restrain the mare, hind leg hobbles, padded boots or a nose or ear twitch may be applied. The stallion was usually controlled by use of a chain lead over the nose over or through the mouth. In some instances a rearing bit may also be used. 795 Pregnancy is detected by ultrasound scan about 12 to 15 days after ovulation. Further scans are conducted at 30 and 45 days after ovulation. If the mare fails to conceive the first time she was covered by the stallion, the process has to be repeated in the mare's next oestrus cycle, at the time of ovulation. 796 After natural breeding, sometimes the natural service is "reinforced". This is the practice of collecting by aspiration any pooled seminal fluids from the floor of the vagina and then inseminating the semen through the cervix of the mare. Sometimes antibiotics or extenders are added to these aspirated fluids. The theory is to reinforce the balance of the ejaculate that was deposited into the uterus of a mare. 797 Dr Keller then described the transport of thoroughbred mares to the location of the stallion to be covered for natural breeding. He said that when large numbers of mares were agisted together during breeding seasons on stud farms they and their foals had a greater exposure to disease such as strangles, rattles and contagious viral abortion than would be the case if they remained on their home farm. He also referred to some horses developing equine travel sickness as a result of transportation to and from stud during the breeding season. In cross-examination Dr Keller agreed that thoroughbred broodmare farms were of increasing incidence in New South Wales and potentially such broodmare farms resulted in a congregation of broodmares in a similar sort of proximity to broodmares at a stud and in such circumstances such broodmares could be exposed to diseases such as strangles, rattles and contagious viral abortion. 798 Dr Keller said that with the advent since about the mid-1990s of ultrasonic reproductive examinations and the development of drugs to assist in regulating ovulation there had been a significant increase in the number of mares that thoroughbred stallions tended to cover. At the same time the number of coverings that a stallion may perform in a breeding season may be reduced, due to more precise timing of mating close to ovulation. More popular thoroughbred stallions had recorded books of up to 250 mares in one season, which was far higher than was the case about a decade ago. In the mid-1990s, popular stallions on average covered about 50 mares per breeding season and it was rare for stallions to cover more than 100 mares per breeding season. The stallions covering up to 250 mares in one season required intensive management to maintain optimum fertility. 799 Dr Keller said that an emerging problem with natural breeding was stallion exhaustion and loss of libido as a result of the increase in the number of mares that more popular stallions covered per breeding season. 800 Dr Keller then described artificial insemination as the process whereby semen was introduced into the uterus of a mare by injection through a syringe and pipette. It was timed to coincide as closely as possible with ovulation. Artificial insemination could be performed using fresh, chilled or frozen semen. 801 Dr Keller then described the methods by which semen was collected from the stallion for artificial insemination. After collection, the semen was usually extended although it could also be used undiluted to inseminate mares immediately. 802 Dr Keller said that spermatazoa could be damaged or destroyed during the cooling or freezing or thawing of semen. Frozen semen usually only survived for 12 to 24 hours after thawing. 803 If fresh semen was used in artificial insemination, industry practice was to inseminate the semen into the mare immediately or usually within one or two hours of its being obtained from the stallion. 804 Chilled semen lasts one to two days and could be shipped over long distances in refrigerative packaging. 805 Dr Keller said that insemination with chilled semen was preferable within 24 hours of collection from the stallion and synchronised ovulation, however insemination within 24 to 48 hours of collection was far more likely to occur due to freight logistics, although the chilled semen may last for much longer. Mares inseminated within six hours after ovulation had a moderately high chance of conceiving. 806 Dr Keller said there was a tremendous variation in the number of matings that could be achieved from one ejaculate of semen. It could be as low as one but as high as 20. On average, across the breeds, four to ten matings may be expected from one ejaculate. He estimated that on average about two to nine matings would be expected per ejaculate using chilled semen, which was much higher than with natural breeding. 807 Cycle per pregnancy rates for fresh semen may be expected to be 70% to 80%; for chilled semen 60% to 70% and for frozen semen 50% to 60%, depending on the fertility of the mare or stallion. The reason why the cycle per pregnancy rates were superior with the use of fresh semen as compared with frozen was because of damage to a percentage of sperm cells during the freezing and thawing process and reduced longevity of the thawed live sperm cells. The quality of frozen semen had improved over the last ten years due to refined extenders and more understanding of the processes for freezing. By way of comparison, it would take about 1.7 to 2.2 services before a thoroughbred mare was diagnosed as pregnant, which was a cycle per pregnancy rate of 54.9% to 67.3% depending upon the mare's age. 808 Artificial insemination with fresh semen was as effective, and often more effective, than live cover particularly in a stud breeding program where there was an enormous amount of pressure on stallions to cover all the mares on the first cycle. In Dr Keller's experience, when artificial insemination was used the mare had a high probability of conceiving at that breeding and it was likely that the mare would conceive on the first cycle. 809 Dr Keller said that if artificial insemination were used to reproduce thoroughbred horses, in his opinion there would be no differences from the use of artificial insemination with standardbred horses or other equine breeds. The question of parentage validation had long been resolved by the implementation of DNA-typing of foals, currently a mandatory practice for the registration of thoroughbred foals in the ASB. 810 Dr Keller then compared artificial insemination with natural breeding. He said that reproduction with artificial insemination allowed for analysis of the quantity and quality of spermatozoa when it was collected. Armed with knowledge about the quality and motility of spermatozoa it was possible to increase the likelihood that fertilisation would take place by manipulation of the semen. Artificial insemination allowed more mares to be inseminated per ejaculate than could occur with natural covering. 811 Natural covering was less suitable, or in some cases not suitable, for lame mares, aggressive stallions or mares, mares susceptible to uterine inflammation, or mares with congenital abnormalities. Artificial insemination may be used to inseminate mares in these cases. 812 Disease transmission between horses and horse injuries were lowered where artificial insemination was used for reproduction. 813 Mare owners were not required to transport animals to stud and instead could inseminate them on their own breeding farm or at a nearby veterinary facility. Mares and foals accordingly did not suffer from diseases, injury and stress caused by being transported long distances across the state or interstate. In cross-examination, Dr Keller agreed that it was difficult to quantify the risk of paddock injury as against the risk of injury in a float. 814 Dr Keller said that another reason why artificial insemination was preferable to direct covering was the stallion fatigue factor. Because semen collected for artificial insemination could be used with many more mares than would be the case with direct covering, the stallion exhaustion factor was much reduced. In cross-examination Dr Keller accepted that any stallion could be pushed to a point of stallion fatigue, depending on the approach of the owner of the stallion. 815 Artificial insemination could also be used to inseminate mares brought to the stud farm. Multiple mares could be served with semen from the one stallion on the same day, eliminating the risk of physical injury and reducing the likelihood of a missed mating opportunity. Mating events were unlikely to be missed during peak demand and labour requirements to manage the mating events were dramatically reduced. This meant that mating pressure on the stallion was much reduced and mares had an increased opportunity to conceive early in the breeding season. 816 Dr Keller said that artificial insemination with chilled semen would give many breeders wider options with respect to choice of breeding matches because chilled semen could be transported from around the country, or internationally from countries such as New Zealand. 817 Dr Keller compared the quarter horse industry as a case study into the effects of artificial breeding technology. 818 In his second report Dr Keller said that with artificial insemination the veterinarian had a much better idea which animal was the cause of the failure to conceive because the semen could be assessed prior to insemination. Also the opportunity cost of a mare not conceiving was lowered in artificial insemination because the mare was more likely to be inseminated at the optimal time for fertilisation. 819 Dr Keller agreed that the advent of ultrasound was a factor that allowed for stallions to breed large books of mares but he said the primary reason was the better overall management of mares, that is, the use of drugs to assist with ovulation, the use of ultrasound to monitor the oestrus cycle, anti-inflammatory uterine treatments, the improved cohesion of ovulation with covering and the overall health and diet of the mare and stallion. He agreed that there had been a significant increase in the average number of covers per stallion in the thoroughbred industry. The increase in the average number of covers for particular stallions (but not all stallions) had been influenced by improvements in breeding technology such as artificial lighting, hormonal medication to control mares' oestrus cycles and ultrasound scans, among other techniques which were part of the overall better management of mares. 820 Dr Keller said that it was very likely that at the beginning of the breeding season, the stallions that were breeding over 100 mares a season were covering mares more than three times a day. Even those stallions covering between one to three mares per day every day may suffer a drop in libido as the breeding season progressed. 821 Dr Keller said that artificial insemination allowed far larger numbers of broodmares, albeit in small numbers per broodmare owner, to remain resident on the owner's farms during the breeding. If artificial insemination were introduced in the thoroughbred breeding industry, he would expect many mares would remain in situ i.e. on home farms, broodmare farms or on studs where they were resident year-round. He would expect that a smaller number of mares would be temporarily housed at artificial insemination centres or veterinary clinics. 822 Dr Keller said that if artificial insemination were permitted, long-distance, interstate and international mare travel would be unnecessary and mare owners would be unlikely to choose to transport their mares such distances instead of transporting the semen. As a result, the incidence of injury, stress and disease associated with mare transport would be reduced. 823 Dr Keller was aware of several international stallions shuttling to Australia in the standardbred industry during the southern hemisphere breeding season so that their chilled semen could be sent around the country for artificial insemination. 824 As to costs, Dr Keller considered agistment costs, costs of transport, costs of veterinary fees from disease or injury and costs of artificial insemination with fresh, chilled and frozen semen. 825 As to agistment costs, those costs for mare owners would be lower if artificial insemination was performed at home and, if not, would nevertheless be reduced compared to current rates of thoroughbred stud farm agistment. For those mares inseminated at a breeding centre, some agistment payments would be made, but the total of such payments would generally be considerably lower because the stays would be considerably shorter than at studs. Also, Dr Keller said, the real cost of feeding and caring for mares on the home farm could be reasonably expected to be less than commercial agistment rates at studs. 826 As to transport costs, Dr Keller agreed that artificial insemination did not eliminate the cost of transporting mares entirely but did reduce it. This was his experience with standardbreds. 827 Dr Keller said that veterinary costs relating to disease or injury would not be similar if artificial insemination were permitted in thoroughbred breeding. 828 Dr Keller gave a range of costs by reference to the breeding agreement for 2010 at the Tamworth Equine Veterinary Centre. He said that if the mare fell pregnant on the first cycle it would cost the mare owner using frozen semen artificial insemination $595; chilled semen artificial insemination $505; or live cover $465. He explained that these fees included veterinary services. At the Scone Equine Hospital, described as the leading provider of veterinary services to the thoroughbred breeding industry in Australia and located in the Hunter Valley, the mare owners paid $1,030 for live cover veterinary services during the period from August to December 2011. On that basis, if the mare fell pregnant on the first cycle, the veterinary costs per the Scone Equine Hospital's contract with the mare owner using live cover would be 73% to 80% more than the veterinary costs, as per the Tamworth Equine Veterinary Centre contract, to a mare owner using frozen semen artificial insemination. Similarly, the veterinary costs to the mare owner using live cover would be 103% more than the veterinary costs to a mare owner using chilled semen for artificial insemination. However in cross-examination Dr Keller accepted that a direct comparison was not entirely accurate; that comparing schedules can be inaccurate; and that it would have been preferable if he had not put any costs schedules in. 829 Lastly Dr Keller disagreed with the comparison by Mr Houston, the expert economist called by the respondents, of the "veterinary costs" of live cover with those of artificial insemination with frozen and chilled semen. 830 Dr Keller agreed in cross-examination that a number of thoroughbred yearlings were sold for not much more than horsemeat. Foal wastage referred to the number of foals that were born that did not ultimately find registration or find a way to the racetrack to be recorded as racehorses. Some of those foals could be used as surrogate broodmares, some inevitably were euthanased or disposed of. There was not an insatiable demand for horses generally in Tamworth. Horses bred for racing purposes which were not wanted may find various buyers, some went through regular horse sales for disposal and there was a risk that a significant number ended up as horsemeat. 831 In relation to the costs of artificial insemination Dr Keller agreed that it was going to be overall cheaper to do that at the Centre because the risks were lowered, it was done by experts and the chance of disappointment was lower. 832 In summary, in cross-examination some basis was sought to be established for a submission that Dr Keller's reports were not those of an independent expert, because he might profit if Mr McHugh's case succeeded, but I see no reason to doubt Dr Keller's credibility or the reliability of his evidence. In my view Dr Keller was giving his evidence both independently and truthfully. 833 Dr Keller has a good deal of training and experience in artificial insemination, including with reference to thoroughbreds. (Thoroughbreds may be bred by artificial insemination where thoroughbred racing is not involved). Thus I accept his evidence, particularly in relation to the processes involved, the costs of veterinary treatment and to a lesser extent the comparative costs of artificial insemination as opposed to natural cover. I also accept his evidence as to the differential risks of disease.

Dr Angus McKinnon 834 Two reports by Dr McKinnon were in evidence. Also an exhibit contained matters with which Dr McKinnon agreed following discussions with other expert veterinary witnesses or proposed witnesses. 835 Dr McKinnon was a founding partner of the Goulburn Valley Equine Hospital, a major referral centre for horse problems and procedures. It was the largest embryo transfer facility and semen freezing facility in Australia. Dr McKinnon said at the hospital "we breed hundreds of mares with AI with fresh, chilled and frozen semen every breeding season. The hospital veterinary staff service multiple standardbred breeding farms and routinely collect semen and breed mares by AI." 836 Dr McKinnon said that AI was used in all major breeds with the exception of the thoroughbred. AI could be used to breed mares with fresh semen (within a few hours of collection) or the semen could be mixed with seminal extenders, treated with antibiotics and cooled for 24-48 hours or alternatively semen could be frozen in liquid nitrogen at minus 196 Celsius for AI much later on (with almost indefinite storage time). Dr McKinnon provided a service if someone wanted to use thoroughbreds in artificial insemination processes, for example to produce a horse which could be sold for some purpose other than registration as a thoroughbred. 837 Dr McKinnon set out advantages and perceived disadvantages of freezing semen and of cooled semen. 838 He said that he did not expect there to be any real differences in techniques used for thoroughbred artificial insemination compared to artificial insemination as practised in standardbreds. 839 He said semen could be used fresh within a few hours if kept at room temperature. If semen was cooled it may retain the ability to fertilise for 24 to 48 hours. Dr McKinnon agreed that there was a material difference between the utility of the semen within the first 24 hours compared to the second 24 hours and you would expect the fertility rate to be lower when the mares were bred at 48 hours. He agreed that it was very important that the mares were bred within 24 hours of the cooled semen being collected in most instances. If semen was frozen then fertilising ability may be retained for decades or longer. 840 Dr McKinnon said that many procedures for artificial insemination were different to natural service. First, the semen may be collected without having a mare in heat present at all. He said that there were equipment requirements that helped manage AI to a level of sophistication far beyond what was possible with natural service. For example, semen can be monitored routinely with AI as the semen was collected. When mares were bred by natural service it was not possible to accurately measure the parameters of the sperm as semen could only be recovered from the mare's reproductive tract or the stallion's penis as he dismounted and this was not an accurate representation of what had been produced. 841 Dr McKinnon summarised the differences as disease control; decreased chances of injury; the ability to collect semen from stallions with problems; the evaluation of semen each time it was collected; the prevention of stallion overuse; allowing more mares to be bred; permitting the breeding of mares with problems; permitting use of older valuable stallions; allowing mares to be bred at the best time for conception; increase in pregnancy rates; and mares being able to be bred at remote locations. He also summarised the disadvantages of artificial insemination in that specialised equipment was needed; technical expertise was needed and incorrectly practised artificial insemination could cause problems. 842 In relation to injury Dr McKinnon accepted that it was not uncommon for natural or pasture bred horses to receive injuries associated with breeding. 843 He also agreed that it may not always be correct that artificial insemination with cooled semen would eliminate the cost and stress of mare and/or foal transport because in some cases mares may continue to be transported to a location where there was appropriate expertise for artificial insemination with chilled semen. However the use of artificial insemination with chilled semen gave mare owners a choice on whether the mare was bred at home or transported to another facility. The use of artificial insemination with chilled semen, as with fresh and frozen semen, eliminated the necessity of transporting the mare to the stallion's location to be bred. 844 In the thoroughbred breeding industry he estimated, on his experience, that approximately 55% of mare owners would breed their mares at stud where the stallion was located; approximately 35% of mare owners would breed their mares at agistment farms (also called mare stations); approximately 9% of mare owners would breed their mares at their home; and approximately 1% of mare owners would breed their mares at veterinary clinics. 845 In relation to disease control, Dr McKinnon said that there was a widely held understanding amongst equine veterinarians that there was more risk of injury with natural service than artificial insemination, such that this understanding had become industry dogma. The reduction in risk of injury to mares, stallions and handlers was borne out in experience of veterinarians involved with equine natural service and artificial insemination. The reason for the increased efforts to minimise injury in natural service environments was precisely due to that recognition. 846 Dr McKinnon referred to the difference in fertility rates between fresh, chilled or frozen semen. For artificial insemination using fresh semen the fertility per cycle would be approximately 70% to 75%, which was identical to the fertility expected from natural service on well-managed breeding farms. Breeding with cooled transported semen reduced fertility perhaps by 5% to 10% per cycle. Breeding with frozen semen reduced fertility further to around 50% of what was expected of fresh semen per cycle. He said that the only accurate measure of fertility was pregnancy rates per cycle not pregnancy rates per season. 847 Dr McKinnon said that the use of artificial insemination resulted in a reduced cost for breeding in many instances. Cost savings occurred as mares could be bred at home with no mare and foal transport or agistment charges. 848 He agreed that the relative costs of artificial insemination or natural service will vary depending on, but not exclusive to, the place of residence, the methods of mare management and the relative transport costs of mare or semen. 849 In his second report, Dr McKinnon disagreed with the proposition that artificial insemination was less effective than natural cover when using chilled or frozen semen. He agreed that AI can be less effective than natural cover when using chilled or frozen semen but chilled semen was often as effective as direct cover (or less effective by a very small amount) and AI with frozen semen was a bit less effective. AI with fresh semen was as effective as and often more effective than live cover. 850 In the short term, if the international thoroughbred organisations refused to accept Australian thoroughbreds born as a result of AI, the impact of artificial insemination on genetic diversity may be a narrowing of the available genetic pool of stallions and a reduction in the number of available stallions within Australia. However, in the long term, if artificial insemination was accepted by the international thoroughbred registries there would most likely be increased genetic diversity. 851 In terms of agistment costs it was reasonable to expect that the thoroughbred mare owner may have more control over all charges (agistment, veterinary etc) by having a wider choice of breeding options available (breed from home, breed at AI facility or mare station, breed at the farm that stands the stallion or breed at a veterinary facility). The mare owner would not always have reduced charges but they would have a choice. However he agreed that mare owners had similar levels of control over all charges and the choice of breeding options regardless of whether the mare was bred by natural cover or by artificial insemination. The substantive impact of artificial insemination was to allow the mare owner to keep that mare at or near home and breed to a remote stallion. 852 As to the likelihood of injury, disease or other risks, they were expected to be reduced when numbers of horses were decreased per unit area if management practices were the same. Most disease was caused by management. A high concentration of horses led to an increased opportunity for bacteria, viruses and parasites to proliferate and spread between horses and may increase the injury rate as well. It was not known if the number of horses per unit under thoroughbred management practices would be reduced with the advent of artificial insemination. 853 In relation to disease transmission, the risk of transmission of venereal diseases through natural cover or artificial insemination could be reduced through specific preventative or control programs. In some bacterial diseases that might be spread through insemination or intercourse the addition of antibiotics to extended semen in an artificial insemination program might provide an advantage in preventing transmission compared to managing the same risk in a natural cover program. 854 As to transportation costs he disagreed that mares undergoing artificial insemination at a breeding centre generally needed to take more trips than mares undergoing natural cover. Dr McKinnon said there were many options to mare owners inseminating their mares with artificial insemination regarding the place of insemination and the place for pregnancy diagnosis. He said the generalisation that could be made when comparing actual service with artificial insemination was that with artificial insemination mare owners had the choice not to transport their mares at all and mare owners were able to breed them to the stallion located very far from a farm without needing to pay to transport that mare interstate or internationally. He agreed that costs would vary according to the circumstances, however overall he said it was clear that the costs of mare transportation would be lower with artificial insemination as compared with natural cover because the expense of transporting mares long distances, or interstate or internationally may be avoided. 855 He disagreed with the proposition that using artificial insemination increased the risk that conception would not occur in the first cycle so the foal would be born later in the season and that the lower effectiveness of artificial insemination also increased the risk that the mare would not conceive at all, particularly if the first breeding had been delayed. Dr McKinnon said this conclusion was to misrepresent the fertility rates. He said that well-managed artificial insemination was associated with identical or similar fertility as natural service. 856 In cross-examination Dr McKinnon accepted that a thoroughbred breeder seeking to sell a yearling would know that it was likely that such a yearling would be subjected to the stresses and risks of injury. He also accepted that there were stresses and risks of injury in training, in racing, or from a horse being in a paddock. 857 Dr McKinnon accepted that the likelihood of a higher risk of injury or disease in the case of direct cover versus artificial insemination was very much dependent on management skills and efforts and management practices. He accepted that well-managed farms managed that risk well. Dr McKinnon said that a horse had a gestation period of 340 days and that meant, to maintain an interfoaling interval of the year, there was only a 25 day period to get that horse pregnant again and that impacted dramatically upon the ability of a horse to carry a consecutive pregnancy, which was clearly the aim of almost all breeders. So management techniques, specifically intrauterine antibiotics and the other things all helped reduce the inflammatory changes in the mare's uterus after she foaled which then decreased the embryonic losses. 858 Dr McKinnon said that with horses there was no selection or very little selection for fertility. The selection processes in almost all horses, irrespective of breed, was pedigree and performance whether that was show or race performance, whereas in other domestic animals the selection pressures were very important for fertility: infertile animals were culled, where that did not happen in relation to a horse. 859 Dr McKinnon accepted that a change which would permit the use in the thoroughbred breeding industry of frozen semen of a champion sire long after its death could work a significant change in the industry. 860 He said that the semen of at least 30% of stallions did not freeze acceptably, that is, you would not get enough pregnancies per cycle to make it commercially valuable or even economically viable to use. 861 Dr McKinnon accepted as a matter of common sense that the frozen semen option would be something likely to be more attractive to better resourced clients with a valuable stallion. 862 Dr McKinnon was asked a large number of questions about embryo transfer and cloning. 863 Dr McKinnon was questioned about the increased successful impregnation of mares by natural cover as compared to by artificial insemination. He said ten years ago artificial insemination would allow you to breed 250 mares or 300 mares whereas with natural service 100 mares would be the outer limit. But now 200 mares for the popular stallions was quite common for thoroughbred natural service whereas the number of mares being able to be bred by artificial insemination on a practical basis had not changed. But AI could certainly be double natural service at present. It depended on the stallion. 864 Dr McKinnon said that ultrasonography and ovulation induction and management of the mare's cycle was critical for artificial insemination, as it was in natural service. He did not think the cost should vary between artificial insemination and natural service unless a veterinarian had to charge for travel to attend a small group of mares. That would cost the client more. 865 Dr McKinnon agreed that the sort of services which were currently provided on natural cover stud farms would need to be provided at a cost at an artificial breeding centre. 866 Dr McKinnon accepted that the steps in relation to the use of cooled semen for artificial insemination were collection of the semen from the stallion; analysis of the semen and preparation of the report on the semen; the semen being chilled as it was being transported; and the transport of semen. He agreed that an individual shipment of cooled semen to remote locations required a lot of communication and effort and some degree of frustration. Despite the expectations of clients, pregnancy results were not improved by chilling semen and transporting it. There was a list of steps 1 to 15 in the report headed "transport of semen" which Dr McKinnon regarded as appropriate to be undertaken by stallion owners who participated in the provision of cooled semen. 867 Dr McKinnon was not in a position to suggest that the use of artificial insemination with cooled semen was necessarily going to be cheaper than the cost involved with natural cover. Sometimes the costs were greater using artificial insemination with cooled semen and natural breeding and sometimes they were less. 868 The relative expense of costs to collect and process semen for artificial insemination compared to the labour costs involved with natural service depended on a variety of factors. A stallion that was required to breed four mares in one day would have a significant labour input with natural service (about four or five people in the breeding shed) whereas collection of semen for artificial insemination could be performed at a significantly reduced cost and with fewer people (commonly two people). In the case of the stallion that had four mares to breed in one day this could be accomplished by one collection of semen every other day. Semen collection and transportation costs were not a factor in natural service but those costs had to be weighed against other costs involved in natural service such as mare transportation costs and inducement. Transporting semen may negate any travel at all for mares from the owner's farm in those instances. Where mares remain on the owner's property, transport costs were eliminated. Other costs may be of a similar scale for mares bred either by natural cover or artificial insemination. 869 Dr McKinnon accepted that in relation to the natural cover of thoroughbreds the pregnancy rates per cycle in the Australian thoroughbred population were better than anywhere else in the world and he believed that that was due to good management in farming with veterinary management. 870 I accept Dr McKinnon's evidence. His evidence and Dr Keller's were to a similar effect.

The statistical evidence 871 The applicant called evidence from Edward Lidums, a lecturer in statistics at the School of Mathematical Sciences, University of Technology, Sydney. Four reports by Mr Lidums were in evidence. 872 His first report was entitled "Statistical Analysis of the Consequences of Artificial Insemination on Breeding Outcomes in the Thoroughbreds Racing Industry". The twenty questions Mr Lidums addressed, together with a summary of his evidence in respect of each, were as follows. 1. Describe the geographical distribution within Australia of thoroughbred stallions and broodmares. 873 Mr Lidums gave the geographical distribution by State of thoroughbred stallions for the period 2004 to 2009, 2009 being representative of the distribution for the period. The approximate percentage of stallions in New South Wales was 30%, Victoria 20%, Queensland 19%, Western Australia 10%, South Australia 6%, Tasmania 2.5% and the Northern Territory (and, it appears, the ACT) 0%. In relation to broodmares, the approximate figures were New South Wales 36%, Victoria 24%, Queensland 19%, Western Australia 12%, South Australia 5%, Tasmania 2.5%, the ACT 1% and the Northern Territory 0.5%. 2. Assess (by reference to number of mares and by stud fees charged) the extent to which stallions change in popularity, that is, is it a static group of popular stallions that dominate the market for any extended period of time, or is the situation more fluid? 874 The parties agreed that this part of Mr Lidums' report was about the market for coverings of thoroughbred mares in Australia. 875 Mr Lidums said that possible dominance of the market by stallions could be assessed by considering stallions which covered more than 150 mares each year, as in 2009 those stallions formed only 2.6% of all the stallions represented but accounted for 15% of all the coverings. 876 However, with the exception of two stallions, individual stallions did not form part of the group covering more than 150 mares for more than three or four consecutive years in the period 1998 to 2009. Furthermore, for many of the stallions once they were no longer in the group covering more than 150 mares the number of mares covered dropped off significantly. 877 Overall, the group of stallions that covered more than 150 mares had become more important in the market in that it had increased in number, increased the proportion of stallions it represented in the total number of stallions and also accounted for a greater proportion of the total number of coverings, but this group did not consist of the same stallions over an extended period of time. 878 Considering the time period 2002-2009 in terms of the group of stallions dominating the market with respect to service fees, Mr Lidums listed the top 30 stallions by service fees for this period. Over this period, between 47% and 77% of the stallions appearing in any year amongst the top 30 by service fees appeared in the following year amongst the top 30. However, whilst most appeared in four or fewer consecutive years, seven stallions dominated in appearing in six or more years during the period 2002-2009. In cross-examination Mr Lidums agreed that, in error, he had missed Exceed And Excel from the list of stallions appearing in six or more years during the period. 879 Mr Lidums said that being in the top 30 by service fee was in most cases not associated with being in the group covering more than 150 mares as only two appeared five or more times amongst the group covering 150 or more mares. Further, there was no general pattern to the changes in service fees for the stallions. Mr Lidums agreed that there was an overlap between the horses in the top 30 by service fee and the horses who covered more than 150 mares in a season and that if you looked at those which appeared in the top 30 for six or more years and took that down to five or more years there would certainly be a greater overlap than he had indicated. 880 In cross-examination Mr Lidums also agreed that in addition to stallions who appeared six or more times in the period 2002-2009, there were a number of stallions who appeared five times in the top 30, those stallions being: Elusive Quality (5 times); Galileo (5 times, in the years 2002-2006); Danehill Dancer (5 times, in the years 2003-2005); Choisir (5 times, 2003-2005, 2007 and 2009), Lonhro (5 times, 2004 and 2006-2009); General Nediym (5 times, 2004-2008); Fastnet Rock (5 times, 2005-2009); Tale of the Cat (5 times, 2004-2007 and 2009). There were also stallions that appeared only 4 times, those stallions being Carnegie (4 times, 2002-2005); God's Own (4 times, 2006-2009); More Than Ready (4 times, 2005-2008); Testa Rossa (4 times, 2005-2008); Octagonal; Commands; Elvstroem; Holy Roman Emperor; and Stratum. Many of those stallions who appeared five times or four times in the top 30 covered more than 150 mares in some of those years. 881 Mr Lidums accepted that choosing six years out of nine was to an extent arbitrary, just as a selection of the top 30 was to some extent arbitrary. He accepted that this was not a full analysis because to do a full analysis you would need to look at the arbitrary cut-off points in the top 30 by service fees and the number of coverings being 150 and so on. His view was that being represented in two thirds of the years in question constituted dominance of certain stallions. 882 On the basis of certain documents, being the top sires by number of cover for 2005, 2006 and 2008, Mr Lidums agreed that there was a greater overlap between the number of stallions who appeared in the top 30 by service fee and the number of stallions who appeared in the top 150 by cover. 883 As to his table 2.3, dealing with coverings by stallions in the group covering more than 150 mares for three or more consecutive years, Mr Lidums agreed that if he was looking at prolific stallions over the span from 2002-2009, rather than prolific stallions over consecutive years then a greater number of stallions would have been included. Indeed even in relation to three consecutive years there should have been added Snippetson, Sequalo, Lion Hunter, General Nediym, Strategic and possibly Redoute's Choice. 884 Mr Lidums accepted that the effect of the decision to look at three consecutive years made the market appear more concentrated in terms of a smaller number of stallions being identified as being influential. 3. Review the various sales catalogues and results with which you have been briefed, and assess the extent to which the progeny of the same stallions/mares appear in consecutive years. 885 Mr Lidums' analysis was performed on the combined results for all sales from the Magic Millions and Inglis sales. 886 He said that, for the stallions, there was a change in the stallions represented from year to year. Of the stallions represented in a particular year, between 50% and 70% appeared in the following year. However, the stallions which were represented in subsequent years were spread evenly amongst high-use and low-use stallions with a group of about 30% common to all of the years. 887 For the mares, there was a large change in the mares represented from year to year. Of all the mares represented in the period from 2005 to 2010, 62% were only represented in one of the years and 24% were only represented in two of the years. Of the mares represented in a particular year, between 22.8% and 31.0% were represented in the following year. The percentage of mares represented in 2005 that were still represented in 2010 was only 7% and so only a small percentage maintained representation over the majority of the six-year period. 4. Has there been any recent alteration in market share of the seven major thoroughbred studs in Australia? 888 In his first report Mr Lidums chose the "seven major thoroughbred studs" on the basis of the total number of mares covered by those studs and the stallions from those studs which appeared in the list of top stallions by the number of coverings in the period being considered, 2000-2009. He said these seven studs were Arrowfield, Coolmore, Darley, Eliza Park, Glen Logan [sic], Vinery and Widden. He said that in each case the changes could be modelled by a steady increase over the whole period, with on average the top seven thoroughbred studs covering an extra 611 mares each year and increasing the percentage of mares they covered by 1.4% each year. However, in cross-examination Mr Lidums withdrew his evidence that he considered the figures for the studs over the full period of time and concluded that those seven studs were the most significant. He accepted that he should have stated, in paragraph 4.2, that he had chosen the top seven studs only by reference to 2008. Those were not the seven major studs which was why, Mr Lidums said, the material was redone in his fourth report. 889 Mr Lidums said that the percentage of mares covered by the top seven thoroughbred studs moved from 13.9% in the year 2000 to 27.1% in the year 2009. He also said that in the same period the percentage of stallions in the top seven thoroughbred studs moved from 3.6% to 10.3%. 890 He said that the percentage of yearlings sold sired by the top seven thoroughbred studs was 40.4% in 2005 and had increased to 60.3% in 2009. The percentage of total sales value of the yearlings from the same studs moved from 63.5% in 2005 to 83.9% in 2009. 891 On the basis of the criteria of the proportion of stallions from the top seven, the proportion of coverings from the top seven, the proportion of sales for yearlings from the top seven and the proportion of the total sales value from the top seven, the market share of the top seven thoroughbred studs had increased over the periods considered. 892 He said that there was no statistically significant difference in the proportion of stallions amongst the studs over the years and so their relative market shares had not changed over the period. This remained correct for those seven major studs. 893 He said there were significant differences from year to year amongst the proportion of mares serviced by the different studs. Again, this remained correct for those seven major studs. 894 He also said there were significant differences from year to year amongst the proportion of fees earned by the different studs. 895 This material was analysed differently in Mr Lidums' fourth report as some stallions which covered a large number of mares moved between studs over the period 2000 to 2009 and there were some years where those stallions were not included in the figures used in the analysis. In the fourth report the analysis repeated the analysis of the first report but took the top seven thoroughbred studs in each year as the seven which accounted for the largest number of mares covered in that year. 896 For the period 2000-2009 the changes could be modelled by a steady increase over the whole period, with on average the top seven thoroughbred studs covering an extra 545 mares each year and increasing the percentage of mares they covered by 2.2% each year. 897 On this basis, the percentage of mares covered by the top seven thoroughbred studs was 16.3% in 2000 to 37.4% in 2009. The percentage of stallions in the top seven thoroughbred studs was 4.4% in the year 2000 and 11.5% in the year 2009. 898 Mr Lidums accepted that a different picture was shown if the seven major studs was defined as the seven most prolific in each separate year. 5. Assess whether there has been any alteration over time in the number of mares covered by the most popular thoroughbred stallions. 899 Mr Lidums said that over the period 1990-2009 there was a steady increase in the total number of mares covered by the ten most popular stallions with the median number of mares covered by a stallion increasing from 82 in 1990 to 91 in 2009. Furthermore, he said, there was a significant increase in the difference between the number of mares covered by the most popular and least popular stallion in the group of the ten most popular, with a difference of 29 coverings between the most popular and tenth most popular in 1990 increasing to a difference of 103 between the most popular and tenth most popular in 2009. 900 The number of mares covered by the most popular thoroughbred stallions over the period 1990-2009 increased steadily from 1995 at least with on average an extra nine mares being covered each year. The number was between approximately 100 and 140 in the early 1990s and between 250 and 300 in 2009. 6. Assess the extent to which particular stallions cover large numbers of mares, and whether this has changed recently. 901 Mr Lidums said that a particular stallion would cover a large number of mares if the stallion appeared amongst the ten busiest stallions for several years. He said that on the basis of these stallions (Celestial Dancer, Danehill, Dieu D'or, Choisir and Fastnet Rock), high-use stallions in the period 2001-2009 covered more mares than were covered by high-use stallions in the period 1990-2000. Furthermore, the number of mares covered by the high-use stallions in the period 2001-2009 increased year to year during that period. The periods to which Celestial Dancer, Danehill and Dieu D'or were referable were earlier by a number of years than the periods to which Choisir and Fastnet Rock were referable. For Celestial Dancer the years were 1992 to 1995 and the number of mares covered was 97 at the beginning of that period and 116 at the end of that period. For Danehill the years were 1994 to 1999 and the number of mares covered was 127 at the beginning of that period and 164 at the end of that period. For Dieu D'or the period began in 1990 with 83 mares covered and ended in 1996 with 109 mares covered. For Choisir the period began in 2003 with 158 mares covered and ended in 2009 with 227 mares covered. For Fastnet Rock the period began in 2005 with 208 mares covered and ended in 2009 with 273 mares covered. 7. Compare and contrast the historical trends in total numbers of standardbred and thoroughbred stallions and broodmares in Australia. 902 Mr Lidums said that both standardbred and thoroughbred stallions decreased in number during the period 1995-2009. The average decrease of 67 stallions per year for thoroughbreds represented a decrease of 6% of the average number of thoroughbred stallions over that period. The numbers decreased from approximately 1750 to 800. The average decrease of 18 stallions per year of standardbreds represented a decrease of 4.5% of the average number of standardbred stallions over the whole period, the numbers decreasing from approximately 600 to 400. In cross-examination Mr Lidums disagreed that his figure 7.1 was misleading, starting at 1995, if there had been an earlier substantial decline in the number of standardbreds and a plateau in the number of thoroughbreds in the 1980s and early 1990s. 903 He said that the total numbers of standardbred and thoroughbred mares in the period from 1995-2009 decreased steadily. Mr Lidums could not say, in cross-examination, without doing the analysis, whether excluding the last lower figure would lead to the "overall decrease over that period" being zero or close to zero. The number of thoroughbred mares in 2009 was 26,757. 904 In relation to both these groups the numbers did not distinguish between stallions or mares owned by those who owned only a small number of stallions or mares as opposed to larger enterprises. 8. Assess whether there was any increase in the numbers of standardbred mares being served by the most popular stallions during the period after AI was legalised, but particularly after about 1996. 905 Mr Lidums said there was no significant difference in the number of mares served by the high-use standardbred stallions during the period 1985-1996, with each stallion serving an average of 112 mares each year. In 1997 each stallion served an average of 128 mares which was a significant increase over the previous period. The number served increased significantly again for the period 1998-2009, with each stallion serving an average of 160 mares each year, but there was no significant difference amongst the number of mares served each year during the period 1998-2009. There was no significant difference in the number of high-use stallions between the years in the period 1995 to 2009, there being an average of 23 high-use stallions each year. Mr Lidums said that high-use stallions provided 46% of all services by 2009. The proportion of services provided by high-use stallions had increased at a steady rate of an extra 1% per year over the period 1995 to 2009. Mr Lidums accepted in cross-examination that his figure 8.3, according to its terms, gave no consideration to whether the percentage of stallions who served between 20 and 89 mares increased or decreased nor whether the percentage of stallions who served between 10 and 19 mares increased or decreased. Figure 8.3 was only about the percentage of services by high-use stallions and if that percentage increased then the percentage served by the low-use stallions must have decreased. 9. Has the number of high-use (90 plus) standardbred stallions increased over time, and has the number of low use stallions declined? Please identify any statistically significant changes in usage patterns which correlate with changes in the regulation of AI. 906 Mr Lidums provided a figure on the basis of which he said that since 1996 the number of high-use stallions remained stable with an average of 23 standardbred stallions being used each year. 907 Mr Lidums also provided a figure showing the percentage of all services performed by high-use standardbred stallions (90 plus services) over the period 1995-2009. The percentage for 2009 was approximately 46% of the total number of mares, with an average increase of 1.06% per year. 908 Defining low-use stallions as those serving between 10 and 89 mares, Mr Lidums said the number of low-use stallions showed a steady decline over the period 1985-2009. The average rate of decrease was such that 12 fewer stallions were used each year. 909 In cross-examination Mr Lidums accepted that his figure 9.2 said nothing about stallions serving fewer than 10 mares or whether the decline was among stallions near the high end of the 10 to 89 band or the low end of that band. The same applied to figure 9.3 showing the percentage of mares serviced by high-use stallions. 910 The figures were from 1995 onwards and it was not possible to assess from those figures whether there had been a change with respect to any period before 1995. 10. Assess whether there has been any improvement over the last 20 years in times being run by standardbred horses in Australia, by reference to the numbers of horses running the mile in 2 minutes or less. 911 Mr Lidums provided a figure which showed that, eliminating the 2007-2008 period due to the equine influenza outbreak, there was no significant difference between the number of races run each year during the period and so the increase in the number of standardbred horses running the mile in two minutes or less represented an improvement in times in that a larger percentage of horses each year ran a mile in two minutes or less. The percentage of horses running a mile in two minutes or less for 2009 was approximately 15%. 11. Compare over the last 10 years or so the difference between the mares serviced by the 10 "busiest" stallions in thoroughbreds and in standardbreds. 912 Mr Lidums provided a figure showing the average number of mares serviced by the ten busiest thoroughbred and standardbred stallions over the period 2001-2009. 913 Over that period, for thoroughbred stallions, the total number of mares serviced by the ten busiest thoroughbred stallions moved from 1,705 mares in 2001 to 2,043 mares in 2009. 914 For standardbred stallions there was no significant difference in the number of mares serviced in each of the years. Over that period the 10 busiest standardbred stallions serviced on average a total of 2,187 mares a year. 915 In cross-examination Mr Lidums said that he did not have any material about what would happen if he took the top 20 or the top 30 busiest stallions. He did not do a sensitivity analysis to consider whether the 10 busiest was an appropriate cut-off to choose but accepted that that was a reasonable figure in the industry without raising the sensitivity analysis issue. 916 In relation to his figure 11.1, Mr Lidums accepted that on the assumption that in the standardbred industry when semen was sent to New Zealand from Australia it was not listed among the Australian stallions' Australian covers, the figure did not give the full picture and that on that assumption then the actual numbers would be increased. 12. Describe the historical trends in the total prize pool for harness racing in Australia. 917 Mr Lidums said that for the period 1966-1967 to 2009-2010 there was a steady increase in the stakes, apart from the period from 1991-1992 until 1993-1994 and in 2007-2008. He said that since that period in the early 1990s when the stakes fell, there had been a steady increase in the stakes, the stakes increasing by an average of $3,053,000 each year, if the period 2007-2008 was not included in the calculations. It appeared that for 2010 the total stakes were of the order of $100,000,000. 918 Also in 2010 it appeared that the total stakes per meeting was about $50,000, Mr Lidums giving evidence that since that period in the early 1990s there had been a steady increase in the stakes per meeting, those stakes increasing by an average of $1,620 each year. 919 Again for 2010 the stakes per race were approximately $6,500 and since the period in the early 1990s, Mr Lidums said, there had been a steady increase in the stakes per race, those stakes increasing by an average of $195 each year. 13. Compare the historical trends in conception rates in standardbreds and thoroughbreds, if possible differentiating between imported and local semen. 920 Dealing first with thoroughbreds, Mr Lidums said that for the period 1998-2006 the percentage of live foals to services stayed constant at an average of 69.5% live foals per services and in the period from 2006 to 2009 decreased by an average of 2% per year. 921 For standardbreds using local semen during the period 1990-2008, the percentage of live foals to services decreased by an average of 0.45% per year. 922 For standardbreds using imported semen, significantly lower rates occurred during the period 2004-2006 but returned to rates consistent with the previous years from 2007 onwards. The consistent trend for standardbreds using imported semen for the period 1998-2008 was that the percentage of live foals to services decreased by an average of 0.47% per year. 923 Currently, Mr Lidums said, the rates for thoroughbreds and for standardbreds using local semen were approximately equal but marginally greater than the rate for standardbreds using imported semen. 14. Describe the historical trends in the proportion of semen for AI used in standardbreds in Australia that is imported from overseas. 924 Mr Lidums said that in the period from 1996-1997 to 2003-2004, there was a steady increase in the percentage of services using imported semen, with the percentage increasing by an average of 1.6% each year. In the period 2004-2005 to 2008-2009 there was no significant difference amongst the percentages in the given years, the percentage having an average of 15.7%, that is, over this period 15.7% of all services were using imported semen. Mr Lidums also said that in the period 2003-2004 to 2008-2009 there was no significant difference among the percentages of sires contributing imported semen, the average in those years being 13.6%, that is, over that period 13.6% of all the sires being used were contributing semen from overseas. 15. Assess whether results from the harness racing experience can be extrapolated to form conclusions in relation to thoroughbreds. 925 In answering this question, Mr Lidums assumed that any artificial insemination techniques used for thoroughbreds would be similar to those used for standardbreds; that markets for standardbreds and thoroughbreds would continue to operate in the same way as they did at present; and that any introduction of artificial insemination for thoroughbreds would be without any restrictions, as was currently the case for artificial insemination for standardbreds. Having noted the decrease in the number of standardbred stallions and standardbred mares over the period 1995 to 2009, Mr Lidums also noted that a steady decrease in number also occurred for thoroughbred stallions and thoroughbred mares over this period and assumed that that trend would continue for thoroughbreds and would not be affected by the introduction of artificial insemination. 926 Mr Lidums also noted that over the period 1995 to 2009 the percentage of mares covered by high-use stallions increased for both standardbred and thoroughbred stallions with no change in the steady rate of increase for standardbred stallions at any of the times when the artificial insemination rules changed. He said that it might be assumed that this trend would continue in thoroughbred stallions if artificial insemination were introduced. In cross-examination Mr Lidums accepted that, if one was at 1996, in order to decide whether or not there was a steady rate one would need to look several years back. Mr Lidums' model, he said, started in 1995 and had a steady rate from 1995 onwards without any change in that steady rate in 1996. He said the claim being made was that the figures for 1995 to 2009 fitted a pattern which was consistent with a steady rate of increase over that period, and there was nothing in 1996 in that pattern to indicate it was an unusual point. Mr Lidums accepted that his figure 8.1, which showed the number of mares being served by high-use stallions back to 1985, indicated a difference in relation to his figure 9.3 which was not mentioned in his paragraph 15.4 because that paragraph was based on figure 9.3. He agreed paragraph 15.4 gave an incomplete picture and there was more information which he might have provided. 927 Since the relaxation of rules concerning artificial insemination in 1998 and 1999, the average number of mares serviced by the 10 busiest standardbred stallions had not changed from an average of 219 by each high-use stallions each year. It appeared that the use of artificial insemination had not had an effect on this and might not change the trend in the 10 busiest thoroughbred stallions which exhibited a steady increase in the average number of mares serviced each year. 928 Mr Lidums wrote: "The one point where there was an effect with AI is in conception rates. Since 2001, conception rates for thoroughbreds, local bred standardbreds and standardbreds using imported semen have been decreasing." The conception rates using imported semen had been consistently lower than the other conception rates and if this was also the case for thoroughbreds, the use of imported semen for thoroughbreds might decrease the overall conception rate for thoroughbreds more rapidly than it was decreasing at present. 16. Assess the Inglis and Magic Millions sales data against published stud fees and describe the proportion of progeny over time that fail to realise their service fees. 929 Mr Lidums considered the proportion of progeny failing to realise their service fees for stallions who had more than 50 yearlings sold in the relevant years. The table showed the number of yearlings sold for each stallion and the number and the percentage failing to achieve the service fee. There was no significant difference in the average percentage of progeny failing to achieve their service fees in the period 2005 to 2008 but there was an increase in the proportion of yearlings failing to realise their service fees after 2008. The average proportion rose from 19% not realising their service fees up to 2008, to 41% not realising their service fees in 2009 and 50% not realising their service fees in 2010. 930 Mr Lidums proceeded on the basis that for each progeny of a stallion appearing in the sales the service fee was taken from two years earlier. Mr Lidums accepted that if the appropriate service fee was three years earlier, to the extent that the service fees might have changed the figures in the answers to question 16 did not assist. Mr Lidums accepted that considering only stallions which had more than 50 yearlings sold in the relevant years was a small sample size but did not agree that a clearer picture would be given if more sires were included. He accepted that if he had taken more sires there would have been less variability and a more consistent picture. He had conducted a sensitivity analysis. He also accepted that one could not extrapolate from those figures to the whole population of stallions. 17. Review the Inglis and Magic Millions catalogues and sales data, and assess the extent to which the number of yearlings sold at major sales were sired by a small number of stallions. 931 Mr Lidums said that he had listed the stallions in the years 2005 to 2010 which contributed more than 1% of the yearlings sold. Those stallions represented between 3.4% and 9.1% of the total number of stallions whose yearlings sold but between 20.22% and 33.47% of all sales so that on average over this period a group of 20 stallions, which represented 6% of the total number of stallions responsible for yearlings sold, accounted for 28% of all sales. 932 In cross-examination Mr Lidums agreed that those figures did not show a real increase or decrease over those years. 933 For stallions represented in five or six years of the period 2005 to 2010 there was no consistent pattern to the changes in the percentage of yearlings sold that they had sired. 18. Assess whether there is any statistical correlation between representation of particular stallions at the "major sales" and the service fees for such stallions. 934 Mr Lidums said that on the basis of the available results, for the period 2005 to 2010, the correlation between service fees and representation for six stallions which appeared in at least three of the years during that period was not significantly different from zero. 935 In relation to figure 18.1 Mr Lidums took the same approach of working out the relevant year by subtracting two years from the yearling sale date and he accepted that if the relevant enquiry was to subtract three years then there would be a need to investigate whether the service fees had stayed the same over that period and he had not conducted that exercise. Mr Lidums also accepted that the figure says nothing about the stallions that had both high service fees and representation among the top 150 by covers in one or more years. 936 Mr Lidums accepted that there was no analysis from which anything could be concluded for stallions generally about whether there was a statistical correlation between being represented at the major sales and size of service fee and nothing that could be extrapolated to the whole population. I9. Assess the extent to which stallions represented in the "major sales" have a higher proportion of progeny which fail to realise the service fees. 937 Mr Lidums provided a table showing the percentage of progeny not realising their service fee as a percentage of the number sold. He said there was no significant difference in the average percentage of 8% failing to achieve their service fees for each of the years in the period 2005 to 2007 but there was an increase in the proportion of yearlings failing to realise their service fees from 2008, the average proportion rising from 20% in that year to 26% in 2009 and 43% in 2010. 938 Mr Lidums also provided a further table showing the percentage of progeny not realising that fee as a percentage of the number offered for sale. He said there was no significant difference in the average percentage of 30% failing to achieve their service fees for each of the years 2005 to 2007. There was however an increase in the proportion of yearlings failing to realise their service fees from 2008, when the average proportion was 38%, to 43% in 2009 and 50% in 2010. 939 Mr Lidums accepted, in relation to his figure 19.1, that the figure could not be used to extrapolate from it to the stallion population as a whole. 20. Describe (in graphical form by reference to the last three years): (a) the relative numbers of thoroughbreds exported from Australia to other parts of the world: and (b) the relative numbers, and value, of thoroughbreds imported into Australia from other parts of the world. 940 For thoroughbreds exported from Australia the numbers in percentages for 2008 to 2010 were, approximately, New Zealand 19.4% to 38%; Singapore 16.8% to 19.9%; Malaysia 8.8% to 9.9%; Hong Kong 6.9% to 11.8%; the Philippines 3.9% to 9%; China 3.6% to 8.1%; Macau 3.9% to 6%; Korea 2% to 10.1%; South Africa/Middle East 5.9% to 8.7%; United Kingdom and Europe 0.6% to 1.8%; with the balance being made up of North and South America and the rest of Asia. 941 For thoroughbreds imported into Australia the numbers in percentages for 2008 to 2010 were, approximately, 64% to 70% from New Zealand; 9% to 16% from North America; 7.7% to 8.6% from Great Britain; 5.2% to 7.6% from Ireland; 2% to 1.5% from Asia, with the balance being made up of Europe, South America and other. 942 In his second report Mr Lidums considered: live foal rates; Australian standard bred sire numbers; mares served data; sire dominance at auction comparison; time series comparison to thoroughbreds; performance of standardbreds; and locations of "walk in mares". 943 For Australian standardbred sire numbers, Mr Lidums noted that there was a steady decrease of 30 stallions per year in the period 1994-2003 (from 567 in 1994 to 297 in 2003) and from 2003 onwards there was no statistically significant change. In cross-examination Mr Lidums accepted that possibly a curve might fit better, that is a curve from about 1980 to the end of the table. He had not conducted an enquiry to test that possibility. 944 With reference to the mares served data, Mr Lidums accepted that the three reasons he had given as to why the comparisons made in a report by a Mr Jenkins at points 20 and 26 were not valid comparisons were not, at least without further assumptions or analysis, sound. 945 Mr Lidums accepted in cross-examination that the analysis of the ten busiest thoroughbreds as against the ten busiest standardbreds did not include any qualification to the effect that it was necessary to ask what proportion of the total population they represented and he agreed it would have been an important qualification to include "perhaps emphasising that it was a comparison of the number of stock - the proportions." 946 Mr Lidums also accepted that, in relation to paragraph 3.4 of his second report, in circumstances where the number of stallions and the number of mares was decreasing, the only change between 2007/2008 and 2009/2010 would be an increase in the proportion of mares covered by the top 20 stallions. 947 In relation to sire dominance at auction, Mr Lidums agreed that if the enquiry was into representation at the top end of the market the premier sale was in a different league from the other sales because, with all the other sales, the high-value yearlings would be affected, in terms of the average sale price, by the large numbers of low-value yearlings in terms of conducting any general analysis. However Mr Lidums did say that he could not reach the conclusion that the majority of the low-value yearlings would be in all of those sales because there was no indication of how many of the low-value yearlings were part of the premium sales and how many were left over. He agreed that the other sales were likely to have a large number of yearlings that clouded the enquiry. 948 As to Mr Lidums' criticism in paragraph 4.6 onwards of an argument by Mr Jenkins, he agreed that if the enquiry was into dominance at the top end by a small number of stallions, rather than a small proportion, then that criticism (in respect of the same percentage of size rather than the same number of sires) did not apply. 949 As to the location of "walk in mares" Mr Lidums accepted that the distribution in table 7.1 of his second report was not necessarily a reflective sample of the whole of Australia. 950 In his third report Mr Lidums annexed maps reflecting the distribution by postcode identified in his first report. 951 In cross-examination, in relation to his fourth report Mr Lidums accepted that some of the figures in table 1.2 of that report were incorrect, in relation to the years 2000, 2001 and 2008. Mr Lidums accepted that if he had taken the top 10 studs rather than seven, there may have been a very different picture and he had not conducted any analysis of what that picture would look like. He also accepted that the analysis gave no consideration to whether the presence of particular studs or particular rises in the number of mares covered from one year to the other was attributable to new entrants to the market or acquisitions or demergers of studs in the market. 952 Mr Lidums agreed that the percentage figures and the percentage of stallions for 2000 or 2001 and 2008 in table 1.1 of his fourth report were incorrect because in each case the percentages were slightly higher. Mr Lidums said that for 2000 the percentages became 18.5 and 5.0 rather than 16.3 and 4.4; for 2001 the percentages became 22.9 and 5.9 rather than 19.0 and 4.9; and for 2008 the percentages became 35.8 rather than 35.7 while the other percentage figure stayed at 10. 953 The reports of Mr Lidums were not of course substitutes for primary facts. Mr Lidums' third report does not require separate consideration. The raw statistics, even if done accurately and without arbitrary cut offs, show very little because they do not show cause. At best they show trends. As I have said, I do not accept that because a particular economic consequence happened with standardbreds it would or would be likely to happen with thoroughbreds in an AI world. Also I find that the statistical concentration of market power exercise was, in my opinion, flawed at the level of execution and by reference to arbitrary cut offs.

Dr Williams 954 Dr Williams is the Executive Chairman of Frontier Economics, a position he has held since February 2002 when he resigned his full-time position as Professor of Law and Economics in the Melbourne Business School. 955 The issues he was asked to address fell into four broad areas: market definition, the nature of the rules, effect on competition, and offsetting efficiencies. 956 In his first report, Dr Williams said that adherence to the rules had the particular effect of restricting competition in the thoroughbred breeding market, with expected flow-on effects in the thoroughbred acquisition and racing markets. 957 Dr Williams assumed that many small breeders kept only broodmares and purchased stallion services from external suppliers. He also assumed that some of the larger breeders kept stallions, supplying stallion services to their own and other owners' broodmares. 958 Dr Williams devoted most of his analysis to the thoroughbred breeding services market. In particular he characterised its product, geographic and functional dimensions. 959 As to product dimension, Dr Williams said that if the rules did not exist, the breeding of thoroughbreds by AI would be a good, but not a perfect, substitute for breeding by natural covering. This suggested that the thoroughbred breeding services market should be defined to include services produced by means of AI as well as services produced by means of natural covering because the lack of substitutability between those two kinds of services was merely the result of the rules that were at issue. He rejected the proposition that because the rules defined a thoroughbred as produced by natural covering, the productive activities might be restricted to thoroughbreds as bred in this manner. 960 The functional dimension of the market ended when the activities of breeders ended. Apart from progeny that were retained for racing by the breeder, breeders sought to sell the products of their breeding activities at yearling sales. 961 As to the geographical dimension, the evidence suggested that, under the current rules, the geographical boundaries of the breeding services markets were regional within Australia. However, if the rules were changed, broodmares would not need to travel to stallions for servicing and the geographical boundaries of the stallion services market would be at least as wide as Australia. Dr Williams preferred therefore to define the geographic boundaries to the market as embracing the whole of Australia. This enabled him to analyse the effects of the rules on patterns of competition without being constrained to a definition of market that was the product of the current rules. 962 Dr Williams then considered the argument, consisting of two propositions, that because the impugned rules were rules of a sport, they did not require independent justification and that, even if the rules of the sport did require independent justification, there was a margin of appreciation within which it could not be said that any particular rule would substantially lessen competition or operate in restraint of trade. That second proposition was that the margin of appreciation arose because the sporting rules were the very things that created the relevant market and the relevant trade. 963 Dr Williams said that in his opinion the argument confused rules that defined a game with rules that determined who may compete in the game. There were some sporting rules largely directed at equalising the competition between teams or individuals to ensure that, apart from inherent skill and ability of participants, no one team or individual had an unfair advantage. Dr Williams gave as examples competitions allowing only women to compete or only persons under a particular age to compete. In contrast, he considered the rules in dispute in the litigation were about restricting the methods that could be used to breed horses that compete in races, unrelated to the objective of equalising the competition. Since there would be no difference in the performance of a horse that was conceived from a natural covering or by AI the rules seemed therefore to be directed at some other purpose. 964 Dr Williams said that in his opinion the restrictions fell within a well recognised class of restrictions on competition, as discussed in the economics literature. He said that the net revenues that a thoroughbred breeding stallion will generate were dependent, in part, on the rules that governed the breeding of thoroughbred horses. Any move to change the rules may well change the net revenue that a breeding stallion was likely to generate and, for that reason, change its value. The maintenance of the current rules would, to a large extent, insulate owners of stallions in Australia from competition from imported stallion breeding services and the maintenance of the current rules would, to some extent, insulate the owners of poorer-quality breeding stallions from competition from the owners of better-quality stallions 965 Dr Williams said this was overlain with much uncertainty. 966 Dr Williams noted that if a restrictive agreement protected an inefficiently large number of suppliers it was no defence of that agreement to say that it enhanced competition because it led to a large number of suppliers. It may be true that the rules supported a larger number of suppliers than would exist in the absence of the rules but it did not follow that the abolition of the rules would reduce competition in the Australian thoroughbred breeding market. 967 Dr Williams assumed that if the prices of all stallions' services were the same, every breeder would wish to buy only the highest-quality semen within the category of stallion that would suit the mare in question. However, under the current rules, the semen of lower-quality stallions sells for lower prices, so purchasers are prepared to trade-off price for quality. 968 He said the market was also characterised by horizontal differentiation, one source of which was the geographical location of stallions and mares. 969 Dr Williams assumed that the cost of importing stallion breeding services could be substantially reduced under the alternative of freighting frozen semen. 970 He said the geographical boundaries to markets would be greatly expanded if AI were allowed. Markets within Australia would embrace the whole country and competition from imports would become more intense. 971 The same major breeders would be expected to continue to dominate the market as more owners of mares sought to utilise the breeding services of the stallions and studs that had the highest reputations for quality. I note that Dr Williams qualified this opinion in his second report, considered below. In addition the competition faced by each producer of stallion breeding services from competitors further away would become more intense. 972 Dr Williams said it was difficult to predict the effects of the removal of the rules on service fees. 973 First, he said, there would be an increase in demand for the services of stallions by the Australian owners of breeding mares. The increase in willingness to pay by those people would come about because the resources devoted to maintenance and transporting of breeding thoroughbreds would be reduced. 974 A second effect was that there would be substitution within Australia of the breeding services of better-quality Australian stallions for poorer-quality Australian stallions. The resources devoted to maintenance and transporting of breeding thoroughbreds would be reduced. 975 These two effects would function without a collapse of international rules concerning AI. They would result in a significant reduction in the resources devoted to maintenance and transporting of breeding thoroughbred mares. 976 Third and fourth effects were contingent upon the collapse of international restrictions. The third effect was an increase in international demand for the breeding services of Australia's better breeding stallions. The fourth effect was that there would be increased international competition for breeding services from Australian breeding stallions. 977 Dr Williams was asked whether it would be normal competitive conduct for owners of stallions to respond to a removal of the restrictions by imposing individual limits on their supplier breeding services (natural coverings and supply of semen for impregnation using AI). He said that if the restrictions were to be removed, there would still be an incentive to individual producers in the stallion breeding services market to restrict supply in the way suggested by economic theory. There would be greater individual choice able to be exercised by thoroughbred breeders. 978 Dr Williams said that the natural covering requirements imposed substantial costs on the community in transporting stallions and in taking mares to where stallions were located. 979 He said the transport cost involved and the animal welfare concerns in relation to transport of mares and foals had meant that selection of stallions was in large part restricted to those in relatively close geographical proximity. 980 He said the transport of mares around the country to be covered naturally imposed a number of other potential costs on breeders and the wider community. These included the increased incidence of risk of diseases, accidents and injury. 981 If the restrictions were removed, a number of breeders would use AI. 982 Dr Williams said the effect on competition could be analysed by considering the impact of the restriction on the structure, the conduct and the performance of the market. 983 He said that the claim that the introduction of AI could have the effect of reducing competition by significantly increasing the number of mares served by higher-quality and cost stallions over those served by lower-quality and cost stallions was, in his opinion, invalid for three reasons. First, the number of sources of semen may well increase if the imported and inter-regional supplies of semen were taken into consideration. Second, to the extent that the increase in local concentration was an outcome of the removal of restrictions it could be characterised as an outcome of the competitive process and not as a lessening of competition. Third, the increase in the average quality of semen and the reduction in the cost of procuring it were manifestations of increased competition. 984 For his second report, Dr Williams had been provided with a copy of a report by Mr Lidums dated 6 May 2011 and asked how the findings of that report had affected the opinions in Dr Williams' first report. 985 Dr Williams said that the information in the Lidums report concerning the geographical distribution of thoroughbred stallions and broodmares suggested that, with relaxation of restrictions on the use of AI, the geographical boundaries to the thoroughbred breeding market would be at least as wide as Australia. Dr Williams said this confirmed the opinion that he expressed in his first report that the geographical boundaries to the breeding services market can be defined as embracing the whole of Australia. 986 Dr Williams said that the Lidums report confirmed his own observation concerning dominance by larger studs but had caused him to modify his opinion concerning dominance by a small number of popular stallions. By presenting data over time, the Lidums report showed that the popularity of a stallion was generally sustained only for a few years. Dr Williams said because any particular stallion was likely to be popular for only a few years the relaxation of restrictions on the use of AI was unlikely to lead to a massive increase in the progeny of any particular stallion. 987 In relation to the effect on imports, Dr Williams referred to paragraph 14.3 of the Lidums report and said that if there were a collapse of international rules concerning AI in the breeding of thoroughbreds it was likely that there would be a similar increase in international competition from imports as there was in the case of the standardbreds breeding services market. Dr Williams said this confirmed the opinion he expressed in his first report that the relaxation of restrictions on the use of AI was likely to increase competition from imports in the thoroughbred breeding services market. 988 Turning to the effect on differentiation of the quality of mares and stallions, Dr Williams referred to section 8 of the Lidums report as to the extent of use of high quality stallions before and after the relaxation of restrictions on the use of AI in the standardbred breeding services market. After referring to section 6 of the Lidums report Dr Williams said that although the use of AI in the thoroughbred breeding services market was likely to increase the proportion of mares impregnated with the semen of higher-use stallions, his original report may have overstated the magnitude of that effect. 989 It appeared that there had been a reduction in the extent of differentiation among the stallions and mares with the relaxation of restrictions on the use of AI in the standardbred breeding services market. In particular, there had been a reduction in the use of poorer-quality stallions and an increase in the use of higher-quality stallions. 990 Dr Williams said if a similar result were produced by the relaxation of restrictions on the use of AI in the thoroughbred breeding services market, it was likely that breeding services provided by the owners of stallions would become less differentiated and that competition would become tougher. 991 As to the effect on market concentration, Dr Williams qualified the opinion, expressed in his first report, that the relaxation of rules governing AI would have the same major breeders dominating the breeding services market. 992 Dr Williams said that if the relaxation of restrictions on the use of AI led to an increase in imported semen, it seemed likely that that trend to concentrate sales in the top seven studs may be stabilised or reversed. 993 Dr Williams also said that with the relaxation of restrictions on the use of AI, those top seven studs would lose much of their agistment fees and they may lose that part of the service fee that related to provision of facilities and the managing of the servicing itself. Inevitably some of that business would be likely to be transferred from the top seven studs to the smaller studs. This would mean that the relaxation of restrictions on the use of AI would be likely to lead to a decrease in concentration of breeding activity in the seven major studs. 994 Dr Williams said that the relaxation of restrictions on the use of AI was likely to lead to an increased use of higher-quality stallions. But the reduction in the number of low-quality stallions should not be characterised as a reduction in competition in the breeding services market for two reasons. First, the relaxation of restrictions on the use of AI was likely to lessen the extent to which breeding services were dominated by the top seven studs and the relevant measure of concentration was the concentration of breeding activity among different studs and not the concentration of breeding activity among different stallions. Second, if there were an increase in seller concentration as a result of the relaxation of restrictions on the use of AI, that would be the outcome of the competitive process and such outcomes should not be characterised as a lessening of competition. 995 As to restriction of output under AI, Dr Williams said that his opinion was that the relaxation of restrictions on the use of AI would increase the use of higher-quality stallions, but that individual owners of stallions would still have an incentive to restrict the extent to which their stallions provided breeding services through the prices they charged. This opinion was supported by the data in section 8 of the Lidums report showing that the number of mares served by high-use standardbred stallions increased from an average of about 112 during the period 1985-1996 to 160 during the period 1998-2009. This showed that in the standardbred breeding services market the number of services increased with the relaxation of restrictions on the use of AI, however the increase was likely to be limited by the prices charged by the owners of stallions. 996 Referring back to his first report where he expressed the opinion that the relaxation of restrictions on the use of AI would improve the performance of the breeding services market by reducing the costs of imports, by reducing transportation costs, by improving animal welfare and by reducing the costs of diseases, accidents and injury Dr Williams referred to the evidence of Mr McFarlane and Mr Coffey. 997 Dr Williams said that the sales data in relation to Magic Millions yearlings and Inglis yearlings summarising the results of sales at those two selling houses for the period 2005 to 2010, as reorganised by him, showed that buyers at the sales conducted by Inglis and Magic Millions came from all places in Australia and even internationally. If buyers came from interstate locations to purchase from Inglis or Magic Millions, horses offered at those sales must be competing with horses offered in other States. That is, the location of the buyers at the sales indicated that the geographic boundary to the thoroughbred acquisition market was at least as wide as Australia. 998 As to the effect on structure of the acquisition market, Dr Williams said that competition in the market for yearlings was likely to intensify as a result of a reduction in differentiation among the quality of yearlings. The relaxation of restrictions on the use of AI was likely to lead to an increase in the number of high-quality yearlings put up for sale each year. This reduction in the degree of differentiation was likely to toughen competition in the acquisition market for the reasons he gave in his first report. 999 As to the effect on performance of the acquisition market, Dr Williams said that, all other things being equal, the increase in the efficiency of the activity of breeding was likely to lead to a reduction in the prices of yearling horses in the acquisition market. The increase in the number of high-quality yearlings and the tougher competition among the sellers of those yearlings was likely to lead to an improved performance of this market: for a given level of quality, prices were likely to be lower - or for a given level of prices, quality was likely to be higher. 1000 Dr Williams' third report was a report in reply, in particular responding to the matters raised in the report of Mr Houston. 1001 Under the heading "market definition" Dr Williams again considered separately product dimension and geographical dimension. 1002 As to product dimension, Dr Williams said that the evidence of the breeder witnesses that he had read subsequent to writing his first report seemed to be consistent with the opinion he expressed in that report that the productive activity the litigation was principally concerned with involved the breeding of thoroughbred horses and should not be restricted to the provision of the services of broodmares on the one hand and stallions on the other. 1003 Mr Houston's view was that the product dimension of Dr Williams' proposed principal market was too broad and should be confined to the provision of stallion services because the market encompassing both the services of stallions and mares did not reflect the reality that mare owners used stallion services as an input to production of thoroughbred horses. Dr Williams said that defining markets was a matter for judgment and when he was in any doubt where to draw boundaries to markets he tended to go for the larger market so as not to exclude from consideration matters that may be relevant. He preferred his original definition because he did not wish to exclude from consideration the various activities undertaken by the larger studs in conjunction with the services of stallions. These services were sold as a bundled product with the services of stallions. In particular, the rules constraining the use of AI forced some owners of mares to purchase agistment from the stud that stood the stallion or from an agistment farm located nearby. 1004 In Dr Williams' opinion, the bundling of those services was likely to decrease with the relaxation of the restrictions on the use of AI. Because the introduction of AI was likely to reduce demand for the agistment services provided by the larger studs and for others that he discussed in his first report, the introduction of AI was likely to reduce the market power of the larger breeders and to increase the competitiveness of the smaller breeders. A full analysis of the effect on competition of the rules at issue should consider that issue and not merely the effects of the present rules on competition among owners of stallions. Provided matters of that kind were not ruled out of consideration, Dr Williams would have no strong objection to the product dimension of the market proposed by Mr Houston. 1005 As to the geographical dimension, Dr Williams said that the 10 August 2011 Lidums report indicated that there was substantial interstate movement of broodmares to studs even in the presence of the restrictions on the use of AI. This suggested that, even if removal of the restrictions did not increase interstate trade, it may still be appropriate to define an Australia-wide breeding market. However, the principal reason for Dr Williams' opinion that the geographical boundaries of the breeding market embraced the whole of Australia remained the same as he gave in his first report: if one was to compare the state of competition in the market with and without the restrictions, one had to consider patterns of competition throughout Australia because the removal of the restrictions would substantially increase interstate trade in the breeding services of stallions. 1006 Mr Houston had criticised this opinion on the ground that Dr Williams failed to take into account the effect of the breeder incentive schemes. Mr Houston said that if sufficiently strong, the incentives for state-based breeding created by those types of schemes may well mean that it was appropriate to define individual State markets rather than a national one. Having now considered information given to him about those schemes, Dr Williams said he had not changed his opinion that the breeding services market should be defined to embrace the whole of Australia. The reason for this was that, under the current rules, a range of factors operated to create incentives for breeders to use local stallions: the breeder incentive schemes were one of those factors. 1007 Dr Williams said that under the rules at issue, owners of broodmares had strong incentives to purchase services from large studs in their neighbourhood. Those incentives were reinforced by the breeder incentive schemes. However, with the relaxation of the restrictions on the use of AI the breeder incentive schemes may well become of only marginal relevance and, he said, for this reason, their form may well be reconsidered by the authorities. 1008 Under the heading "Effects on competition of the restrictions on the use of AI", Dr Williams considered: (i) the state of competition under the current rules; (ii) the appropriate counterfactual; (iii) the alleged public benefits generated by the restrictions on the use of AI; (iv) the principles of analysis; (v) whether, if Australia became an international pariah, competition would be lessened; (vi) reduction in costs of breeding; (vii) increase in geographic choice set; (viii) increase in the quality choice set; and (ix) whether removal of restrictions would increase the number of thoroughbred races or the number of thoroughbreds. 1009 In relation to (i), the state of competition under the current rules, Dr Williams referred to the statement by Mr Houston that stallion breeding services were dominated by a small number of larger studs and popular stallions. Mr Houston stated that 324 of the more than 450 registered studs stood only a single stallion. Dr Williams considered the full distribution of stallions amongst studs and noted that for 2010 70% of the studs stood only a single stallion. He said the statistics for the top 120 sires by coverings for the 2010 season (as at July 2011) on the ASB website and the total number of mares covered for that season showed the top seven studs by number of mares covered to be Darley, Coolmore, Arrowfield, Vinery, Eliza Park, Widden Stud, and Glenlogan Park. Those seven studs accounted for 65% of the top 120 sires by mare coverings and 37% of the total of mares covered in the season. 1010 As to the role of the Inglis and Magic Millions auctions, Dr Williams noted that the total foal crop for 2008/2009 was 16,576. Of those, 4,831 were sold as yearlings in 2009/2010. The number of thoroughbreds sold at the major auctions to which Mr Houston referred, being 8,683 thoroughbreds for 2009/2010, included weanlings, two year olds and broodmares. 1011 In relation to (ii), the appropriate counterfactual, Mr Houston had said that the appropriate counterfactual included horses produced by all forms of artificial breeding techniques, including cloning and embryo transfer, being allowed to compete. Dr Williams confirmed that he had adopted a counterfactual in which AI could be used as an alternative to natural cover as that was what he had been instructed to do. Further, he said, there was nothing in the Houston report which took the point any further. 1012 In relation to (iii), the alleged public benefits generated by the restrictions on the use of AI, Dr Williams referred to the "direct" benefits which Mr Houston had referred to as ways in which the restrictions on the use of AI created "competitive benefits". In summary Mr Houston's conclusions as to "direct" benefits were: higher revenues for race clubs and ultimately prize pools for Australian racing; greater demand for Australian thoroughbred horses; and expanding racing opportunities for Australian thoroughbred horse owners through the ability to compete overseas. 1013 Dr Williams responded by saying that the "benefits" for the restrictions on the use of AI claimed by Mr Houston were not sources of economic efficiency. Because the claimed "public benefits" were not consistent with promoting economic efficiency, they were not relevant to the issue of the extent to which the restrictions on the use of AI affected competition in any of the pleaded markets. 1014 Dr Williams said that Mr Houston's argument was based on two assumptions: first, that if Australia were to drop the natural cover provisions, Australia would become an international pariah in the racing world and there would be a sharp reduction in international wagering, international sponsorships and demand for Australian thoroughbred horses; and second that any reduction in the current rate of flow of funds to the Australian racing industry would be bad for Australian society. 1015 Dr Williams said he was in no position to evaluate the factual assumptions underlying the first of these propositions but he was able to evaluate the second proposition, that is, that any reduction in the current rate of flow of funds to the Australian racing industry would be bad for Australian society. 1016 His first observation was that Mr Houston seemed to regard any reduction in the current flow of funds to the racing industry as bad. His second observation was that unless the increased flow of funds enhanced economic efficiency, an economist could not claim that the increase generated a public benefit. 1017 As to the question of there being an oversupply of thoroughbred horses in Australia, Dr Williams examined that claim in his section 3.9. As to the extent of under subscription of races in New South Wales, Dr Williams said that the average figures differed among regions. 1018 As to the proposition that natural covering involved "chance, skill and mystique" as a core element of racing whereas AI allowed horse breeders to remove some element of variability and chance from the breeding process, Dr Williams commented on the element of chance inherent in natural covering. He said he could not see how final consumers would gain benefits from the uncertainty associated with natural coverings. Furthermore, he could not see that breeders gained benefits from uncertainty associated with the process of breeding: this seemed to be an unambiguous cost associated with the present restrictions for no offsetting benefit. 1019 In relation to (iv), the principles of analysis, Dr Williams first considered Mr Houston's rules of sport argument. As to the principle that the rules that defined a sport imposed restrictions, Dr Williams said that he did not accept the argument that where rules were directed at maintaining valued aspects of the sport, economists regarded those rules as efficiency or welfare enhancing. Dr Williams said the argument confused rules that defined a game and rules that determined who may compete in a game. 1020 As to the deference argument, Dr Williams agreed with the deference principle insofar as it applied to rules that defined a game and accepted it may be relevant if applied to consideration of public benefits in an application for authorisation of rules as to who may compete in a game, but he did not agree that an economist should pay deference to the judgment of a sporting body when the economist was analysing the extent to which rules were likely to lessen competition in a market, because economists were experts in analysing competition in markets and sporting bodies were not. 1021 In relation to (v), whether, if Australia became an international pariah, competition would be lessened, Dr Williams first identified the assumptions being that Australian AI-bred thoroughbreds would not be permitted to be registered or to race in certain countries; Australian natural-bred thoroughbreds would not be permitted to be registered or to race in certain countries; fewer foreign horses would come to race in Australia; and demand for broadcasting rights, wagering and international sponsorships would decrease. 1022 Dr Williams said that it seemed unlikely that, on these assumptions, the supply of shuttle stallions would be injured or reduced and that no semen from international stallions would be sent to Australia. There would remain economic incentives for individual foreign owners of stallions who could continue to make money by selling stallion services to Australian breeders. It therefore seemed unlikely that international competition in the breeding market would be lessened. 1023 Dr Williams agreed with Mr Houston that, on these assumptions, demand for Australian yearlings would decrease and, furthermore, the decrease in demand for Australian yearlings might well decrease the level of demand and the level of activity in the breeding of thoroughbreds. However, Dr Williams said, one should not confuse the extent of demand for a product with the extent of competition in the market in which that product was produced. An economist's model of a perfectly competitive market would remain perfectly competitive if demand for the product decreased. Similarly, if demand for Australian thoroughbreds decreased there would be no diminishing of competition or increase in the market power of the breeders or the larger studs. 1024 As to the question of reduction of the demand for yearlings at Australian auctions, because, on these assumptions, offshore buyers would not bid at Australian auctions; Australian owners would be less willing to pay for Australian thoroughbreds if they could not race them offshore; and Australian owners would be less willing to pay for Australian thoroughbreds if the prize money offered by Australian racing clubs were to be reduced, Dr Williams accepted that it was likely that, on these assumptions, there would be a reduction in demand for yearlings at Australian auctions. However, he said, a reduction in demand should not be equated with a lessening of competition. He restated his opinion that the state of competition in a market should be assessed with reference to the structure, conduct and performance of the market. 1025 In relation to (vi), reduction in costs of breeding, Dr Williams noted Mr Houston's criticism of his assumption that costs of breeding would be lower with AI than in the world of the restrictions. Mr Houston said the information available was not sufficient to conclude that the costs of breeding will be lower with AI as compared with natural cover. 1026 Considering, first, transportation costs, Dr Williams referred to the evidence, particularly Dr McKinnon's evidence, as to the frequency with which mares would need to attend specialised breeding centres to access AI. Dr Williams also referred to the option of transporting chilled or frozen semen instead of transporting shuttle stallions and said it would seem very likely that this would reduce transportation costs. 1027 Considering, second, agistment costs, again Dr Williams referred to the evidence, particularly that of Mr McFarlane, and said that the margin the larger studs earned on the agistment services seemed to reflect their market power caused by a lack of competition for the services of the stallions that they stood. 1028 Considering, third, the veterinary costs, Dr Williams noted Mr Houston's conclusion that it appeared that the total cost of veterinary services using frozen or chilled semen was at least 45% greater than the cost of live cover. Dr Williams said that comparisons between the average costs of alternative methods were not relevant to the issue of lessening of competition. In his opinion, the critical point was that relaxation of the restrictions would increase the range of alternatives that were available. With the relaxation of the restrictions, breeders who would save money through the use of AI would use it and those who would not save money would stick with natural cover. This must reduce the average cost of the activity of breeding and, therefore, result in increased economic efficiency. 1029 Considering, fourth, the effectiveness of AI, Dr Williams said that the lower effectiveness of AI would, if true, need to be considered as part of the cost of using AI. This was one factor that breeders would have to consider when deciding whether they would use natural covering or AI. 1030 Considering, last, the effect on total costs Dr Williams responded to Mr Houston's statement that without more detailed information one could not draw any conclusion as to whether the costs of AI were likely to be higher or lower on average across a population of mares. Dr Williams said that Mr Houston was addressing the wrong issue. He should not be concerned about the effect on costs if all breeders were to use AI. Rather, the issue for present purposes was the effect on costs if the option of using AI were available. Because a relaxation of the rules would enhance options, no breeder would suffer an increase in costs and some would enjoy a decrease in costs. Because the costs of no breeder would increase, it must be the case that the average costs of breeding would decrease. Dr Williams also referred to the experience with the abandonment of the restrictions for standardbred horses. 1031 In relation to (vii), increase in geographic choice sets, Dr Williams first referred to the extent to which a small number of larger studs dominated the provision of stallion services in Australia. He noted that Mr Houston made a similar observation. He also noted that Mr Houston agreed with him that relaxation of the restrictions on the use of AI would broaden the choice-set for stallion and mare owners. Dr Williams said that a key reason why the relaxation of the restrictions on the use of AI would reduce the market power of the larger studs was that the relaxation of the restrictions would widen the geographic area within which breeders would be able to select stallion semen. 1032 In relation to breeder incentive schemes, Dr Williams said that if they survived, they were only one factor that influenced a breeder's choice of stallions. The reduction in the average cost of using semen from stallions outside the breeder's State would widen the geographical area from which breeders sourced semen for their broodmares. This widening of geographical areas would reduce the market power of the larger studs. 1033 As to Mr Houston's claim that the Court lacked sample data of the geographic distribution of mare breeding patterns which made him unable to assess the extent to which the statements of breeders called by the applicants were representative of breeders as a whole, Dr Williams said Mr Houston's requirement was unwarranted. The evidence of some breeder witnesses that they would use semen from much further afield (including overseas) alone was powerful evidence that geographic choice sets would be widened with the relaxation of the restrictions and that competition would, thereby, be increased. Dr Williams said the evidence required by Mr Houston may go to the extent of the widening of choice-sets and the extent of the increase in competition but not to whether there would be a widening of choice-sets or an increase in competition. 1034 Dr Williams rejected Mr Houston's criticism of his opinion that the relaxation of restrictions on the use of AI was likely to increase competition from imports in the thoroughbred breeding services market. Dr Williams did not agree that his reference to the increase in the use of imported semen in the breeding of standardbred horses was misplaced. He said that any change that reduced the cost of importing goods or services would increase competitive pressure on Australian producers. 1035 In relation to (viii), increase in the quality choice set, Dr Williams noted that Mr Houston agreed that even with the possibility of AI, owners of stallions would still have a commercial incentive to restrict the number of broodmares serviced by each of their stallions. Dr Williams also noted his earlier opinion that the relaxation of restrictions on the use of AI would lead to the substitution of the services of better quality stallions for poorer quality stallions. 1036 Dr Williams said the restrictions on the use of AI imposed an extra constraint on the owners of stallions to maximise their profits. A relaxation of the restrictions would reduce the costs of breeding. This reduction in cost would be greatest for the services of stallions that were located furthest away from the location of the broodmare. The reduction in costs would increase demand for the services of stallions. The owners of stallions (particularly the higher quality stallions) would be able to respond to this increase in demand by raising the price of stallion services and/or increasing the number of broodmares serviced by the stallion, or some combination of those two options. Dr Williams said the shift in demand for the services of high quality stallions would not mean that the number of mares bred to the most popular stallions would necessarily increase greatly. This was because, first, the incentive to the owners of stallions to maximise their profits would cause them to charge prices that restricted the number of services of any one stallion that breeders were willing to purchase and, second, a lessening of the costs of obtaining semen from stallions based overseas would increase the number of high-quality stallions among which Australian breeders would be able to choose. 1037 Dr Williams said the second of these reasons pointed to the link between the widening the geographic choice sets and the widening of the quality choice set that would occur with the relaxation of the restrictions on the use of AI. 1038 Lastly, in relation to (ix), whether removal of restrictions would increase the number of thoroughbred races or the number of thoroughbreds, Dr Williams considered Mr Houston's statement to the effect that if the number of horses produced increased (because the unit cost of production was lower) and the average quality produced rose (because high quality stallions could expand their output and the stallion choices of mare owners would not be constrained by geographic proximity) the ultimate economic effect of these changes was dependent on whether there would be any corresponding change in the opportunity to race (the number of races) or the revenues available for racing (prize pools). 1039 Dr Williams rejected Mr Houston's proposition that the ultimate effect of the removal of restrictions on competition in the breeding market must depend on whether there would be any corresponding change in the opportunity to race or the revenues available for racing. 1040 Dr Williams did not disagree with the propositions that buyers of thoroughbreds were motivated in part by the desire to make money or that there was a recreational dimension to the owning of racehorses such that owners may be prepared to bid for a horse knowing that the expected (or average) return may well be low or even negative. Dr Williams said he found these propositions unsurprising and they applied to many activities related to gambling and sport. 1041 As to the argument that, because low-quality horses were of no value, any increase in supply of thoroughbreds caused by relaxation of restrictions on the use of AI would have no effect on quantities or prices of high-quality thoroughbreds, Dr Williams said there was no logical connection between these two propositions. That horses that turn out to be of poor quality could not be given away did not mean that the price of good quality horses would not be determined by the standard factors of demand and supply. 1042 Dr Williams also disagreed with Mr Houston's statement that a reduction in the costs of breeding would be unlikely to increase the quantity of services demanded by mare owners since mares could only become pregnant once in a season and expanding the number of mares for breeding would mean utilising mares of lower quality. Dr Williams said this was confused as a matter of economic logic. 1043 Dr Williams said that if all other things were equal, a reduction in breeding costs would increase the prices that breeders were willing to pay for stallion services which necessarily implied an increase in the quantity demanded at any price. The logic of economics did not, said Dr Williams, allow Mr Houston to say that a factor that increased willingness to pay for a service would not increase the quantity of that service that was demanded at any given price. 1044 There was in evidence a joint report of Dr Williams and Mr Houston intended to set out their points of agreement and points of disagreement. The topics were as follows: 1. Definition and Measurement of Competition 2. Relevant Markets 3. Approach to Competition Analysis 1. 3.1 Counterfactual 2. 3.2 Relevance of Related Markets 3. 3.3 Changes in Supply and Demand and their Effect on Competition 4. Competition Analysis and the Rules of Sport 5. Effect on competition in the Thoroughbreds Market 5.1 Effect of changes in the quantity and/or production costs of Thoroughbreds 5.2 Effect of the impugned rules on production costs of Thoroughbreds 5.3 Effect of reduction in international demand 6. Effect on Competition in the Stallion Services Market 1045 Generally, the points of agreement and disagreement were at a level of theory which were of limited use in the necessary analysis of the facts. 1046 In cross-examination, Dr Williams said that he perceived the market power of the larger studs as at issue in the proceedings, but not the market power of any particular firm. This was something he worked out for himself. In his opinion the market power of the larger studs was being increased or enhanced as a result of the restrictions on the use of AI, which was equivalent to the restrictions lessening competition. The larger the stud the more market power they gained as a result of the AI restrictions. Darley and Coolmore were the largest studs because they had the largest proportion of sales. 1047 Dr Williams said that the conduct which he understood was claimed to be unlawful was the agreement or set of agreements that restricted the extent to which thoroughbreds bred by means of AI were allowed to participate in races in Australia: the conduct of the racing clubs in imposing the rules. As he understood it, the rules had been sustained as a result of the pressure from the larger studs: that was the only way he could rationally reconstruct why the rules continued to exist: the only explanation for the rules was that they were supported by the larger studs. The relevant productive activities were the productive activities of the breeders, but in particular the larger studs. The effects on competition of the rules in question were not felt at the level of the clubs but were felt principally at the level of the breeders. 1048 It was important to his understanding to try to work out whose interests were at stake in the dispute. That was not a matter which was set out in his reports. It was a critical step in his approach to understanding all issues of competition. 1049 Dr Williams agreed that critical to any economic analysis of a market was sufficient information to be able to draw conclusions which were not based on idiosyncratic characteristics of potential consumers. 1050 Dr Williams said it would not be relevant to investigate the availability of, or the extent to which, broodmare farms which were conveniently located would overcome costs of transporting mares from remote farms to studs. He said that his understanding was that the breeders were saying that the rules imposed on them costs that wasted real resources to society and that without that constraint those resources would not be wasted and that was how he identified the inefficiency. 1051 Dr Williams said that as he understood the question here it was not whether the market was competitive or not but rather whether particular rules lessened competition and in what ways. It seemed to him the issue was whether the market could be made more competitive if the rules in question were changed. He did not accept that the cost that was a combination of the rule at issue plus the individual breeder's lifestyle choices meant that the cost was irrelevant because it was contingent upon the lifestyle choice. His reason for taking account of the reduction in costs that some small breeders may benefit from as a result of the change of the rules against AI was that that decrease in costs would make them tougher competitors and would increase the productive efficiency with which the market operated. The issue was not that they would be financially better off. 1052 Dr Williams accepted that the Australian Turf Club or the AJC and the VRC did not participate in the market or markets. He had not approached the matter on the basis that the parties to the agreement had to be the participants in the markets in which competition was lessened. It was his understanding that, as a matter of fact, the racing clubs had the power between themselves to set the rules for entry into the stud book and it was his understanding that the racing clubs may be influenced by stud owner considerations although there was no legal requirement that the clubs got permission from anybody else. 1053 Dr Williams had not approached the matter on the basis that there was an agreement, understanding or arrangement between the clubs and any particular stud owner or any group of stud owners but he had assumed that the conduct at issue was that conduct constituted by the agreement, understanding or arrangement between the two clubs to impose the particular rule. 1054 He had accepted that his job, in accordance with his instructions, was to look at what the effects of the rule or likely effects of the rule were on competition. He took the "unlawful conduct" to be the existence of the rule, assuming it existed: he did not analyse the conduct that led to the creation or had led to the sustaining of that rule. He had not given consideration to the question of whether the existing state of affairs was the product of an agreement, understanding or arrangement between thoroughbred owners and the clubs who imposed the rule and what would happen absent that agreement, understanding or arrangement. He had not given consideration as to whether or not, absent any such alleged agreement, understanding or arrangement, the rule would exist anyway. 1055 Dr Williams did not think that the rule had much effect on the market in which the racing clubs competed, the racing market. 1056 Dr Williams accepted that from his perspective it was important to identify what was the conduct which was said to be unlawful and to ask "what would occur absent the unlawful conduct?" 1057 On the assumption that the conduct was the imposition of the rule and that the productive activities of the clubs which had generated that conduct had been the staging of contests in accordance with that rule, Dr Williams had not taken into account an assumption that people liked to participate in Australian horse races more, as a result of there being horse races in other jurisdictions. He did not regard that as relevant to his analysis. 1058 Dr Williams had proceeded on the basis that the fact that the clubs had staged the particular contests with those rules had in fact been the reason why there was any interest in a thoroughbred breeder to breed such a horse. Dr Williams had no problem with the proposition that it was the activity of the race clubs which had created the incentives for breeders to engage in the activity of trying to breed horses which complied with the rules. He accepted that the existence of the incentive to create such horses, in his assessment, had generated competitive activity between breeders. He accepted that if there were no races there would be very little or no breeding of thoroughbreds. 1059 Dr Williams accepted that if the appeal of thoroughbred racing was caused by uniform rules then if there was a movement away from uniform rules there would be less appeal. If that reduced the prize money that was available to winners of races then Dr Williams thought that would flow through so that there would be less demand for, say, thoroughbred yearlings. 1060 He agreed that the only reason why there was any debate in the proceedings was because at the end of the line there was a product consisting of a sporting contest which had a particular attractive appeal. However, Dr Williams said that if he had been asked to assume that a change of rules for thoroughbred racing led to a reduced appeal and hence a reduction in demand for thoroughbred horses that would be irrelevant to the question of competition in a putative market between breeders of such horses. 1061 Dr Williams said he would not characterise a reduction in demand or decrease in the number of people wanting to buy horses as a decrease in competition among them if the lower demand led to lower prices or that led to fewer people breeding horses. He said the ability of the breeder witnesses to compete was really irrelevant to whether or not there was competition in the market because the ability of a few people to compete was not what drove the state of competition in a market. The ability of certain people to compete was not relevant to assessing the state of competition in a market. Dr Williams accepted however that the reduction in demand could be such that certain breeders who really mattered were weeded out and that could affect the degree of competition in the market. 1062 But if those participants stated that the costs would be reduced and for that reason they were better able to compete then it was because of the reduction in costs that competition was enhanced, not because the participants were better off. Whether particular individuals were fringe players might go to substantiality which was a different matter altogether. 1063 Dr Williams said that if he was asked to assume that demand for attending race meetings was dependent to some extent on whether the horses were naturally bred or bred by artificial insemination he would accept that, although he thought the assumption was quite implausible. 1064 Turning to the question of a rule defining a game as opposed to a rule as to who may compete in the game, Dr Williams was asked what was the economic principle and replied that if there were rules that people agreed as to who could engage in a particular market, that seemed to go to the heart of issues of competition and may have a lot to do with the structure of the market whereas if the rule said there were to be 11 players on each team, that seemed to him to have very little to do with competition. He thought it was quite an obvious distinction. Dr Williams also distinguished between a rule relating to a particular contest or competition and a rule which restricted who could compete in a sport or market. 1065 It was put to Dr Williams that the rule was just saying which owner has got the fastest horse produced by a particular means from a particular bloodline and that was the contest. It was the owners who were the people who entered into the contest. It was also put to Dr Williams that the bloodlines or heritage of the animal was equally a rule as to who could compete as was the requirement for natural breeding. Dr Williams said he restricted the market to thoroughbreds because he understood that basically all horse races in Australia were thoroughbred races. 1066 Dr Williams accepted that the degree of substitutability would depend on the degree to which the buyers of yearlings regarded naturally bred and AI-bred yearlings as substitutes. On the assumption of a world where AI was not permitted elsewhere but only in Australia, Dr Williams agreed that if yearlings produced by AI were not accepted into races outside Australia they would clearly not be perfect substitutes at the auctions. He assumed particular international buyers would not regard them as good substitutes and there may be some buyers in Australia who would be interested in the prospects of racing the horses overseas or selling their horse at some later date to an overseas buyer who would not regard them as being perfect substitutes. Another class might be those potentially using the horse to breed with a view to the progeny ultimately being attractive to overseas buyers. 1067 On the assumption that AI were permitted in Australia but nowhere else, Dr Williams said there were clearly a number of buyers at the Inglis and Magic Millions sales who would not regard AI-bred horses as being good substitutes for naturally bred horses. As to the balance of the buyers he did not know to what extent they would regard an AI produced horse as a substitute for a naturally produced horse. He guessed the substitution would be poorer at the more expensive end than at the cheaper end. 1068 Dr Williams accepted that the availability of the sources of supply of AI semen were critical to the opinions he had expressed that even if Australia alone allowed AI, competition would be enhanced by the removal of the rule. He was asked about an assumption that individual stallions would not both continue to provide natural cover and semen for AI, which he had not adverted to at the time of his reports. 1069 Dr Williams was asked whether he had expressed the opinion that on the assumption artificial insemination was brought in all round the world, based on the experience in standardbreds, it was likely that the major studs would in fact have even more business than they had got now. He replied that in his view the nature of the business would change. They might still have a lot of the leading stallions in Australia but they would face increased competition in the agistment side of the business from broodmare farms, as had occurred in standardbred horses, and also a bit more competition from imports and more competition from studs located further away. So the nature of the business would change. 1070 He agreed that to the extent that the major studs overseas were owned by the major studs in Australia they were less likely to form a constraint on the activities of the Australian major studs. 1071 Dr Williams agreed that he had not attempted to calculate the real opportunity cost of lower fertility rates with different versions of semen. 1072 Dr Williams accepted that an owner would have an interest in being able to say to future customers that yearlings produced by its stallions in previous years achieved high prices. This was because it would reflect on the quality of the service of the stallion and that might then lead to an increase in the demand for the stallion services in the future. However he rejected the proposition that it would be a disincentive for a stallion owner to go down the AI route because a discount was applied to the yearlings because they were bred by artificial insemination. In a world in which only Australia permitted AI, Dr Williams said it would be quite irrational for the market to work out that way. He said the irrationality he was being asked to assume was that the prices would work out so that the prices of the yearlings that could race only in Australia would be lower than the prices of the yearlings that could race overseas for similar quality. He said that the returns from breeding a horse that can race only in Australia must at the margin be equal to the returns that would be expected from breeding a horse that could race anywhere else. 1073 Dr Williams accepted that before there was any additional competition it had to be assumed, in a world where only Australia permitted AI, that some stallion owners would be prepared to take advantage of the change in the rules. He did not agree that before it could be asserted that competition would become more intense you had to have some idea as to the numbers of stallion owners who may take up the AI option; some idea of whether one was talking about low-quality or high-quality stallions; and the extent to which the particular competitors who were truly constrained by transport costs existed, and their nature. He said in differentiated product markets, which is what was the present concern, there was differentiation by quality, bloodlines, location and in differentiated product markets, numbers of firms was not really what was so important. It was the degree of differentiation that was a critical determinant of the state of competition in that market. He agreed that differentiation became less with AI in lots of different ways. Because markets became less differentiated when AI was permitted concentration became tougher. That may lead to the weeding out of some firms but if that happened that would be a result of competition and should not be classified as a decrease in competition in itself. 1074 Dr Williams said that he did not know what effect the removal of the rule would have on the prices of stallion services and he did not know who amongst the Australian owners of breeding mares would have an increase in demand for the services of stallions and he did not know how big the effect was going to be. He was not sure about how big the costs saving would be but he was assuming it was not just completely trivial for the people who were giving the evidence that they would take advantage of some cost savings. He did not think it particularly mattered how many breeders would enjoy the saving. The significance of the breeders in terms of the likely competitive effect really went to the issue of substantiality. He was not sure whether it mattered what number of stallion owners chose to go down the AI route in an AI Australia only world. Dr Williams said that he did not think that the identity of the stallions mattered nor the quality of the stallions nor the attractiveness of the stallions in terms of demand. In his view each of those matters went to substantiality. 1075 Dr Williams did not accept that he had assumed that in the case of two breeders interested in a particular stallion, for one of whom AI would be cheaper and for the other of whom AI would be more expensive or who wanted to go down the natural cover route in any event, that the second breeder would be able to get natural cover from that stallion if they wanted it and any other breeder would be able to get AI from that stallion if they wanted it. 1076 He did agree that his reports proceeded on the basis that AI increased options and he did not factor into his reports an assumption that if a stallion owner went down the AI route, that stallion owner would require that that stallion not engage in natural cover. But he said the overall effect would not be a reduction in choice. There was a whole set of new options open. It would be true that for the mare owner who wanted to breed with a particular stallion and no other stallion was a good substitute then, if that mare owner wanted natural cover and the stallion owner decided not to do it, to that extent the mare owner's options had been reduced. He agreed that on those assumptions it was conceivable the breeder wanting natural cover would be faced with going to another stallion, potentially at a higher service fee and potentially at a greater transport cost and this was not something he had considered in his reports. 1077 Dr Williams said that the larger studs accounted for a lot of the business; they had a lot of the important shuttle stallions which they hosted; and they housed the most valuable stallions and for those reasons they had most to lose as a result of the removal of the restrictions. That is, that current market share was to some extent reflecting not merely their efficiency but also the restrictions imposed by the rule at issue in the proceedings. If the extent and nature of their business was to some extent reflecting the outcome of the rule then they were earning profits that they would not be getting in a more competitive environment. Dr Williams said that was what he meant by market power. 1078 It was put to Dr Williams that the intensity in competition to which he referred would only apply in relation to AI stallions, on the assumption that Australia only were to permit AI and a further assumption that a stallion owner was unlikely, if he chose to go down the AI route, to permit the stallion to do natural cover. On that set of assumptions, he was asked, if it was unlikely that the major studs would go down the AI route for any of their stallions. Dr Williams said he did not see why it would be true that the major studs would not go down the AI route for any of their stallions. As to the balance of the question the increased toughness of competition would be felt principally in the AI part of the market, however, he had also pointed to relationships between the AI market and the natural cover market. The basis of his opinion that competition would be tougher between the major studs as a result of the removal of the restrictions was merely that to the extent that they engaged in the use of AI the cost of transporting mares to the studs would be reduced or was likely to be reduced. And so any one stud would be competing more closely with studs that were further away than it would be under the current rules. This was based on two assumptions: one was that the costs of transporting a mare to the stud mattered for at least some breeders; and, secondly, that not all the studs were located at exactly identical locations. 1079 Dr Williams was asked whether he could say with any confidence that the level of competition in the new world of AI was any higher than the level of competition as it presently stood, assuming that frozen semen was not a factor. Dr Williams said he could say that: competition would be tougher in that world once the restrictions had been removed. Even if there were no imports there would still be tougher competition among the studs and breeders within Australia, principally because of the lower product differentiation. 1080 Dr Williams said that it was his expectation that the major studs would continue to have the most popular stallions in an all AI world; that an all AI world would render more accessible more popular stallions to more breeders; for that reason it was not unreasonable that the major studs were likely to increase their market shares; if the big studs increased their market share, to some extent it may be at the expense of other big studs and may be at the expense of small ones; that some of the larger studs may not survive in a tough competitive environment; and that could even lead to higher concentration; and in such a world of higher concentration amongst major studs the Court could safely conclude that the level of competition between those major studs in that all AI world would be tougher than it was in the current world. 1081 Dr Williams did not agree that an all AI world would be a godsend for the major studs. He said in his view they would face tougher competition from themselves, from smaller studs and from imports. 1082 Dr Williams disagreed that if it was an all AI world the only people who would really benefit would be the larger studs. 1083 Dr Williams did not agree that he did not have enough information to determine whether any issues in relation to transport costs or associated with direct covering compared to AI would have a material impact on the level of competition between major studs as it was under the rule compared to in an all AI world. 1084 Dr Williams agreed that to get any sort of picture of competition as it affected people in Australia, it would be necessary to have regard to the New Zealand traders, whether s 4E of the Trade Practices Act permitted it or not. And the same applied for overseas purchasers and overseas participants in the racing industry. 1085 Dr Williams did not agree that it was necessary to have regard to the activities of people who owned and raced thoroughbreds in this competition enquiry. He said that it seemed to him that one could safely analyse what was going on in this market without many references to what happened after that breeding process took place: that was the principal effect on competition of the rule or rules at issue. He did not think there were any strong effects on competition in those other markets. The principal effect on competition, most constrained by the rule, was at the breeding level. 1086 Dr Williams agreed that one of the downstream activities of producing thoroughbred horses was thoroughbred horse racing in Australia. Other downstream markets included thoroughbred racing overseas and using thoroughbred horses in other equestrian sports such as steeplechase, dressage and show jumping and, indeed, in pet food. 1087 He agreed that dealing with thoroughbred horse racing in Australia, the consumers were, or at least included, viewers and punters. Those people did not pay directly for the product. 1088 Prize money was not the only benefit people were hoping to derive. People who go to races and people who enter their horses in races are hoping to derive the excitement of a gamble or the excitement of the race. They were doing it for a reason other than that the prospects of making money were on average good. 1089 Dr Williams was asked about the distinction he drew between rules that defined a sport and rules that excluded participants and he said he did not get the distinction out of an economic text but he made it up. 1090 Dr Williams was asked to assume that the no AI rule was necessary until about 1990 for the purpose of verifying bloodlines and avoiding the risk of accidental or deliberate cross-fertilisation and he was also asked to assume that at that time all breeders, large and small, invested in the sunk cost of farms and made their choices about where to locate their farms and what operations they would conduct. On those assumptions he was asked whether he would say that there was market power or anti-competitive preclusion of competition in 1990 from the no AI rule and his answer was it certainly would have precluded competition: that may have been a good justification for the limitation on competition: it clearly restricted the methods of production that could be used in producing the horses. Dr Williams disagreed that he could not draw that conclusion without investigating whether there were competitive constraints on the people who made the rule in the first place. 1091 Dr Williams was asked why he had difficulty accepting that people who wanted to own horses or people who wanted to watch them race may have a preference for naturally covered horses even though horses produced by AI might be genetically identical. He said he would be astonished if they did have such a preference but he certainly could not explain it. 1092 Dr Williams said he had not given much consideration to the state of competition between horse racing clubs. He did consider it initially and then he thought it was not overly relevant to the proceedings. 1093 Dr Williams said that he did not understand the basis for the assumption that international demand for Australian thoroughbred horses may be reduced if the Court were to order that AI be permitted in thoroughbred racing. 1094 Dr Williams was asked to assume that one potential reduction in demand may result from traditionalists who enjoyed the game less, with the result that those people attended fewer race meetings and placed fewer bets on the product. He was also asked to assume that one of the risks, if AI were allowed, was that the cost savings on average and across-the-board may in fact not be very great, that is, so small as to be trivial or nil. 1095 Dr Williams was also asked to assume that if AI were permitted there would be a greater representation of particular bloodlines. Dr Williams was asked to suppose, because of these matters, a group of traditionalists set up an alternative thoroughbred racing code that only allowed horses to race if they were produced naturally. 1096 It was put to Dr Williams that this would be a pro-competitive outcome. He thought it would be pro-competitive in the market in which the racing clubs competed. He was then asked whether he would expect the hypothetical new entrant to win market share for the provision of racing products from the established codes. Dr Williams agreed but only because of the first assumption, that the traditionalists attended fewer race meetings and placed fewer bets on the product. 1097 Dr Williams said that when he wrote his first report he thought that the people who had the principal interest in the maintenance of the current rules were the owners of stallions and, in particular, the stallions of highest quality in Australia but over time he had come more to think that the people who had the strongest interest were the larger studs rather than the owners of stallions but he was still of the view that both groups would have most to gain by the retention of the current rules. 1098 In re-examination Dr Williams was asked to assume in relation to standardbred shuttle stallions that some of those shuttle stallions would be averse to being used for the purposes of direct cover following their use for the collection of semen. He was then asked whether it was important in his analysis as to whether or not AI was allowed in Australia but not anywhere else to come to some rational opinion as to the true likelihood of a single stallion owner offering its stallion services on an AI basis. Dr Williams said it was not important. 1099 Dr Williams was also asked to assume that some thoroughbred shuttle stallions brought to Australia and used for artificial insemination would then not be available to provide direct cover and he was asked whether competition in the breeding services for thoroughbreds in Australia would be likely to be enhanced by the removal of the rule which would preclude AI. Dr Williams said that his opinion would be exactly what he had expressed all along. He said that whether or not one makes the assumption that some or all shuttle stallions could be used, that is could switch easily or none could switch easily between AI and natural cover, he would still be of the opinion that the removal of the restrictions would increase competition in that market. 1100 On the same assumptions Dr Williams said the removal of the ban would provide options of importing frozen semen, the use of shuttle stallions for artificial insemination to some extent and an increase in options as to the way in which breeding was done with stallions that were based locally and would enable the increased use of the broodmare farms that were located closer to the homes of the mares. If none of the thoroughbred stallions providing AI services were able to provide direct cover Dr Williams said one of those options would be removed.

Mr Houston 1101 Mr Houston is a director of NERA Economic Consulting and head of its Australian operations, based in Sydney. 1102 He first gave his understanding of the key activities of the Australian thoroughbred industry, namely thoroughbred horse breeding, sales and racing, and the participants in each of those activities. 1103 He said that the two principal economic decision-makers in the breeding of thoroughbred horses were owners of stallions and owners of broodmares. Because a stallion can cover a significant number of mares in a breeding season, the number of breeding stallions is small relative to the number of mares. 1104 Mare owners generally pay stallion owners a service fee for cover. Where a mare is not located at the same stud as the stallion, the mare will generally travel to stud to be served. 1105 Service fees for each stallion are posted on an annual basis and fees vary greatly between stallions, ranging, in 2010, from $400 to $176,000, as listed in the Australian Stud Book 2010 publication Stallions Standing in Australia. 1106 A significant fraction of the value of the market for stallion services is driven by the output of a small number of high-priced stallions. In 2009/10, the estimated total revenue generated by service fees of the 20 highest price stallions was over $232,000,000, accounting for just over 50% of the total stallion service fee revenue for that year. 1107 The stallions are generally owned either in full or in part by horse studs. According to Stallions Standing in Australia, the size of studs, in terms of the number of stallions standing, varies significantly. Darley Australia's Kelvinside Stud is the largest with 18 and at the other end of the market 324 of the more than 450 registered studs stand only a single stallion. 1108 A feature of stallion breeding services is a small number of larger studs and popular stallions. In 2009/10, stallions standing at the seven largest studs by number of covers accounted for 37% of mares covered in the market. The top 20 sires by service fee all stood at the seven largest studs by number of covers. 1109 There had been a significant increase in the average number of covers per stallion taking place over the past three decades. Mr Houston understood this to have been primarily driven by improvements in breeding technology which had enabled an increase in the number of covers a stallion could undertake in a breeding season. These improvements included artificial lighting and medication to control the rhythm of the mares' oestrus cycles and ultrasound scans to determine when the mare was ovulating. The main effect of the increase in stallion productivity during the past three decades had been to reduce the number of stallions used to produce the foal crop: the foal crop itself had remained fairly stable over the last 15 years. 1110 In terms of sales, most sales of thoroughbred horses were made by mare owners of unraced fillies and colts. Typically they were sold at auction, although private sales also occurred. In the 2009/10 season, 8,683 thoroughbreds were sold at the major auctions of which 6,477 were unraced at the time of sale. Unraced thoroughbred horses were most commonly sold as yearlings, with yearlings accounting for 4,831 of the horses sold at auction in 2009/10. 1111 Prices for unraced thoroughbred horses at auctions varied significantly according to the horse's expected racing ability. Prices for broodmares reflected the value buyers placed on the mare's breeding potential. 1112 The buyers of unraced thoroughbreds include racing stables, private owners and offshore buyers. 1113 International buyers purchased Australian thoroughbreds for breeding and racing overseas. In 2009/10, 1,833 thoroughbreds were permanently exported. In 2010 international purchasers accounted for at least 11% of the total sales by number and 17% by value of the highest profile yearling sales run by Inglis and Magic Millions. 1114 Turning to thoroughbred racing, race clubs were responsible for the staging of races. Australia has 374 race clubs, of which 12 are denoted "major race clubs". 1115 Thoroughbred race clubs currently hold more than 2,600 race meetings in Australia each year, offering more than 19,000 individual races. The total number of thoroughbred races has declined over the last decade, from 21,561 in 1999/2000 to 19,281 in 2009/10. 1116 There were 554 black type races in Australia in 2009/10, comprising 68 Group 1 races, 85 Group 2 races, 112 Group 3 races and 289 Listed races. 1117 Race clubs offered prize money for the winning horses and top finishers in their events. Prize pools varied significantly across races, with Group 1 race prize pools typically more than $350,000. At the other end of the spectrum, midweek country races offer a minimum prize pool of $12,000 in Victoria and $15,000 in New South Wales. 1118 Mr Houston then went on to consider the economic relationship between what he described as the primary driver of value in the thoroughbred industry, wagering by the public, and the industry's upstream activities namely horse racing, sales, and breeding. 1119 Mr Houston said that, in broad terms, some of the money generated by wagering flowed back to race clubs allowing them to stage races and offer prize money to owners whose horses competed. The opportunity to compete for prize money generated demand for thoroughbred horses, which in turn created an economic incentive to breed those horses. 1120 Mr Houston said that the key economic decisions regarding the staging of thoroughbred races were essentially determined by the principal racing authorities. This limited the flexibility of race clubs to respond to changes in consumer demand for the race product. Further, funding arrangements that allocated funds to race clubs based on a predetermined share of wagering revenues meant that race clubs received only limited financial reward if they were able to increase wagering revenues by offering a more attractive racing product to punters. He said that the essential consequence of those arrangements was that the output of individual racing clubs was the product of the administrative or regulatory process. Thus decisions as to the nature, location and timing of race meetings held by individual racing clubs were not made by reference to the normal economic forces of supply and demand. 1121 Prize money was the major source of income for owners of racing thoroughbreds. The other source of owner income was breeder incentive schemes. 1122 For the majority of sales, the thoroughbred's racing ability was not known at the time of sale. Therefore expectations about relative ability were formed on the basis of the horse's lineage, physical characteristics and temperament. 1123 Importantly, Mr Houston said, it was relative rather than absolute ability that drove willingness to pay for thoroughbred horses because of the nature of the returns for horse racing. Returns depended on winning races by outperforming peers rather than on the absolute (race winning) ability of the horse. 1124 Returns to horse ownership were negative, that is, buyers of thoroughbred horses did not on average cover their costs. This suggested that there was a significant "recreational" as well as an "investment" component to the decision to purchase a thoroughbred racehorse. 1125 Revenues to mare owners from their breeding activities came from prize money from racing any horse produced; or selling a horse in the secondary market. 1126 Mr Houston assumed that in selecting a stallion, mare owners would seek to maximise their returns to breeding. This meant choosing a stallion that would generate progeny with the best expected (relative) racing ability, given the service fee. Mr Houston said relative racing ability cascaded into all of the markets rather than being limited to the thoroughbred horses market or the stallion services market. Mare owners were acquirers of stallion services so his references to relative racing ability applied to both markets. 1127 Mr Houston said the words "relative quality" ("relative ability") were his words but, from what he had read, the critical attribute was that your horse could run faster than any other horse on the day and that was a relative attribute. He had coined the term to emphasise the distinction between that concept and the concept of absolute quality which was prominent in Dr Williams' report. He added that the proposition that buyers at yearlings sales or the breeders producing foals would be interested in quality were judgments which had to be made and were made in the context of the attributes and ability of other horses around the time and who would come to compete with that particular horse. A buyer seeking out the horse with the best absolute quality was also wittingly or unwittingly seeking out the horse with the best relative winning ability and there was nothing inconsistent about relative and absolute quality at an individual level. 1128 Mr Houston then described the nature and extent of excess supply in the thoroughbred industry. Mr Houston considered that the thoroughbred racing product in aggregate was likely to be oversupplied relative to the economically efficient level. In his oral evidence, Mr Houston said that he was there referring to the economically efficient level of race club activity, essentially the holding of races. The funding arrangements and the regulatory arrangements by which race clubs came to put on race events led to the situation where those events were put on more often or to a greater extent than would be the case if those regulatory and funding arrangements did not exist. They would be at a lower level if race club activity was left to the individual decisions of individual race clubs or racing organisations. There were a minimum number of races which the clubs were obliged to hold to satisfy funding requirements and the funding requirements had objectives, perhaps non-market objectives, such as promoting country races or other kinds of development activities. A condition of the funding was minimum requirements for races in various locations around the State. The funding was principally the channelling of funding from wagering. International comparisons provided support for the contention that Australia may be oversupplied in terms of thoroughbred races and race clubs. 1129 There was also an oversupply of thoroughbred horses for racing. The thoroughbred foal crop in Australia exceeded the number of horses that were required to sustain the racing industry at current service levels. 1130 Mr Houston considered that the low and falling intensity of use of racing thoroughbreds was likely to reflect the fact that there were more thoroughbreds seeking to race than there were attractive racing opportunities. This was evident in the large number of races that were "oversubscribed". 1131 Mr Houston then turned to describe the rules governing the participation of horses in thoroughbred races in Australia and described how the Australian eligibility rules fitted within the context of international agreements. 1132 He noted that the natural cover provisions prevented horses produced by any form of artificial breeding from being eligible to compete in thoroughbred races in Australia. Artificial breeding methods included artificial insemination, embryo transfer, cloning and other forms of genetic manipulation. He said that the analysis in Dr Williams' report was confined to the effect of those provisions in markets that he defined consequent only upon the exclusion of horses conceived by artificial insemination. 1133 Mr Houston then turned to present his economic analysis and conclusions on the appropriate product and geographic dimensions of the markets in which the activities of the breeding and sale of thoroughbred horses took place. 1134 He said it was important not to lose sight of some critical elements of the hypothetical monopolist test. In particular the relevant assessment of the extent of substitution in response to a significant and non-transitory increase in price must be made by reference to all users rather than to the particular preferences of some selected individuals. The relevant question was whether there were a sufficient number of price sensitive or marginal users who were likely to switch, relative to the number that were less price sensitive and unlikely to switch in response to a 5% or 10% change. Unless a systematic approach was taken to sampling from the entire population of existing purchasers, stated preferences in substitution of a non-random sample of buyers could not necessarily be taken as either representative of the entire market demand or determinative of the outcome of a properly applied significant and non-transitory increase in price test. 1135 Mr Houston said that the eligibility rules that applied to thoroughbred racing had an important bearing on the choices made by parties in the activities of breeding and sale. In cross-examination Mr Houston made it clear that by referring to "these upstream activities" he was referring to choices made by parties in relation to the acquisition of stallion services and in relation to the acquisition of racehorses. He said the important point was that the focus of the two upstream markets was the production of thoroughbred horses to provide a product that would be used in the downstream market which was thoroughbred racing. 1136 Mr Houston agreed with Dr Williams that the markets for the breeding (which Mr Houston referred to as having the proper characterisation "stallion services") and sale of thoroughbred horses should be defined as separate functional markets for the purposes of the analysis. 1137 Mr Houston said that if the natural cover provisions were not in place there would be no difference in the racing opportunities in Australia for thoroughbreds which were bred by artificial insemination and those which were not. 1138 Assuming that the only determinant of buyers' purchasing decisions was the potential racing career of the horse within Australia, there would be no difference in willingness to pay for a horse of a given quality whether it was the product of artificial breeding or natural cover. 1139 As to the geographic dimension, Mr Houston said that the limited barriers to the sale and purchase of thoroughbred horses between States suggested that the market should be defined at least in national terms. 1140 In relation to the market for stallion services, Mr Houston said that whether any of the potential forms of breeding were economic substitutes would depend on mare owners' willingness to substitute between them, taking account of any differences in the costs, risks and effectiveness of the different methods of breeding. He said he did not have enough information to be able to form an opinion as to the appropriate product dimension of the potential market for stallion services without the natural cover provisions, but for the purposes of this competition analysis he had adopted the approach taken by Dr Williams and assumed that stallion services provided by artificial insemination represented the full extent of the potential economic substitution for stallion services provided by natural cover. 1141 As to the geographic dimension, Mr Houston said he did not have sufficient information to form an opinion as to the likely geographic dimensions of the product market prevailing with the natural cover provisions. He said that the filed statements by a number of small mare owners (owning 20 or fewer mares) did not provide information to indicate the basis on which breeder preferences in relation to that very small number of mares might be representative of the 27,022 thoroughbred broodmares registered for breeding in 2009/10. 1142 Mr Houston also said he did not have sufficient information about the importance of breeder incentive schemes in influencing the stallion choices of mare owners in order to draw a firm conclusion as to whether it was more appropriate to define a state or national market. He added that the uncertainty as to the geographic boundaries had no implications for his analysis of the competitive effects of the natural cover provisions in the stallion services market. 1143 Mr Houston disagreed with Dr Williams' characterisation of a national thoroughbred breeding services market and the economic approach he adopted to defining this market. 1144 In relation to the economic principles for analysing the effect of a trade restriction on competition in a market, Mr Houston noted several important differences in the way that he and Dr Williams had applied the analytical framework. Mr Houston said that, in analysing competition for thoroughbred breeding by natural cover, Dr Williams did not take into account the economic relationship between the breeding and the acquisition and racing of thoroughbred horses. Mr Houston said that the fact that Dr Williams analysed breeding in isolation drove the differences in their respective conclusions as to the anti-competitive effects of the natural cover provisions. 1145 Mr Houston considered the question of competition analysis and rules of sport. He first referred to individual rules that define a sport and said that once such sport-defining rules were in place, however arbitrary they may appear to be, amending them may significantly alter the character of the sport in the eyes of participants and spectators. Although some rules in some sports were from time to time amended, there were other rules for which the amendment risked significant detriment to the economic value generated by that activity. Importantly, he said, there may often be no practicable means for assessing the potential contribution by any particular rule to the total value of a sport. 1146 Mr Houston referred to several other reasons why uniform sporting rules and standards may be "value generating" for both spectators and participants. He referred to standard rules maintaining competitive parity; the opportunity for "long-term competition" through benchmarking sporting performance over time; and promoting player safety. 1147 Mr Houston accepted that at the level of principle it was possible that some sporting rules may also limit competition. This may occur where rules or standards constrain commercial opportunities for some individuals or groups, for example, through restricting eligibility to participate in the sporting contest or restricting the equipment that participants may use. 1148 In cross-examination Mr Houston used as an analogy the State of Origin contest which probably had its origins in history from the fact that New South Wales and Queensland were, in days gone by, the only States where a certain level of rugby league football was played. The whole value of the contest derived from its historic significance as delineating and establishing a contest between the two States. So even though there were players who might be regarded as functional substitutes, those players were not allowed to participate. While that may appear to be anti-competitive in the sense it defined who could participate, as Dr Williams pointed out, in Mr Houston's opinion one had to weigh that against the commercial value of the fact that that competition or contest was restricted in terms of who could participate, and in particular the detriment to the commercial value of the contest if it was given another badge and different rules were established as to who could participate in it. He used the example to illustrate simply that the distinction drawn by Dr Williams was unhelpful and out of line with the economic literature on anti-trust matters as they related to sporting competitions. To the proposition that there were other contests in which rugby league players could participate in Australia, Mr Houston said there was no other State of Origin game. 1149 He rejected the analogy of a rule in tennis which said that only a Slazenger manufactured racquet could be used by a player, because direct cover was a method or procedure whereas Slazenger was a brand that was owned by a particular entity. There was no enterprise of the monopoly on direct cover, it was a procedure. Direct cover services were provided by many different entities. If there were a rule in tennis which said that only a handmade tennis racquet could be used by a player, Mr Houston said that was a very different question because anyone that wished to could produce a handmade tennis racquet. Only one entity could produce a Slazenger tennis racquet. The competitive consequences of the decision that says you must use a handmade tennis racquet were quite different. 1150 In circumstances where sporting rules are directed at maintaining valued aspects of the sport, economists regard those rules as efficiency (or welfare) enhancing. By ensuring that the resources of the sporting competition were directed to generating the product that was of highest value to its players and spectators, Mr Houston said such a rule promoted allocative and dynamic efficiency and economists refer to the consumer and/or player welfare gains created by such rules as their "pro-competitive" benefits. He said an economic analysis must consider whether a substantial lessening of competition of any particular rule was likely, once its offsetting, pro-competitive benefits had been accounted for. 1151 Mr Houston said that if a sports regulator received no economic benefit from the maintenance of a rule, this itself provided strong support for the proposition that the relevant rule was being imposed for the overall good of the sport, that is, for pro-competitive reasons. Nevertheless, if sporting bodies did impose arbitrary rules or standards (e.g. rules apparently unrelated to preserving the nature of the sport) and those did have anti-competitive effects, such restrictions would appropriately be subject to scrutiny. 1152 Mr Houston referred to the two reasons given by Mr Ford for the proposition that the natural cover provisions were necessary to preserve the integrity of the sport of thoroughbred racing and the welfare of its Australian participants, including breeders, owners and spectators. These reasons were maintaining the standing of Australian racing within the international community and maintaining the "mystique and inherent skill" of thoroughbred breeding which formed an integral part of the nature of thoroughbred racing and had contributed to the appeal of the sport. Mr Houston later described this second reason as the mystique and skill of the sport derived through the variability of natural breeding. 1153 Mr Houston then went on to describe the pro-competitive benefits of the impugned rules. In his analysis Mr Houston focused on the two reasons articulated by Mr Ford for the ongoing need for the natural cover provisions. 1154 Having referred to the percentage of the adult population who had attended at least one thoroughbred horse racing event and the wagering turnover in 2009/10 of in excess of $14 billion, Mr Houston referred to international participation in racing and breeding, and to increased revenues for race clubs and breeders from participation of international horses and the sale of broadcast rights, international wagering activity and international sponsorships. The internationalisation of racing provided several direct economic benefits for Australian thoroughbred owners: promising horses could be raced overseas and the significant acquisition of thoroughbreds by offshore buyers increased the value of the output of Australian thoroughbreds and the aggregate returns to breeders (and their owners). To the extent that higher revenues to race clubs translated into higher prize pools, this also provided benefit to Australian thoroughbred racehorse owners. 1155 Further the international dimension of horse racing and breeding served to increase the profile of, and spectator interest in, the sport of thoroughbred racing. He referred to a number of the witnesses stating that the international dimension was part of the fabric of the thoroughbred racing industry, valued by both spectators and industry participants. 1156 Mr Houston then referred to the likely international response if the natural cover provisions were removed, drawing on the assumptions with which he had been provided. One of those assumptions was that the definition of thoroughbred as reflected in Article 12 of the Federation Agreement would not change and that the ASB would no longer satisfy the criteria for an approved thoroughbred Stud Book. A further assumption was that at least some countries would no longer permit Australian thoroughbred horses to be registered in their countries or allow Australian thoroughbred horses to compete in their races (whether or not those horses were the product of artificial insemination). 1157 Mr Houston said that on those assumptions, demand from international buyers would be expected to fall significantly. A reduction in demand from international buyers would cause a significant reduction in the size of the market for thoroughbred horses in Australia. Further, the reduced opportunity for Australian thoroughbreds to compete overseas would reduce the average income for Australian thoroughbred owners. If Australian races were to lose their black type recognition, this would be likely to cause fewer international owners to send their horses to compete in Australian races. Further, if at least some countries no longer permitted horses that they registered to compete in Australian races and assuming that the participation of international horses in Australian races boosted international interest in those events, the withdrawal of those horses could compromise that interest. In addition, a reduction in the international profile of Australian racing would also lead to a decrease in offshore revenues from broadcasting rights, wagering and international sponsorships. If Australian thoroughbred racing fans valued the participation of international horses in major races then those (assumed) changes would cause detriment to their enjoyment of the sport. A reduction in domestic interest in the sport would also result in a reduction in revenues for race clubs through lower gate takings and/or wagering revenue. This would ultimately translate into lower prize pools for horse owners and the consequent reduction in the size of the thoroughbred breeding industry. 1158 On the assumptions he made and in combination with his analysis, Mr Houston concluded that the natural cover provisions were necessary to protect the international status of the Australian thoroughbred racing industry. The direct benefits of maintaining the provisions were likely to include: higher revenues for race clubs and ultimately prize pools for Australian racing; greater demand for Australian thoroughbred horses; and expanding racing opportunities for Australian thoroughbred horse owners through the ability to compete overseas. He was not in a position to form an economic opinion about the extent of the benefits that arose from the natural cover provisions in the eyes of industry participants. 1159 Mr Houston then went on to consider the potential for competitive detriment. He considered the assumptions upon which Dr Williams had relied in analysing the competitive effects of the natural cover provisions. 1160 Mr Houston said that because, ultimately, it was the breeding decisions of the mare and stallion owners that were influenced by rules that prohibited horses conceived in a certain way from participating in thoroughbred races, an economic analysis required either an analysis of or assumptions as to the way in which the decisions of those parties would change in the absence of the natural cover provisions. 1161 Mr Houston then considered several apparent assumptions in Dr Williams' analysis: that the direct costs of breeding would decrease; that mare owners would no longer be restricted to choosing stallions within close geographic proximity; and high quality stallions would expand their output. 1162 Mr Houston then questioned whether breeding costs would be lower under AI. He undertook a comparison of the cost of natural cover and artificial insemination using frozen and chilled semen, on the basis of the material available to him. He said that most of the costs of artificial insemination using fresh semen would be expected to be the same as those for natural cover since the mare was still required to travel to stud for service because fresh semen degraded quickly. He therefore assumed that the cost savings contended for related to the use of chilled or frozen semen. 1163 The greater effectiveness of natural cover meant that, on average, fewer trips would be required for mares bred by natural cover compared to AI. On the information available, it was not clear that the costs of mare transportation would be lower with AI as compared with natural cover. The relative costs would vary with the circumstances, according to whether stallion services via AI needed to be administered at a breeding centre; whether the stallion chosen was locally based or interstate; and how many cycles it took to achieve pregnancy. 1164 As to agistment costs, assuming that stays were likely to be shorter at a breeding centre, total agistment payments would be lower since the stays would be considerably shorter than at stud. In order to conclude that there was likely to be any real reduction in the agistment costs of mare owners using AI, relative to the status quo, it would be necessary to have information on the costs incurred by the mare owner at his or her own property or agistment farm. 1165 In relation to veterinary costs, it appeared that the total cost of veterinary services using frozen or chilled semen (both at least $850) was at least 45% greater than the cost of live cover at $465. 1166 As to the lower effectiveness of AI, Mr Houston understood that AI with chilled or frozen semen offered lower fertility rates (pregnancy rates per cycle) than natural cover. The lower effectiveness of AI imposed a real cost on mare owners over and above the veterinary and transport costs associated with additional breeding cycles. These related to the significant advantages to mare owners from having their progeny conceive early in the breeding season and there was also an increased risk that the mare would not conceive at all, particularly if the first breeding had been delayed. 1167 In summary, Mr Houston was of the opinion that the information available to him was not sufficient to conclude that the costs of breeding would be lower with artificial insemination as compared with natural cover. The relative costs of the two methods depended on the particular circumstances and more detailed information about current and potential breeding patterns was needed to draw any conclusion as to whether the costs of AI were likely to be higher or lower on average across a population of mares. 1168 As to whether AI would expand mare owners' geographic choice set, Mr Houston said that apart from the statements of a few mare owners, there was no information to indicate that most or many mare owners chose to have their mares covered by stallions within close geographical proximity. Mr Houston said that he did not have data consisting of estimates of the frequency of choosing mares to breed with interstate stallions or estimates of the costs of interstate travel for mares relative to the stallion service fees. He was therefore unable to assess whether the stated preferences of the few mare owners were likely to reflect the choice that would be made by a sufficient number of mare owners. In cross-examination Mr Houston said that the point he was making was that if you wanted to draw a conclusion about transport costs you had to have a lot of information from a representative sample of the market, which was a very diverse market in terms of the value of the transactions that were being undertaken, and that information was not available. He said that there was not sufficient information on transport costs relative to the stallion service fees to draw a conclusion: that was a quantum question and that quantum question was going to be affected by the service fees which varied greatly. He said that if you put information about the preferences of breeders, and that was the only information you put, then that information should be from a representative sample, particularly given the diversity of breeders. Mr Houston set out other information that would also be useful in addressing that question. He was not saying you must have and can only rely on information from a representative sample of breeders: there are alternative kinds of information that you could also use and they could be used together with information from a representative sample of breeders. 1169 Mr Houston also referred to the breeder incentive schemes under which the bonuses could be substantial. With some exceptions, eligibility for those schemes was restricted to horses conceived by stallions that stood within the State administering the scheme. Those schemes were an important source of (potential) income for racehorse owners, in the sense that that factor would be likely to influence at least some mare owners' choice of stallion. Mr Houston quantified by way of estimate the extent of breeder incentive payments. In cross-examination, Mr Houston said that most of the incentive schemes operated by reference to winnings, an uncertain figure, but the information did indicate that the amount was more than 5% of the expected revenue pool that thoroughbred horses received in racing. 1170 In conclusion, Mr Houston said that on the information available to him, it was not possible to draw any conclusion as to how the geographic distribution of breeding patterns would change, if at all, if the mare owners were able to utilise AI breeding techniques. He did not have sufficient information to conclude that a meaningful proportion of mare owners was currently constrained in their choice of stallions because of the costs and risks of transporting the mare interstate for service. It was unclear whether any significant number of mare owners would seek to choose stallions from outside their State even if it became clear that it was less costly to do so using the AI method of breeding. In cross-examination Mr Houston said that this paragraph was not crucial for the analysis and conclusions of his entire report. The questions he was addressing at that point was whether the inability of breeders to choose to use AI by virtue of the impugned provisions was a meaningful constraint on their decisions, focusing only on the cost side of their decisions, rather than the value of their output. 1171 Mr Houston next examined whether the removal of the natural cover provisions would have the effect that there would be substitution of the breeding services of better quality stallions for poorer quality stallions. He said that the higher productivity of AI suggested it had the potential to increase the output of all stallions in the market. The question therefore was the extent to which stallion owners had an economic incentive to expand their output or, put another way, whether or not the physical constraint on the number of covers that the stallions can undertake in a season presently limits their output. 1172 Mr Houston noted the evidence that a mare owner's willingness to pay for a stallion's services would be lower the greater the number of covers the stallion in question was likely to undertake in a season. It followed from this effect that stallion owners could be expected to seek to create and maintain a degree of scarcity of the progeny produced by their stallions. Such an incentive was consistent with the industry evidence that most studs limit the books of the most popular stallions. 1173 Mr Houston then considered the comparison of thoroughbreds' and standardbreds' data to suggest that even with the choice of AI open to breeders, the owners of standardbred stallions still acted to restrict their output to similar levels achievable through natural cover. In cross-examination Mr Houston agreed that the economic incentive of a stallion owner to restrict the output of the stallion, particularly high-quality stallions, would operate if AI were available in relation to thoroughbreds. He put it that the unique properties of each stallion, and so each additional cover that a stallion owner offered, reduced, to some extent, the relative worth of all of the covers that were offered by that stallion owner. It was a gradual and perhaps accelerating decline in value as more and more covers were offered. If the stallion owner were to perceive there had been an increase in demand for the services of a particular stallion that owner could increase the number of covers and/or, as an offsetting alternative, raise the price. 1174 Mr Houston therefore concluded that it was the stallion owners' economic incentive to limit the output of their stallions, rather than the physical constraint on the number of mares that could be inseminated with natural cover, that already constrained the outputs of high quality breeding stallions. It was therefore not clear that removing the natural cover provisions would lead to an expansion in the number of covers undertaken by the top stallions. To his observation there was no sign of that physical constraint being in place. In re-examination, in relation to the increased number of covers, Mr Houston said that an increase in demand would never result in a reduction in price so can either be responded to by an increase in the supply quantity or an increase in price for the same quantity or some combination of the two. There was no economic logic in a stallion owner responding to an increase in demand by reducing its price. The owner would only maintain the price or increase it and most likely would increase it. The stallion owner would have to address the nature of their response having regard to the starting position corresponding with their particular position in the market at that time: for stallions that were already busy the owner would be more likely to raise the price than to increase the number of covers, others may be more inclined to increase the number of covers. A stallion owner at a fee of $200,000, on the assumption of an increase in demand from 200 per season to 400 per season, instead of going from 200 to 400 may simply decide to make its $200,000 fee $400,000 or whatever was needed to protect its interest in terms of not flooding the market for its progeny. The economically logical response was to engage in a combination of raising prices and restricting the number of covers as a matter of judgment of the stallion owner, remembering that the stallion owner had to think not only about their revenue in that season in particular but their revenue in the future seasons as the progeny came onto the market. 1175 In cross-examination Mr Houston said there were two forms of constraint that may or may not apply to a stallion owner deciding to offer covers and how many. Besides a physical constraint, the second was an economic constraint which was the need of a stallion owner to take account of the price consequences of "flooding the market". What he was examining at this point was whether the physical constraint was a meaningful constraint or whether in fact the economic constraint was the one that was operative. In relation to standardbreds it was not the physical constraint that was operative and therefore as a matter of economic logic it was the economic constraint on standardbred owners that was operative in their making decisions as to how many covers to make available. Also a critical distinction between the thoroughbred and standardbred industries was that AI was used widely throughout the world in the standardbred industry. 1176 Overall, Mr Houston's opinion was that there was insufficient information to support the assumptions on which Dr Williams had relied in assessing the competitive effects of the impugned restrictions. In particular, Mr Houston said that Dr Williams was not in a position to conclude that if AI were utilised for thoroughbred breeding then, relevantly, breeding costs would be lower; mare owners would expand the geographic range in which they sought stallion services; and/or owners of high quality stallions would expand their output. It followed that the natural cover provisions could not have the likely effect of substantially lessening competition if it was not able to be established 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 those provisions. If the provisions were not likely to have any real effect on market outcomes (other than preserving key elements of the sport), then there was likely to be no competitive detriment from the provisions. 1177 In the alternative, that is, on the assumptions that the removal of the natural cover provisions would substantially reduce the cost of breeding, expand mare owners' choice of stallions and enable stallions to expand their outputs, Mr Houston went on to analyse the competitive effects of the removal of the natural cover provisions. 1178 Mr Houston said that, in his opinion, the economic relationship between thoroughbred racing, the purchase of thoroughbred horses and stallion services was a critical consideration. Essentially, he said, the demand for stallion services was a derived demand, dependent on the demand for thoroughbred horses; and, in turn, the demand for thoroughbred horses was also a derived demand which was dependent on the demand by race clubs for the services of thoroughbred horses to compete in races. The appropriate starting point was the market for racing services because it was ultimately the demand for those services that drove the incentives of participants in the dependent markets. 1179 On the assumptions set out above (which Mr Houston did not accept), then, all else being equal, there would be a change in the supply of thoroughbred horses. In particular, the number of horses produced would be expected to increase (because the unit cost of production was lower) and the average quality produced would be expected to rise (because high quality stallions could expand their output and the stallion choices of mare owners would not be constrained by geographic proximity). However, Mr Houston said, the ultimate economic effect of these changes must depend on whether there would be any corresponding change in the opportunity to race (the number of races) or the revenues available for racing (prize pools). In cross-examination Mr Houston agreed that what he was saying was that unless the size of the prize pool for thoroughbred races in Australia increased in some way, the removal of the restrictions in relation to AI would not affect the state of competition in the upstream markets, that is, the market for racehorses or the market for stallion services. The end market was the market for thoroughbred racing and that market, the number of races and the size of the prize pool, was not set by reference to anything to do with the cost of supplying or producing thoroughbreds but set by a regulatory process for all intents and purposes independent of the costs of producing thoroughbreds. So if there were only a certain number of places in races for thoroughbred horses in any year and only a certain fixed prize pool and the cost of producing a thoroughbred was reduced, all that meant was that the same pie could not be divided up in a different way: the top eight and a half thousand horses that are needed each year to come into the industry would still be whatever those top horses were, however they were produced, and the value of those horses would not be a function of the cost of producing them but a function of their winning prospects. So there was a disconnection between the cost of production and the value of the input to the racing product. 1180 Mr Houston saw no basis for drawing an analogy with other goods, such as cardboard boxes, where the amount of money available to be spent on those goods did not change. Here, if you found a way of reducing costs, that cost reduction was simply going to be captured by either the breeders or the stallion services providers because you still had the same number of horses. There was no increase in demand for the quantity of thoroughbreds each year because there were no additional races to enter them in and there was no additional prize money for them to win. So somehow that cost reduction would get captured by the participants in the markets and offset as higher profits or perhaps lower losses and the end result was the same number of thoroughbreds produced each year that entered races or the same value for that total production. Mr Houston was asked to accept as an assumption that one possibility was that the absolute quality of thoroughbreds would increase. It appears that he accepted that that was a factor he had not paid regard to. In re-examination Mr Houston said that his analysis showed that there had also been an absolute quality increase in performance of thoroughbreds at the time so it seemed that that was a background development common to both standardbreds and thoroughbreds and to that extent his analysis was consistent with that background. He added that he had not seen any evidence to support that. He did not accept that he had left out of consideration the possibility that some races may be undersubscribed, that is, that they may be able to accommodate additional participants. 1181 Mr Houston said that the constraint on race club output stemmed from the level of demand by the public to wager on or to watch races, not from the supply of thoroughbred horses since the supply of horses was already in excess of what was required to sustain the number of races on offer. Further, there appeared to be limited opportunity for the further expansion of racing. An increase in the number of races was more likely to spread the amount wagered over more races, rather than to increase the size of their wagering pie. 1182 Mr Houston also said that it was not clear to him why the long-term demand for racing services would be enhanced by an increase in the absolute quality of racehorses since the public's interest in thoroughbred horse racing was primarily driven by the ability to wager on race outcomes. He noted that the practice of race handicapping was used as a means to make wagering more attractive for punters. This indicated that punters valued an even contest rather than absolute speeds. There was no data to suggest an historical link between the quality of horses participating in races and wagering activity. In Mr Houston's opinion, an increase in the number or quality of thoroughbred races staged would not lead to a material change in wagering activity and therefore revenues for race clubs. It followed the race clubs would not seek to expand their output. It further followed that an increase in the number and/or quality of horses could not be expected to lead to a change in demand for thoroughbred horse racing services. 1183 Mr Houston then considered the effect on competition in the market for thoroughbreds by reference to the determinants of demand for thoroughbred racehorses and the effect of an increase in the quality and number of thoroughbred horses. He then considered the effect on competition in the market for stallion services by reference to the determinants of demand for stallion services and the effect on demand for stallion services. 1184 In Mr Houston's opinion, removal of the natural cover provisions would broaden the choice set for stallion and mare owners, however this was not capable of generating any real improvements in market outcomes for the welfare of participants in any of the relevant markets. This conclusion was driven by the unique economics of the racing industry, in particular the fact that output levels and prices in the upstream markets were determined by the number of races and the prize pool in the racing market; there was no reason to expect prices or outputs in the racing market to change in response to an increase in the number and quality of horses available; and the rewards in the final market would be driven by relative rather than absolute quality and it was the relativities that drove the decisions of horse buyers and breeders. It was put to Mr Houston in cross-examination that he did not have any basis in the evidence in the case for the proposition that it was those relativities that drove the decisions of horse buyers and breeders. Mr Houston disagreed: the proposition that relative quality or relative race winning ability was the critical consideration was dependent only on the assumption that a principal consideration or motivation of a person acquiring thoroughbreds was their race winning ability and he thought that was a safe assumption. 1185 Market outcomes and welfare were not constrained by the natural cover provisions, and so the provisions did not substantially lessen competition in any of the markets for thoroughbred racing services, thoroughbred horses or stallion services. Indeed, he said, given that the natural cover provisions protected elements of the sport of thoroughbred racing that were valued by spectators and participants, the likely net effect of the provisions was to increase competition and welfare. 1186 In his second report, Mr Houston was asked to describe the effect or effects (if any) that the removal of rule 1.8 of the ASB Rules (the same stallion rule) would have on competition in the markets that he identified in his first report. In undertaking this task he was asked, first, to have regard to his own analysis of the economic principles for identifying or defining a market and, second, to do so on the assumption that the matters stated in Dr Williams' analysis of the effect of the rules on the performance of the market defined by him were correct. 1187 Mr Houston said adding rule 1.8 to the impugned provisions had the effect of narrowing the eligibility criteria for competing in thoroughbred races in Australia so as to exclude horses conceived by natural cover whose sire had participated in any form of artificial breeding in the same season. It did not alter the nature of the provisions. In his opinion this somewhat broader effect had no consequence for the analysis and conclusions set out in his first report. He accepted that the set of choices available to participants in the industry without that rule was wider than it was with that rule. 1188 In cross-examination Mr Houston said that he preferred to refer to a stallion services market rather than a breeding services market and the market in which the costs of breeding was the relevant cost was actually the thoroughbred horses market as he had defined it, not the stallion services market. Stallion services were an input into thoroughbred horses. Mr Houston described the stallion services market as a market in which providers stood stallions for the impregnation of mares, essentially the people that offered their stallions at stud for service fees. The buyers in that market were the owners of mares (breeders) who wished to produce thoroughbreds. In Mr Houston's terminology the downstream market was thoroughbred racing and the two dependent upstream markets were thoroughbred horses and stallions services. 1189 He said that what drove stallion service fees was the perceived or prospective quality of the sire and the scarcity of the number of services that the provider of that direct cover service was planning to make available in a season. The costs of providing the stallions services were not really relevant to the price that was charged. Mr Houston contrasted this with a market, say, for motorcars where if the cost of an important input were to halve then, assuming effective competition, the cost of production would reduce, the output would increase and the price at which motorcars were sold would reduce, giving rise to productive and allocated efficiency gains. 1190 He said that the breeders were principally interested in the prospects of their output, their thoroughbred yearlings, being the prospects for those progeny to be successful in terms of prize money in thoroughbred races. However because the prize pool was set exogenously or independently of the costs of any producers in that market and because not everyone can win first or second prize, that meant it was a very unusual market. 1191 The output of one market, stallion services, was the input into another market, which was production of thoroughbred horses, which was in turn the input into another market, which was thoroughbred racing. If the total value available in that end market was fixed, then that had significant implications for the price/cost outcomes in those dependent markets. 1192 Mr Houston said that certainly at the upper end of the market, and perhaps for much of the stallion services market, the stallion service fee was driven not by the direct costs of actually providing direct cover service. Obviously at the bottom end of the market there must be a point when the costs of providing the stallion service must exceed the fee and so costs would clearly be relevant as to whether anyone would want to provide that stallion service. It was a very wide spectrum of qualities and for much of the market, particularly at the upper end of that market, the costs were not relevant to the setting of the service fees. 1193 Mr Houston said the important feature of the stallion services market was that you could not take a conclusion about the circumstances or decisions that would face an individual stallion service provider and generalise it to the entire market output because of the constraining effect ultimately of prize pool expectations on the value of the total output in the market. The total output was constrained by the prize pool and that meant that some other party in that market in that season must reduce their willingness to pay for stallion services. If there was another yearling produced and it was put into the sales then it did affect everyone else because there were more yearlings, more output that was being sold, with the prospect of competing for the same fixed prize pool. 1194 Unlike motorcars where if the cost goes down, cheaper motorcars were available, additional people bought them and all the other users of motorcars were still there driving their motorcars, in the present markets, the stallion services market and the thoroughbred horses market, the total value could not increase as a consequence of a reduction in costs of supply because the total value was actually driven by the prize pool and the prospects of realising value from that prize pool that the buyers and sellers in those submarkets paid attention to. 1195 The total output in each of the thoroughbred horses and stallion services markets could not change, all other things being equal, unless there was a change in the thoroughbred racing market as determined by the value of the prize pool and other sources of income in that market. The welfare outcome would be the same and Mr Houston found it very difficult to draw the conclusion that there could have been a change or benefit or increase in competition where that welfare outcome was the same. 1196 Mr Houston was saying that because the total output in the stallion services market and the total output in the thoroughbred horses market was dependent on the total value of output in the thoroughbred racing market, then that had substantial implications for the effects of the change in costs in one of those markets, unless there was a theory or some reason to believe that the change in costs would itself flow through into the racing market and he had not seen any suggestion that that would be the case. Considered from the point of view of the market rather than from the point of view of an individual, the reduction in the costs of providing a stallion service would turn into an increased demand for stallion services which would drive up the price of those stallion services so you would end up with the position that the costs of producing the thoroughbred foal did not change and therefore your commercial prospects did not change. If everyone produced a better quality foal but there was only the same amount of money to buy all those foals then the price of the better quality foal would fall compared to what it would have been in the "without" state of the world. 1197 Mr Houston said that what was distinct about this market was that it was the state of an individual's competitors which was critical because when an individual put a yearling in the sales, its value depended on what other yearlings were in the sales rather than what a yearling's costs were. 1198 In cross-examination Mr Houston said there were three distinct perspectives: one was the international dimension and the relevance of that for the demand for Australian thoroughbreds; the second was the question of costs and whether or not they would be lower or higher "and the implications of that for geographic decisions for the choice that people may or may not want to make"; and the third was the fact that the market was unusual in relation to derived demand. These perspectives were not interdependent. 1199 Mr Houston agreed that in order to reach a conclusion as to whether the future with and without the restrictions differed in terms of the competitive state of the relevant markets it was necessary for someone to determine whether there would be a level of demand or level of uptake of AI by breeders. In particular, he said, this was because if AI were available it was the breeders who would choose whether or not to exercise that choice about whether to use AI. That could be called demand although it was demand for an input of a particular kind. The sufficiency of demand question his analysis was going to was not any demand but whether there would be sufficient demand to cause the geographic definition of a market that started off being in one particular geography, to expand to a wider set of geographies which stayed national. In his opinion the question was whether a relatively small number of breeders, forming a very low proportion, making statements that were not unambiguous and where there was no information about how those breeders had been selected or whether they were representative, covered all the relevant considerations. His conclusion was that there was not sufficient information to draw a conclusion about whether or not geography constrained the decision of a meaningful number of broodmares owners. 1200 He repeated that there were three perspectives and from the other two perspectives there was either no change in competition or in the case of the international dimension a negative change in competition standing independently of the "geographic mare owner decision question". He said the issue of taking up artificial breeding had some relevance but its relevance was limited and not determinative because of the significance of the factors that drove the demand in the particular market and the significance of the international dimension. In order to conclude that the breeders' choice of stallions was currently constrained because of costs and risks, Mr Houston said you would need first of all a good understanding of the range of considerations a mare owner took into account when deciding which stallion it should seek direct cover from and those considerations included, but were not limited to, location. One needed to have some understanding of the relative importance of, for example, the attractiveness of the match and the service fee itself. His understanding was that in return for reduced transport costs, other costs would be introduced to do with the AI procedure and other risks would be introduced to do with the AI procedure. There was nothing he had seen that even approached the necessary comprehensiveness to get a grasp on these issues, bearing in mind that whether the costs of the two procedures were different was itself in doubt. It was a complex question. 1201 Mr Houston said that one way of looking at it was that the geographic market was presently State-based and that with AI the market would become national. This was Dr Williams' analysis but he did not have any analysis other than those statements from a limited number of small breeders. An alternative way of looking at it may be to assume that the geographic market was already national and would not change. There would then be a question of whether there was a substantial change in competition because of a substantial cost reduction which would include the transport cost savings. Again, in his opinion, the information from a small number of breeders did not provide a good basis for a conclusion about whether that change was substantial in terms of the entire market. 1202 Mr Houston said that if you were trying to understand the effect of changes in a market and bringing forward evidence from actual participants in the market, it was very important to satisfy oneself that those participants were representative, particularly in a market that had got such diverse and heterogeneous characteristics. As a matter of principle he would not discount the views of individual participants. By "heterogeneity", Mr Houston was referring, at least in part, to people making decisions about a $1,000 service fee: they may well be thinking about that very differently to people who are contemplating a $150,000 service fee. In his view that did not go to substantiality. The substantiality question could only arise once you had satisfied yourself as to the representativeness of the conclusions that you were seeking to draw, based on the representativeness of the evidence. Mr Houston said that the question was whether there were enough people who were constrained to a sufficiently large extent that the geographic definition of the market would change and that was quite a different question from asking one person who says "I am constrained" and concluding that on that basis there was a constraint. There was a third question of whether that made any difference to whether or not there was a lessening of competition in the markets. 1203 In relation to the effect on demand for stallion services if the natural cover provisions were removed, on the assumption that there were some mare owners who, because of concerns about transport risks, sent their mares away to be covered only every second year, Mr Houston accepted that if AI were available there would be an increase in the demand for stallion services if such AI did not involve any transport. That was not a matter which he had considered when he expressed the view that since mares could only become pregnant once in a season there would not be any increase in the quantity of services demanded. 1204 Mr Houston disagreed that a reduction either in the number or the price, or some combination of those, of thoroughbred racehorses within Australia, if overseas countries individually or collectively decided not to engage any further in transactions with Australia, would not have any particular implications for consumer welfare in Australia. In his opinion, because the welfare of the producers would clearly be reduced because the value of their output would be reduced, that translated into a reduction in welfare. There would also be a loss of welfare from people who had been denied the opportunity to buy a product that they might otherwise wish to buy and some of those people might well be resident in Australia, for example Australian residents interested in purchasing a racehorse with the possibility of racing it overseas. That also was a reduction of welfare because that Australian resident was denied the opportunity to engage in a transaction he or she would otherwise have engaged in to their welfare enhancement.

The statutory competition case 1205 The relevant provisions of s 45 are as follows: (2) A corporation shall not: (b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision: (i) … ; or (ii) … has or is likely to have the effect, of substantially lessening competition. (3) For the purposes of this section, competition, in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services. (4) For the purposes of the application of this section in relation to a particular corporation, a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding shall be deemed to have or to be likely to have the effect of substantially lessening competition if that provision and any one or more of the following provisions, namely: (a) the other provisions of that contract, arrangement or understanding or proposed contract, arrangement or understanding; and (b) the provisions of any other contract, arrangement or understanding or proposed contract, arrangement or understanding to which the corporation or a body corporate related to the corporation is or would be a party; together have or are likely to have that effect.

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.

Findings 1305 The basic facts are not controversial. What follows is for the 2009/2010 racing year, 1 August to 31 July. 1306 There were 824 stallions returned, 27,022 mares returned, 26,595 mares covered and 17,191 live foals. 1307 For that year there were 56 shuttle stallions out of the total of 824 stallions with 4,218 mares being covered by shuttle stallions, being 17.4% of the total of mares covered. The average book per shuttle stallion was 113. 1308 The following figures are taken from table 23 of the Australian Racing Fact Book 2010. 1309 The breeding distribution by State and Territory was, for stallions: New South Wales 267 (32.4%), Victoria 191 (23.2%), Queensland 203 (24.6%), Western Australia 102 (12.4%), South Australia 36 (4.4%), Tasmania 24 (2.9%), Australian Capital Territory 0 (0.0%) and Northern Territory 1 (0.1 %). 1310 For broodmares the figures were: New South Wales 9,639 (35.4%), Victoria 6,464 (23.7%), Queensland 5,466 (20.1%), Western Australia 3,280 (12.0%), South Australia 1,477 (5.4%), Tasmania 722 (2.6%), Australian Capital Territory 151 (0.6%) and Northern Territory 54 (0.2%). 1311 For mares covered the figures were: New South Wales 10,894 (44.8%), Victoria 5,596 (23.0%), Queensland 4,108 (16.9%), Western Australia 2,532 (10.4%), South Australia 757 (3.1%), Tasmania 429 (1.8%), Australian Capital Territory 0 (0.0%) and Northern Territory 4 (0.0%). 1312 For foals the figures were: New South Wales 6,860 (41.3%), Victoria 3,888 (23.4%), Queensland 3,106 (18.7%), Western Australia 1,768 (10.6%), South Australia 625 (3.8%), Tasmania 315 (1.9%), Australian Capital Territory 34 (0.2%) and Northern Territory 5 (0.0%). 1313 The average book per stallion was 29.5, the highest being 40.8 in New South Wales. 1314 There were 374 racing clubs across Australia with the following being described as major race clubs: Victoria Racing Club, Melbourne Racing Club, Moonee Valley Race Club, Australian Jockey Club, Sydney Turf Club, Brisbane Racing Club, Gold Coast Turf Club, South Australian Jockey Club, Western Australian Turf Club, Tasmanian Racing Club, Tasmanian Turf Club, Canberra Racing Club and Darwin Turf Club. 1315 There were 360 tracks and 2,694 race meetings with 19,281 flat races. The prize money was $427,245,771. 1316 The prizemoney earned by each individual starter was: $0 7,721 $1 - $9,999 14,932 $10,000-$99,999 8,488 $100,000-$499,000 585 $500,000 + 47

1317 For 2009/10 there were 2,694 meetings, 4,574 Metropolitan races, 14,802 country races totalling 19,376 races. 1318 The number of race meetings by state in 2009/10 was New South Wales 747; Victoria 567; Queensland 718; South Australia 188; Western Australia 296; Tasmania 73; Northern Territory 79 and Australian Capital Territory 26. 1319 The number of races by state in 2009/10 was New South Wales 5,323; Victoria 4,472; Queensland 4,701; South Australia 1,432; Western Australia 2,224; Tasmania 594; Northern Territory 433 and Australian Capital Territory 197. 1320 Incentive scheme payouts in Australia totalled $25,848,180. 1321 Total returns to owners were $481,322,903. 1322 There were 68 group 1 races throughout Australia, 85 group 2 races, 112 group 3 races and 289 listed races totalling 554 group or graded and listed races. Thus there were 554 black type races. 1323 Reproduced below is information from tables 32 and 33 of the Australian Racing Fact Book 2010. Table 32 shows the stallion, the service fee in AUD, the number of mares served, the stud and the State in which the stallion was standing: Table 32. Australian Sires by Service Fee 2009/10 1 Encosta De Lago (AUS) $220,000 176 Coolmore Australia NSW 2 Redoute's Choice (AUS) $198,000 170 Arrowfield Group NSW 3 More Than Ready (USA) $148,500 160 Vinery Stud NSW 4 Exceed And Excel (AUS) $110,000 120 Darley NSW 4 Street Cry (IRE) $110,000 115 Darley NSW 6 Danehill Dancer (IRE) $88,000 98 Coolmore Australia NSW 7 Flying Spur (AUS) $82,500 112 Arrowfield Group NSW 8 Hussonet (USA) $71,500 78 Arrowfield Group NSW 9 Red Ransom (USA) $66,000 65 Vinery Stud NSW 10 Fastnet Rock (AUS) $60,500 273 Coolmore Australia NSW 11 Rock of Gibraltar (IRE) $55,000 105 Coolmore Australia NSW 12 Commands (AUS) $55,000 151 Darley NSW 13 Sebring (AUS) $49,500 190 Widden Stud NSW 14 Street Sense (USA) $38,500 109 Darley NSW 14 Tale Of The Cat (USA) $38,500 158 Coolmore Australia NSW 14 Henrythenavigator (USA) $38,500 144 Coolmore Australia NSW 14 Bernardini (USA) $38,500 138 Darley NSW 14 Testa Rossa (AUS) $38,500 158 Vinery Stud NSW 19 Haradasun (AUS) $35,750 98 Coolmore Australia NSW 19 Choisir (AUS) $35,750 227 Coolmore Australia NSW 19 Holy Roman Emperor (IRE) $35,750 107 Coolmore Australia NSW

• All Service Fees include GST Source: Australian Stud Book Table 33 shows the stallion, the advertised service fee in AUD, the number of mares served, the stud and the State. Table 33. Australian Sires by Mares Served 2009/10 1 Fastnet Rock (AUS) $60,500 273 Coolmore Australia NSW 2 Bel Esprit (AUS) $16,500 251 Eliza Park VIC 3 Choisir (AUS) $35,750 227 Coolmore Australia NSW 4 Lonhro (AUS) $33,000 212 Darley NSW 5 Northern Meteor (AUS) $33,000 198 Widden Stud NSW 6 Sebring (AUS) $49,500 190 Widden Stud NSW 7 Encosta De Lago (AUS) $220,000 176 Coolmore Australia NSW 8 Hidden Dragon (AUS) $8,800 173 Lyndhurst Stud Farm QLD 9 Stratum (AUS) $33,000 173 Widden Stud NSW 10 Redoute's Choice (AUS) $198,000 170 Arrowfield Group NSW 11 God's Own (AUS) $33,000 168 Eliza Park VIC 12 Dane Shadow (AUS) $16,500 166 Kitchwin Hills NSW 13 Magnus (AUS) $22,500 166 Eliza Park VIC 14 Oratorio (IRE) $22,000 165 Coolmore Australia NSW 15 Snippetson (AUS) $9,900 163 Widden Stud NSW 16 More Than Ready (USA) $148,500 160 Vinery Stud NSW 17 Testa Rossa (AUS) $38,500 158 Vinery Stud NSW 17 Tale Of The Cat (USA) $38,500 156 Coolmore Australia NSW 19 Statue Of Liberty (USA) $17,600 156 Eliza Park VIC 20 Commands (AUS) $55,000 151 Darley NSW

1324 Stallions standing at the seven largest studs by number of covers accounted for 37% of mares covered. The top 20 sires by service fee all stood at those studs. Thus a small number of the larger studs, by number of covers, and a small number of popular stallions supplied a substantial number of the services. 1325 The Registrar of Racehorses registered, for racing year 2009/2010, 13,256 horses to race in Australia, made up of 6,575 males registered and 6,681 females registered. 1326 Extracted from table 39 is the following information showing Registrations by Age 2009/10: there were 1,959 yearlings, 7,656 two-year-olds, 2,657 three-year-olds, 619 four-your-olds, 193 five-year-olds, 59 six-year-olds, 34 seven-year-olds and 79 eight-year-olds plus. 1327 Table 47 shows that in that year there were 1,833 permanently exported bloodstock and 603 permanently imported bloodstock. 1328 Of the thoroughbred exports, 705 were to New Zealand, 255 to Singapore, 162 to Malaysia, 150 to Hong Kong, 149 to China, 115 to Macau, 89 to South Africa, 64 to Korea, 28 to Great Britain, 26 to UAE, 25 to the USA, 20 to the Philippines, 18 to Ireland, 16 to Japan and the balance to France, Italy, Kuwait, New Caledonia, Pakistan, Qatar, Indonesia and India. 1329 Of the thoroughbred imports, 422 were from New Zealand, 87 from the USA, 44 from Ireland, 23 from Great Britain and the balance from Japan, South Africa, Italy, Germany, Kuwait, New Caledonia, Pakistan, Qatar, South America, Canada and France. 1330 Total thoroughbred wagering was $15,075,030,000, with TAB thoroughbred wagering $10,072,310,000 and bookmaker thoroughbred wagering $5,002,720,000. 1331 Australia has more racecourses than any other single country (367); Australia has the second or third largest number of races behind the USA and, perhaps, Japan (19,326 flat races and 112 jumps races); and Australia offers the third largest amount of prize money in the world ($421,095,890). 1332 According to table 94, the international foal crop for 2009 was: for the USA 31,224, for Australia 16,112, for Ireland 10,167, for Argentina 8,324, for Japan 7,471, for Great Britain 5,595, for France 5,574 and for New Zealand 4,550. 1333 Fees vary greatly between stallions, the quoted range in 2010 being from $400 to $176,000. Also a small number of the highest priced stallions accounted for a little over 50 percent of the total stallion service fee revenue. 1334 The number of stallions standing at stud in any one place varies significantly. The largest had 18 stallions standing but 324 out of the more than 450 registered studs stood only a single stallion. 1335 The average price for the 1,147 weanlings sold at auction was $21,828 with the median $8,000. The average price for the 4,831 yearlings sold at auction was $53,009 with the median $21,000. The average price for the 499 two-year-olds sold at auction was $23,887 with the median $8,000. The average price for the 2,206 broodmares sold at auction was $26,883 with the median $5,000. 1336 On the basis of the approximate number of 30,000 racehorses participating in at least one race, the approximately 8,500 new horses each year needed to sustain that number of runners and the annual foal crop of about 18,000, there is an oversupply of thoroughbred horses for racing: the thoroughbred foal crop in Australia far exceeds the number of horses needed to supply the racing industry at current levels. 1337 I now turn to consider whether costs would be reduced if thoroughbreds were bred by artificial insemination compared to natural cover, assuming artificial insemination to be available because no longer subject to the impugned provisions. 1338 As to agistment costs, in cases where the broodmare is normally resident at the premises of her owner there will be additional agistment costs if the mare (either in foal or newly foaled) travels to stay at or near the premises at which the sire stands and is not "walked on". The additional agistment costs would be the difference between the cost to the owner of maintaining the broodmare at the premises at which the mare is usually located and the charge (agistment) at or near the sire's premises. The additional cost would not apply where the owner of the broodmare does not have farm premises as in that case the owner has to pay those costs, or something like them, in any event. With natural cover there would be no additional agistment costs if the stallion stood at the same premises as the broodmare. Conversely, with artificial insemination, the evidence did not establish that artificial insemination would invariably or commonly occur by means of the semen being brought to the premises at which the broodmare was or that the procedure would always be conducted at such premises. 1339 My conclusion is that additional agistment costs of approximately $30 per day, allowing for a cost of $8 per day at the broodmare's home farm, would be payable in the circumstances I have described and for a period of some 60 to 120 days. The evidence did not, however, establish the frequency with which these additional costs would or would be likely to be payable, nor that artificial insemination would not or would be likely to not involve any of these costs. With artificial insemination any stays away from the mare's home farm may be of much shorter duration, being some 2 to 4 days. 1340 As to transport costs, similar considerations apply. Average transport costs were in the general order of $100 to $600 each mare each way, depending on distance. Assuming artificial insemination at the broodmare's owner's farm, the broodmare would not have to travel to where the sire stood and the transport costs of the semen would be lower than the transport costs of the broodmare with or without foal. However, it is likely that with artificial insemination, mares would have to travel to a centre at which the procedure would be performed. Again, the evidence did not establish the frequency with which or the extent to which present transport costs would be, or would be likely to be, no longer payable or lower. With artificial insemination any stays away from the mare's home farm may be of much shorter duration, being some 2 to 4 days, but even for natural cover the mare may be "walked on": as Mr McHugh said in his evidence, by sending his broodmares to studs within a day's drive he can at present transport the broodmares to the stud to be covered and immediately transported back to his farm. 1341 The position was articulated by Dr McKinnon as follows: in terms of agistment costs it was reasonable to expect that the thoroughbred mare owner may have more control over all charges (agistment, veterinary etc) by having a wider choice of breeding options available (breed from home, breed at AI facility or mare station, breed at the farm that stands the stallion or breed at a veterinary facility). The mare owner would not always have reduced charges but they would have a choice. 1342 As to the reduction of the incidence of disease and injury, the evidence establishes that the absence of physical contact between the horses would tend to reduce the incidence of disease and injury. I also accept that the better managed the stud farm the lower the risk and incidence of disease and injury in the breeding process. Again the evidence did not establish the frequency with which or extent to which these reductions would or would be likely to occur. I also find that where transport of mares will not be required for artificial insemination, mares and foals will not suffer from diseases, injury and stress caused by being transported. I find that the opportunity cost of having a mare not give birth to a foal each year may be reduced by artificial insemination because of the associated reduction in contact between thoroughbreds which can cause injury and gynaecological ailments. 1343 As to veterinary costs, I find that, as Dr Keller stated, if the mare falls pregnant on the first cycle it would cost the mare owner using frozen semen artificial insemination $595; chilled semen artificial insemination $505; or live cover $465; these fees included veterinary services. 1344 As to labour costs, I accept the evidence of Dr McKinnon that the relative expense of costs to collect and process semen for artificial insemination compared to the labour costs involved with natural service depends on a variety of factors. A stallion that was required to breed four mares in one day would have a significant labour input with natural service with about four or five people in the breeding shed. Collection of semen for artificial insemination could be performed at a significantly reduced cost, commonly with two people. In the case of the stallion that had four mares to breed in one day this could be accomplished by one collection of semen every other day. This example does not establish the frequency with which reductions in these labour costs would, or would be likely to, occur nor how and to what extent those reductions would or would be likely to affect the market. 1345 As to fertility rates, I find that the opportunity cost of having a mare not give birth to a foal each year may be reduced by artificial insemination because of the ability with artificial insemination to analyse the fertility of the semen prior to insemination. I find that that opportunity is taken with artificial insemination and although able to be done with natural cover it is seldom done. 1346 I also find that cycle per pregnancy rates for fresh semen may be expected to be 70% to 80%; for chilled semen 60% to 70% and for frozen semen 50% to 60%, depending on the fertility of the mare or stallion. With frozen semen there is damage to a percentage of sperm cells during the freezing and thawing process and reduced longevity of the thawed live sperm cells. 1347 I find that, as Dr McKinnon said in his evidence, semen can be used fresh within a few hours if kept at room temperature. If semen is cooled it may retain the ability to fertilise for 24 to 48 hours. There is a material difference between the utility of the semen within the first 24 hours compared to the second 24 hours and the fertility rate is likely to be lower when a mare is bred at 48 hours. It is very important for fertility that the mare be bred within 24 hours of the cooled semen being collected in most instances. If semen is frozen then its fertilising ability may be retained for decades or longer. 1348 For artificial insemination using fresh semen the fertility per cycle is approximately 70% to 75%, identical to the fertility expected from natural service on well-managed breeding farms. Breeding with cooled transported semen reduces fertility by approximately 5% to 10% per cycle. Breeding with frozen semen reduces fertility further to around 50% of what was expected of fresh semen per cycle. The only accurate measure of fertility was pregnancy rates per cycle not pregnancy rates per season. 1349 I find that with the exception of frozen semen, artificial insemination when well-managed is associated with identical or similar fertility as natural service. 1350 There was no quantification or basis of quantification established on the evidence as to the frequency with which in the market the choice to use artificial insemination, were it permitted, would be exercised. 1351 The applicant submitted that stallion service fees would be reduced and there would be an increase in the productivity of stallions if artificial insemination were permitted. While these results would be possible, I do not see a basis on which I should conclude that they or either of them are more probable than not. The decision would be one for the owner of each stallion seeking to maximise the financial benefit from each service, whether by natural cover or by artificial insemination. 1352 While I accept there would be more choice for breeders if artificial insemination were available, and some breeders would avail themselves of that choice when it was to their benefit, of itself that does not translate into an increase in competition in the market. 1353 As to the likely demand for artificial insemination in the absence of the impugned provisions, the applicant submitted that 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. While I do not so conclude, there is not a sufficient basis in the evidence for finding that any demand for AI would be of any quantity or substance. 1354 The applicant also submitted that there would be, or there would be likely to be, reduced market power of the studs if artificial insemination were permitted. I do not conclude that this consequence would be more probable than not. I find that the larger studs compete between themselves. I also find that there would not be a shift in demand for the services of the more popular stallions by reason of artificial insemination being available, if it be assumed that the owners of those stallions agreed to make them available for that purpose. The whole idea of thoroughbred breeding is not quantity but quality so the fact that more services would be available from the smaller studs does not establish any reduction in market power by the larger studs. Similarly with service fees, I find that the availability of artificial insemination would not reduce those fees given the interest of the stallion owner in maintaining its profitability and given the interests of the stallion owner and the broodmare owner in maintaining the scarcity value of a particular stallion's progeny. The fees are not set by reference to the costs of production. 1355 A great deal of evidence was directed to the question of the counterfactual in light of the international aspect of the provisions and of the thoroughbred industry. 1356 I find that thoroughbred breeding and racing is international although, by number, only relatively few thoroughbreds directly participate in international breeding and racing. I refer to the evidence given by Mr Monteith and Mr Murphy, in particular. 1357 The first aspect of this is whether, if the impugned provisions were held by the Court to be contrary to s 45, artificial insemination in thoroughbred breeding would be limited to Australia or whether the rest of the thoroughbred breeding and racing world, or some part of it, would follow suit or would permit thoroughbred horses bred in Australia by artificial insemination to participate in international races and trade as if those horses had been bred by natural cover. 1358 I am not persuaded, on the evidence, that in circumstances where the impugned provisions were held by the Court to be contrary to s 45, the rest of the thoroughbred breeding and racing world, or some part of it, would either follow suit by repealing the equivalent provisions preventing thoroughbreds bred by artificial insemination from participating on an equal footing with thoroughbreds bred by natural cover or by permitting thoroughbred horses bred in Australia by artificial insemination to participate in international races and trade as if those horses had been bred by natural cover. I refer here to a voluntary repeal of the equivalent provisions. The Court is in no position to assess the state of foreign law in any of the foreign jurisdictions such as to found a conclusion as to whether or when legal proceedings similar to those before the Court may be brought or, if and when brought, their prospects of success. 1359 I do find however that if the ASB itself did not contain thoroughbred horses bred by artificial insemination then the ASB itself would continue to be an approved stud book and have that status. I accept Mr Ford's evidence in this respect. 1360 For that reason the evidence which focused on whether or not the ASB would lose its approved status automatically if it included in its thoroughbred register thoroughbreds bred by artificial insemination or whether that step would require a decision of the international body, ceases to be relevant. To the extent, if at all, that issue remains relevant, I find that the ASB would not automatically lose its status as an approved stud book if either the rule against including thoroughbreds bred by artificial insemination were held to be contrary to s 45 or such horses were registered. But in my view it is more likely than not, despite the consideration that the Australian Stud Book would not be taking those steps of its own volition, in those circumstances the international body would decide that the ASB was no longer an approved stud book under the Federation Agreement. Either way, the ASB would no longer be an approved stud book under the Federation Agreement, the only difference would be the timing. 1361 The point however, in this respect, is not the status of the ASB but the consequence of the next step, which is the putative holding that the ARR were held by the Court to be contrary to s 45 insofar as they prevented thoroughbred horses bred by artificial insemination from being both registered for racing and racing alongside and indistinguishably from thoroughbred horses bred by natural cover. 1362 Following my finding that the rest of the world would not follow suit in the circumstances to which I have referred above, I find that a further consequence would be that Australian thoroughbred races would cease to be either graded or listed by IRPAC and would cease to be black type races because thoroughbred horses bred by artificial insemination would race alongside and indistinguishably from thoroughbred horses bred by natural cover. I accept Mr Romanet's evidence to this effect. 1363 It follows that Australian thoroughbred racing would thereby cease to be a participant in the international thoroughbred racing community. Insofar as Australian thoroughbred horses bred by natural cover raced in Australia, those races would not be taken into account in the world thoroughbred rankings. Thoroughbred horses bred by artificial insemination would not be included in those rankings at all. Foreign horses would not come to Australia to race and there would be a lack of interest overseas in Australian races. 1364 Thus, in my opinion, 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 artificial insemination 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. In the short-term thoroughbred horses bred by natural cover may continue to be of interest to those intending to export them from Australia. 1365 Turning to the factual question of the markets, it was not in dispute that the relevant concepts were those referred to in Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings Ltd (1976) 25 FLR 169 at 190. I also leave out of account for this purpose any effect on market definition of the impugned provisions as a rule of the sport. 1366 The applicant pleaded a market in Australia for thoroughbred breeding services (the thoroughbred breeding market), alleging that thoroughbred horses are, in general, supplied to racehorse owners in Australia by breeders who maintain a stock of thoroughbred mares from which to breed and owners of thoroughbred stallions in Australia or operators of thoroughbred stud farms are willing in return for a fee to accept thoroughbred mares from breeders to enable the mares to be bred directly or by AI breeding services. It was also pleaded that but for the existence of the ASB Provisions or the Combined Provisions, AI breeding services would compete in Australia with direct thoroughbred breeding services. 1367 The applicant also pleaded that there was a market in Australia for the supply and acquisition of thoroughbred racehorses (the thoroughbred acquisition market). 1368 I find that the markets for the breeding of thoroughbred horses (also called "stallion services") and the sale of thoroughbred horses are separate functional markets: different entities participate in them. 1369 I also find that the focus of these two upstream markets is the production of thoroughbred horses to be used in a downstream market, thoroughbred racing. The two upstream markets are dependent on the downstream market. 1370 Leaving aside, for the present, questions about the rules of sport and the international aspects of thoroughbred breeding and racing, for the market for thoroughbred horses (the thoroughbred acquisition market) I find the product is the market for thoroughbred horses whether conceived by natural cover or by artificial insemination on the basis that if the impugned provisions were not in place there would be no difference in the racing opportunities in Australia for thoroughbreds bred by artificial insemination and those bred by natural cover and there would be no difference in willingness to pay for a horse of a given quality. 1371 As to the geographic dimension, I find that the market is national on the basis that any barriers to the sale and purchase of thoroughbreds between states or regions are limited, particularly by reference to the relatively low cost, compared to a thoroughbred average sale price, of transporting a thoroughbred for sale. 1372 In relation to the market for the breeding of thoroughbred horses ("stallion services"), again leaving aside, for the present, questions about the rules of sport and the international aspects of thoroughbred breeding and racing, I find the product is thoroughbred horses whether conceived by natural cover or by artificial insemination, adopting a product dimension which encompasses the counterfactual. On that basis buyers would be likely to be willing to pay the same amount for a thoroughbred bred by natural cover and a thoroughbred bred by artificial insemination and the resulting progeny, on these assumptions, would be equivalent. 1373 As to the geographic dimension, I find that the market is national, even in the absence of specific evidence as to the effect of State breeder incentive schemes, the proportion of mares which travel and which travel particular distances to be served, estimates of the costs to owners of sending those mares those distances and the effect of the distances and costs in relation to the stallion service fees. I do so assuming the absence of the impugned provisions. 1374 As I have said, I am not persuaded that the economic consequences of permitting AI, by agreement, in relation to standardbreds would apply to the different thoroughbred industry. Mr Coffey's and Mr McFarlane's evidence illustrates the differences. I am not persuaded that the positions of the two industries are sufficiently similar economically for the events which occurred on the consensual lifting of the prohibition on artificial insemination in relation to standardbreds to be translated to the future without the impugned provisions for thoroughbreds.

Consideration 1375 In ASX Operations Pty Ltd and Another v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 at 478 the Full Court said: In asking whether provisions of the agreements have or would be likely to have the effect (putting to one side matters of purpose) of substantially lessening "competition", within the sense explained in s 45(3), one looks not so much at the position of particular competitors as to the state or condition constituting the market or markets in question, actually and potentially: cf O'Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1983) 77 FLR 441 at 447, per Fox J. It is also to be borne in mind that whilst actual competition must exist and be assessed in the context of a market, a market can exist if there be a potential for close competition even though none in fact exists or dealings in it are temporarily dormant or suspended: see Queensland Wire Industries Pty Ltd v Broken Hill Pty Ltd (1989) 167 CLR 177 at 196, per Deane J. 1376 Earlier, in Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 64 FLR 238 at 259-260 Smithers J had said: To apply the concept of substantially lessening competition in a market, it is necessary to assess the nature and extent of the market, the probable nature and extent of competition which would exist therein but for the conduct in question, the way the market operates and the nature and extent of the contemplated lessening. To my mind one must look at the relevant significant portion of the market, ask oneself how and to what extent there would have been competition therein but for the conduct, assess what is left and determine whether what has been lost in relation to what would have been, is seen to be a substantial lessening of competition. I prefer not to substitute other adverbs for "substantially". "Substantially" is a word the meaning of which in the circumstances in which it is applied must, to some extent, be of uncertain incidence and a matter of judgment. There is no precise scale by which to measure what is substantial.

Contract, arrangement or understanding 1377 The parties accepted that consensus was necessary in order to establish a contract, arrangement or understanding: Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (2007) 160 FCR 321 at [24]-[30]. As French CJ and Kiefel J said in Australian Competition and Consumer Commission v Channel Seven Brisbane Pty Ltd (2009) 239 CLR 305 at [48]: "An arrangement or understanding ordinarily involves an element of reciprocal commitment even though it may not be legally enforceable. It involves more than a mere hope or expectation that each party will act in accordance with its terms." 1378 The respondents submitted that the s 45 claim must fail because there was or could be no contract, arrangement or understanding, within the meaning of s 45, because the source of the rights and obligations was "rules" or, at least, rules which had a foundation in statute. 1379 The elements to be considered are: was there a contract, arrangement or understanding a provision of which a corporation gave effect to and who were the parties to the contract, arrangement or understanding; whether the relationship of the impugned provisions to the rules has the result that there is no contract, arrangement or understanding; the relationship between the ARR and the rules of the local clubs, that is, do the ARR not govern racing within the jurisdiction of the PRAs but merely provide a template for Local Rules; and what is the legal status of the rules under legislation of the various State and Territory Parliaments and whether that status has the result that there is no contract, arrangement or understanding. 1380 As to the ASB rules, they require a stallion return and declaration and a mare return. A breeder, the person in charge of or responsible for the mare or stallion and in whose name the return is lodged, is required to lodge those returns for acceptance by the ASB. Under rule i, any person taking part in any matter coming within the rules, terms and conditions and the other requirements, or returning any information to the ASB agrees with the Joint Proprietors to be bound by the rules, terms and conditions. It was on the basis of rule i that the applicant pleaded his case that the ASB Rules have operated as a contract, arrangement or understanding, the parties to it being the Joint Proprietors, all other racing clubs in Australia, racehorse owners in Australia, breeders, owners of stallions and all other persons who from time to time take part in any matter coming within the ASB [rules]. The Joint Proprietors were pleaded to be parties to the contract, arrangement or understanding for the purposes of s 45(4). 1381 Whatever the outer limits of the operation of these provisions, in my view a person making, for example, a return to the ASB has a contract, arrangement or understanding with the Joint Proprietors which extends to and includes rule ix. Meyers (above) supports this conclusion. But this is not to say that each breeder or other person referred to in the applicant's pleading making, for example, a return and bound by the ASB rules, terms and conditions is so bound to each other such breeder or other person, although each would plainly know that each other breeder or other person making, for example, a return had the same contract, arrangement or understanding with the Joint Proprietors: see Raguz (above). In that case, concerning the Olympic nomination and selection of athletes and the arbitration of disputes, the Court of Appeal held that a framework of mutual promises was contained in the selection agreement and those parts of the Code which embodied an agreement to arbitrate. After selection on the shadow team, individual athletes were invited to adhere to the selection agreement through execution of nomination forms and team membership agreements. It was held that, by these means, each adherent promised in favour of the others that he or she would abide by the rules attending the contest in which they were engaged, that is, for Olympic nomination and selection. In The Satanita (above) the issue was the extent of the damages arising from the sinking of the respondent's yacht by the appellant's yacht in a yacht race on the Clyde. Each owner signed a letter to the secretary of the club that while sailing under the entry he would obey and be bound by the sailing rules. Rule 24 stipulated that a yacht fouling another yacht in consequence of her neglect of any of the rules "shall pay all damages". The House of Lords held that the effect of the parties entering into the race and undertaking to be bound by those rules to the knowledge of each other was sufficient, where those rules indicated a liability on the part of the one to the other, to create a contractual obligation to discharge that liability: see at 63 per Lord Herschell. In each case it is a matter of construction of the putative agreement and inference, particularly having regard to the particular term of the agreement. 1382 I would not infer from each individual contract, arrangement or understanding a relevant consensus between all of the breeders or other persons, either at all or in respect of distinct and disparate matters covered by the rules. In my opinion the breeders or other persons have not assumed an obligation between each other that they will act in a certain way. There has been no meeting of the minds of the parties to the putative contract, arrangement or understanding in which one of the putative parties is understood, by the other or others, and intends to be so understood, as undertaking to regard himself as being in some degree under a duty to conduct himself in some particular way so long as the other party or parties conduct themselves in that way. I refer to the discussion of this issue by Lindgren J in Australian Competition and Consumer Commission v CC (New South Wales) Pty Ltd) (1999) 92 FCR 375 at [135]-[142] and to his Honour's approval of the passage from the judgment of Smithers J in Top Performance Motors Pty Ltd v Ira Berk (Qld) Pty Ltd (1975) 24 FLR 268 at 291 which I have adapted above. I also refer to the review of the authorities in Australian Competition and Consumer Commission v IPM Operation and Maintenance Loy Yang Pty Ltd (2006) 157 FCR 162 at [104]-[112] per Young J. In my view there was not a reciprocity of obligation and neither was there a commitment by one breeder to another as to the way he should behave. Thus I conclude that ASB rule i does not have the consequence that all breeders or other persons have entered into a contract, arrangement or understanding with each other. 1383 I accept that the Joint Proprietors could promulgate new ASB rules without the consent of anyone else, but in my view that does not alter the present status of those rules as an agreement by a breeder returning any information that a foal is only eligible for inclusion in the ASB if it is the product of a natural service. 1384 There is nothing remarkable in a contract where one party promulgates the standard form of it and the contract is formed by the unilateral act of another. 1385 Turning to the ARR, there is an important definition in ARR 1, as follows: "These Rules" means the Australian Rules of Racing and "The Rules" means these Rules together with the Local Rules of the Principal Racing Authority concerned. 1386 By ARR 2, any person who takes part in any matter coming within the ARR thereby agrees with the ARB and each and every PRA to be bound by them. 1387 By ARR 6: ARR.6. (1) These Rules apply to all races held under the management or control of a Principal Racing Authority, and shall, together with such Rules (not being repugnant to or inconsistent with these Rules) as may from time to time be made by the Principal Racing Authority in its territory, be read and construed as the rules of the Principal Racing Authority in such territory and, subject to the provisions of A.R. 35, shall apply to all races held under the management of a Principal Racing Authority or any registered Club and to all meetings registered by a Principal Racing Authority. (2) Unless the Principal Racing Authority otherwise determines, if any race or race meeting is not held under these Rules - (a) any horse taking part shall ipso facto be disqualified; (b) any person taking part therein shall be ineligible to enter a horse for any race, or to hold or continue to hold any licence or registration under these Rules; (c) any person who acts in connection therewith as promoter, organiser, president, chairman, secretary, treasurer, committee member, or in any advisory or official capacity, shall be debarred from acting in any official capacity at any race meeting, and any horse in which he has an interest shall be ineligible to race at any registered meeting. (3) Paragraphs (b) and (c) of subrule (2) shall not apply to any race or race meeting in which thoroughbreds do not take part and which is or are held under the management or regulation of an organisation formally recognised by the Government of the State or Territory in which the race meeting is conducted. (4) Any question not provided for by these Rules shall be determined by the Principal Racing Authority concerned. 1388 Importantly, by ARR 7: A Principal Racing Authority shall: (i) not have reserved to it the right to make new Rules (other than Local Rules) or to rescind or alter these Rules, and a Principal Racing Authority which does not comply with this requirement shall ipso facto cease to be a Principal Racing Authority; (ii) have the control and general supervision of racing within its territory; (iii) in furtherance and not in limitation of all powers conferred on it or implied by these Rules, have power, in its discretion:- … There are then set out some 20 specific powers of a PRA. 1389 ARR 35, referred to in ARR 6, provides that a PRA may in its absolute discretion exempt such meetings or races as they think fit from the provisions of all or any of the Rules on such conditions as they think fit. 1390 I have referred above to the terms of ARR 14, which provides that no horse shall be entered for or run in any race unless it has been registered with the Registrar of Racehorses (the fourth respondent, Racing Information Services Australia Pty Ltd), and to ARR 15A providing, relevantly, that a horse cannot be registered unless, in short, it has been bred by natural cover. 1391 Lastly I set out ARR 208 and 215: ARR.208. The Australian Racing Board is a company limited by guarantee incorporated under the Corporations Act established to make, change and administer the Australian Rules of Racing and otherwise do all things whatsoever that the Board considers to be conducive to developing, encouraging, promoting or managing the Australian thoroughbred racing industry. … ARR.215. These Rules may from time to time be rescinded or altered and new Rules made by (and only by) the Australian Racing Board. 1392 Speaking generally, the relationship between the ARR and the local rules is that although a PRA may not alter the ARR, and if it does so it ceases to be a PRA, a PRA does have the control and general supervision of racing within its territory and has a limited dispensing power in respect of particular races within its territory. 1393 In my view a person making an application for registration to the Registrar has a contract, arrangement or understanding with the ARB which extends to and includes ARR 15A. Meyers (above) supports this conclusion. Again, this is not to say that each applicant for registration, bound by the ARR is so bound to each other such applicant although each would plainly know that each other applicant for registration had the same contract, arrangement or understanding with the ARB. The applicant pleaded that the ARR operate as a contract, arrangement or understanding, the parties to it being the ARB, the PRAs, the Joint Proprietors, all other racing clubs in Australia, racehorse owners in Australia, breeders, owners of stallions and all other persons who from time to time take part in any matter coming within the ARR. The Joint Proprietors were pleaded to be parties to the contract, arrangement or understanding for the purposes of s 45(4). I adopt the same analysis in relation to the applicants for registration of thoroughbreds as for the breeders in relation to the ASB Rules. Thus I conclude that ARR 2 and the equivalent rules of the Local Rules do not have the consequence that all applicants or other persons have entered into a contract, arrangement or understanding with each other, either at all or in respect of distinct and disparate matters covered by the rules. 1394 Again, I accept that the ARB could promulgate new ARR without the consent of anyone else, but in my view that does not alter the present status of those rules as an agreement by an applicant for registration in the register that a thoroughbred may only be registered for racing if it is the product of a natural service. 1395 Again, there is nothing remarkable in a contract where one party promulgates the standard form of it and the contract is formed by the unilateral act of another. 1396 As to the relationship between the ARR and the Local Rules, subject to the question of statutory authorisation of the provision, the proper characterisation of the ARR is not as a template but a set of overarching general rules, unalterable by the PRAs except in respect of matters local to each PRA. The ARR provide common practices, conditions and integrity standards for racing throughout Australia. The individual State and Territory racing administrations may make Local Rules for specific local conditions provided that they are not inconsistent with the principles established by the Australian Rules. 1397 I have set out above the terms of ARR 6. An example of Local Rules is the Local Rules of the NSW Thoroughbred Racing Board. By LR 3 of those Local Rules, any person who takes part in any matter coming within the Rules of Racing, or to which those rules apply, thereby agrees to be bound by them. Either with or without this Local Rule, each contract, arrangement or understanding between the applicant for registration and the ARB would extend to such a contract, arrangement or understanding with the PRA. As appears below, the position is expressly the same in Victoria, South Australia, Western Australia, and Tasmania. 1398 In Victoria, LR 3 of the of the Local Rules of Racing provides that any person who takes part in any matter coming within the Rules is thereby deemed to consent to be bound by them, and to be so bound. 'Rules' is defined to mean the ARR for the time being and the Local Rules for the time being read, interpreted and construed together. By LR 11, all race meetings in Victoria must be held under, and are subject to, the Rules. 1399 In Queensland, "'Rules' means the whole of the Australian Rules which together with the Local Rules [sic]." There is no equivalent to the terms of LR 3 in New South Wales or Victoria. 1400 In South Australia, LR 2.2 provides that any person who takes part in any matter coming within the Rules or to which the said Rules apply is thereby deemed to consent to be bound by them and to be so bound. "Rules" is defined to mean the ARR for the time being and the Local Rules for the time being read, interpreted, and construed together. 1401 In Western Australia, LR 2 provides that "The Rules", defined to mean the ARR together with the Local Rules, apply to every club, and every member of any club, and every person who takes part in any event or any other proceeding or matter purporting to be conducted under or which is governed by the Rules. A person or club to whom the Rules apply is deemed to consent to be bound thereby. 1402 In Tasmania, LR 2.2 provides that every person who shall take part in any matter or matters coming within the Rules shall be held and deemed to be held bound thereby and to have expressly debarred himself from any right of appeal to any court of law. 1403 In the Northern Territory, NT 4 provides that the provisions of ARR 6, which I have set out above, shall apply mutatis mutandis to the Local Rules. ARR 6 is not in the same terms as LR 3 in New South Wales or Victoria. 1404 In the Australian Capital Territory, although s 19(2) of the Racing Act 1999 (ACT) (Racing Act) provides that the Australian Capital Territory Racing Club Inc. may make local rules in accordance with the ARR, no such rules were before me. 1405 For completeness, I turn now to the status of the rules under State and Territory legislation. 1406 In New South Wales, s 4 the Thoroughbred Racing Act 1996 (NSW) establishes a body corporate with the corporate name of Racing New South Wales, which may use the name "Racing NSW". Section 13 of that Act gives Racing NSW certain functions which include all the functions of the principal club for New South Wales and committee of the principal club for New South Wales under the ARR; and to control, supervise and regulate horse racing in the State. Racing NSW also has such functions as may be conferred or imposed on Racing NSW by or under the ARR or any other Act. 1407 By s 13 of that Act, Racing NSW has all the functions of the principal club for New South Wales under the ARR and as further functions "to control, supervise and regulate horse racing in the State" and "such functions as may be conferred or imposed on Racing NSW by or under the Australian Rules of Racing or any other Act". By s 13(2), the functions of Racing NSW are not limited by the ARR and are to be exercised independently of the ARB. 1408 By s 14, Racing NSW has power to do all things that may be necessary or convenient to be done for or in connection with the exercise of its functions and, in particular, Racing NSW has power to exclude from participating in a race a horse not registered under the Rules of Racing and to impose a penalty on a person licensed by it or on the owner of a horse for a contravention of the Rules of Racing: see ss 14(2)(j) and 14(2)(l). 1409 Director-General of Education v Suttling (1987) 162 CLR 427 shows that contracts made under statutory powers must be consistent with any statutory provision which affects the relationship, but the nature of the contract as a contract is not, without more, removed or destroyed. Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54 also shows the High Court discussing the four "two airline" agreements the subject of legislation, the Airlines Agreements Act 1952 (Cth), on the basis that the terms were contractual. See generally Professor Seddon's Government Contracts (4th ed., Federation Press, 2009) at [3.8]-[3.12]. The submission before me does not involve the embodying of an agreement into a statute or approving or recognising an agreement in legislation: it is that the rules are made in exercise of a statutory power or that the rules have statutory recognition or force. 1410 In my view the existence and terms of these statutory provisions does not have the effect of altering the status of the ARR or the Local Rules, or the ARR and Local Rules considered in combination, as being capable of giving rise to contractual rights and obligations. That a statutory body has an express statutory power to enter into contracts does not mean that those contracts do not give rise to contractual rights and obligations. Similarly, that a rule has statutory recognition or statutory force does not mean that there cannot be a contract. There would otherwise be important gaps in the enforceability of rights and obligations. Generally statutes assume the continuing existence and availability of the general law: Shepherd v Hills (1855) 11 Exch 55 at 67; 156 ER 743 at 747 per Parke B; Commonwealth Aluminium Corp Ltd v Attorney-General [1976] Qd R 231 at 260. 1411 Thus, in my view, the respondents' submission that any power purportedly conferred upon Racing New South Wales by the ARR was picked up and conferred as a statutory power by ss 13(1)(a) and (e) of the Thoroughbred Racing Act, including the power, implicit in the terms of ARR 6(1), to make local rules of racing which in turn incorporate the ARR, is not to the point. 1412 So also is the respondents' submission that the ARR were binding in New South Wales only because they were incorporated into the local rules of that State by LR 1 and given the effect of an instrument created by Racing New South Wales in the exercise of functions conferred by ss 13(1)(a) and (e) of the Thoroughbred Racing Act. Even if the rules of Racing New South Wales (including the ARR) constituted more than a mere contract, arrangement or understanding and, instead, they were a statutory instrument, this would not mean that a contract, arrangement or understanding could not arise from their terms. 1413 My rejection of these submissions means that the ARR continue to have such contractual force as they would otherwise have. 1414 I note that my conclusion is consistent with the observation of Hodgson JA, with whom Handley and Santow JJA agreed, in New South Wales Thoroughbred Racing Board v Waterhouse (2003) 56 NSWLR 691 at [35]. 1415 In Victoria, Racing Victoria is the relevant controlling body. The Racing Act 1958 (Vic) does not appear to contain any provisions equivalent to those in New South Wales. 1416 In Queensland, s 91(1) of the Racing Act 2002 (Qld) obliges a control body to make rules of racing for its code of racing. A control body's rules of racing must be consistent with the Act and to the extent of an inconsistency between a provision of the Act and the rules, the provision prevails over the rules. By s 79, the policies and rules of racing made by a control body for its code of racing are a statutory instrument within the meaning of the Statutory Instruments Act 1992 (Qld). 1417 In South Australia, the relevant legislation appears to be the Racing (Proprietary Business Licensing) Act 2000 (SA). Section 25 of that Act provides, relevantly, no more than that it is a condition of a proprietary racing business licence that the rules governing racing conducted by the licensee must be approved by the Commissioner. The Act does not appear to contain any provisions equivalent to those in New South Wales. 1418 In Western Australia, s 45 of the Racing and Wagering Western Australia Act 2003 (WA) provides that Racing and Wagering Western Australia (RWWA) may make rules of racing with respect to the control, regulation and supervision of thoroughbred racing (the Rules of Thoroughbred Racing) that are required or permitted by the act to be made or that RWWA considers necessary or convenient for the performance of its functions and the exercise of its powers. By s 45(5), rules of racing may adopt, either wholly or in part and either specifically or by reference, the ARR. By s 45(6), rules of racing apply to and are binding on: (a) RWWA, the board, directors, stewards and other officers, employees and agents of RWWA; (b) racing clubs and their managing bodies, members, officers, employees and agents; (c) persons having the management and control of racecourses or trial tracks and their employees and agents; (d) trainers, owners and lessees of horses or greyhounds and their employees and agents; (e) bookmakers, bookmakers' managers and bookmakers' employees who hold licences under the Betting Control Act 1954 and who accept wagers at racecourses; (f) jockeys, drivers, stablehands, attendants and all other persons participating in, or associated with the keeping, training and racing of horses or greyhounds; and (g) all persons attending race meetings or trials or wagering at race meetings. In my view, consistently with the authorities to which I have referred, this provision is insufficient to alter the legal status of any contract, arrangement or understanding. 1419 In Tasmania, s 11(1)(k) of the Racing Regulation Act 2004 (Tas) provides that Tasracing is, with respect to racing in Tasmania, responsible for making (by drawing up its own local rules and by adopting Australian Rules of Racing) the Rules of Racing, defined to mean the Rules of Racing made and in force under that Act for a code of racing. Section 111 provides however that Rules of Racing are not statutory rules or instruments of a legislative character for the purposes of the Subordinate Legislation Act 1992 (Tas). 1420 In the Northern Territory, s 44 of the Racing and Betting Act 1983 (NT) empowers a principal club to do all things that are necessary or convenient to be done for or in connection with or incidental to the performance of its functions and the exercise of its powers. A principal club may make, amend or repeal the Rules of Racing that are the local rules of racing of that club. Section 23 provides that the Rules of Racing apply to and in relation to horseracing in each locality in relation to which a declaration under s 42(2)(c) is in force. In my opinion, the effect of these provisions is not to prevent a contract, arrangement or understanding arising if what is done under those rules otherwise has that effect. 1421 In the Australian Capital Territory, it is clear from the terms of s 19 of the Racing Act the rules made or adopted by the Australian Capital Territory Racing Club Inc. are not subordinate laws: the effect of this section is to give a statutory power to the racing club to adopt the ARR and to make local rules in accordance with the ARR. 1422 It is necessary to consider whether the ARR incorporate the ASB Rules. In my opinion it is the legal effect of the ARR themselves which has the consequence that a thoroughbred bred otherwise than by natural cover may not be registered for racing. The ASB Rules do not have that consequence because the Australian Stud Book does not have jurisdiction to prescribe or decide whether a horse may be registered for racing. Thus it is the ARR which pick up and adopt as language the relevant ASB Rules but give their own legal force to the ASB Rules as an ARR, prescribing whether a thoroughbred may be registered for racing. 1423 The applicant also pleads that the Federation Agreement has the result that there has been a contract, arrangement or understanding between the ARB, the PRAs, the Joint Proprietors, all other racing clubs in Australia, racehorse owners in Australia, breeders, owners of stallions and all other persons who from time to time take part in any matter coming within the ARR. This is said to be because the ARB has adopted the provisions of Article 12 of the Federation Agreement. The applicant submits that the fact that the ARR do not include any provision to the effect of Article 12 but rather seek to comply with that obligation by including ARR 15A, leaving it to the ASB Rules to satisfy the provisions of Article 12, supports the proposition of an overarching arrangement or understanding to which the ARB and the Joint Proprietors are parties, as well as, at least, breeding market participants. 1424 In my opinion, the fact that the ARB has adopted Article 12 does not establish the necessary consensus with those who supply or acquire goods or services in the pleaded markets. 1425 As to the operation of s 45(4), the respondents submitted that the manner in which the s 45(4) case was propounded 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. 1426 In my opinion this submission involves reading words of limitation into s 45(4). To apply s 45(4), the section first requires the application of s 45 "in relation to a particular corporation". Second, it requires the identification of a provision of a contract, arrangement or understanding. Third, relevantly, it permits the provisions of any other contract, arrangement or understanding to which the particular corporation is a party to be taken into account. If the effect or likely effect of the provisions taken together is to substantially lessen competition or be likely to have that effect then the provision first-mentioned is deemed to have or be likely to have the effect of substantially lessening competition. It may be that in a particular case the result is as contended for by the respondents but it is necessary first to undertake the analysis I have indicated. Section 45(4) permits the aggregation of the provisions of all contracts entered into by a particular corporation to assess whether together the provisions have the effect or are likely to have the effect of substantially lessening competition. 1427 Applying this provision, in my view it does not operate in the circumstances of this case to deem the provisions of the contracts, arrangements or understandings that each breeder or other person has with the Joint Proprietors by virtue of the ASB Rules to have or be likely to have the effect of substantially lessening competition and, similarly, it does not operate to deem the provisions of the contracts, arrangements or understandings the applicants or other persons have with the ARB by virtue of the ARR to have or be likely to have that effect. The applicant's submission that s 45(4) deemed the ARR provisions together with the ASB provisions to be in contravention of the Act fails. In my view, as I have said, the effect of ARR 2 is not that the joint proprietors are parties to each of the vertical agreements. Further, the mere fact that the joint proprietors are parties to both the ARR and the ASB does not mean that there is a contract, arrangement or understanding under s 45(4).

Substantial lessening of competition 1428 I am not persuaded that, on the evidence, the impugned provisions have or are likely to have the effect of substantially lessening competition such that s 45 prohibits a corporation from giving effect to those provisions. 1429 Of themselves the ASB Provisions do not have an effect on competition in the relevant market since they do no more than state which horses may be entered in that register. By themselves, the ASB Provisions do not relevantly restrict or prohibit a thoroughbred horse from racing in a thoroughbred race. That is the effect of ARR 15A, picking up the terms of the ASB Provisions. I construe the reference in the ASB Provisions to the ARR as being a signpost to the consequences under the ARR of a thoroughbred not being registered in the ASB as currently constituted. Indeed it is difficult to see why it is necessary or appropriate for the ASB provisions to refer to racing, beyond containing a useful reference to the relevant rules. 1430 The applicant accepted that there was no prohibition as such on the production of thoroughbreds by means of AI, but submitted that 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 and sell because the progeny of any such process would not be eligible to be entered in any of the approximately 19,000 races conducted in Australia under the ARR. 1431 The conclusion that the ASB Provisions do not relevantly restrict or prohibit a thoroughbred horse from racing in a thoroughbred race is underscored by the applicant's acceptance, or contention, in this case that it is not necessary for the ASB Provisions to be set aside because he is entitled to and is able to, either by himself or with the assistance of others, such as Australian Harness Racing, establish a separate register for thoroughbreds bred by artificial insemination. The applicant accepted that it is not necessary for the Australian Stud Book to be involved in this separate register. I understood that the separate register, sometimes referred to as the third register, would contain all the same rules as the ASB except the rule preventing the registration of thoroughbreds bred by artificial insemination. 1432 This was, in my opinion, insufficiently recognised by the emphasis placed by the applicant on his proposal for a third register within the ASB. The substance of this proposal was to enable the ASB to continue to be an approved Stud Book internationally while at the same time avoiding the ban on AI-bred thoroughbreds from racing under the ARR. But while the proposal might have the former effect as a matter of form it would not achieve the latter result as a matter of substance unless the rules of racing were held invalid insofar as they excluded AI-bred thoroughbred horses from racing in thoroughbred races under those rules. 1433 As to the balance of the impugned provisions, the applicant did not establish any substantial lessening of competition as he did not establish 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 impugned provisions. The applicant did not establish that if artificial insemination were available for thoroughbred breeding then breeding costs would be lower to a degree which was significant in light of the overall costs of the breeding decision to be made; that mare owners would so expand the geographic range in which they sought stallion services; or that owners of high quality stallions would so expand their output. 1434 I do not extrapolate from the evidence of the breeders, given their number, size and the absence of any evidence that they were representative, that the reduction in costs to which they refer in their particular cases established that the effect of the impugned provisions substantially lessened or was likely to substantially lessen competition. The same applies to the evidence of any increase in demand for stallion services: the evidence does not allow any finding as to the substantiality of any effect. 1435 It is to be recalled there were 27,022 thoroughbred broodmares registered for breeding in 2009/10 and that the applicant's evidence before the Court was by eight individuals or entities engaged to a greater or lesser extent in thoroughbred breeding in Australia (owning 20 or fewer mares). Also there was no evidence to indicate the basis on which the preferences in relation to that very small number of breeders was representative of the owners of the remainder of the 27,022 thoroughbred broodmares. 1436 It is not enough to find that, for example, the costs of transporting a broodmare to stud matters to some of those breeders who gave evidence and from that finding to conclude that giving effect to the impugned provisions would or would be likely to substantially lessen competition. 1437 I reach the same conclusion in relation to the ASB Provisions if I am wrong in my finding that, of themselves, the ASB Provisions do not have an effect on competition in the relevant market since they do no more than state what may be entered in that register. 1438 I also find, in the alternative, on the basis of Mr Houston's evidence that given the unusual nature of the industry, there is not likely to be any increase in competition in the breeding markets as there is no economic incentive to increase the production of horses to compete in the number of races as it was not established that there would be any corresponding change in the number of races or the prize pools. If the unit cost of production was lower, and thereby ordinarily the number of horses produced would be expected to increase; and if high quality stallions could expand their output and the stallion choices of mare owners would not be constrained by geographic proximity, and thereby ordinarily the average quality produced would be expected to rise; it was not established that there would be any corresponding change in the number of races or the size of the prize pool, which was not set by reference to anything to do with the cost of supplying or producing thoroughbreds. Thus the removal of the impugned provisions would not affect the state of competition in the market for racehorses or the market for stallion services. 1439 The applicant put that the major studs benefit from the ban on AI by virtue of their capacity to bundle stallion services with broodmare care services and agistment, I do not accept that contention in light of the competitive pressure provided by agistment farms or broodmare farms. I also take into account that the infrastructure associated with the supply of broodmare care services and agistment does not appear to be substantial either in terms of cost or as a source of profit. 1440 Statistical material also was sought to be deployed by the applicant for the submission that the major studs had a present position of market dominance which AI might reduce. However there has not been a static set of "the seven major studs" in the period the subject of the statistical material, being 2000-2009. Rather, there have been fluctuations over that period. I do not accept Mr Lidums' evidence that there had been no statistically significant relative changes in the proportions of a particular group of seven studs: in my view that conclusion was unpersuasive in light of the limited analysis conducted by Mr Lidums to support it. 1441 In addition to the fluctuations among the major studs over the period 2000-2009, there is, as I have said, competition between the major studs. The evidence shows studs competing in the promotion of their respective stallions by means of stallion open days. There is also discounting by studs. 1442 I do not conclude that there is a position of market dominance of the major studs and I do not conclude that the present ban on AI protects the major studs. 1443 It follows from my findings that the applicant has failed to establish the claimed increase in competition in the breeding market from the removal of the restrictions in that market that the applicant has not established there would be the flow on effects in the acquisition market, leading to an increase in competition in that market, for which he contended. Further, I am not satisfied that if AI were permitted in Australia there is likely to be an increase in the number of high-quality yearlings put up for sale or that prices were likely to be lower for high-quality yearlings. I am not satisfied that there would be significant demand for AI-bred thoroughbreds in the thoroughbred acquisition market or that international and domestic purchasers seeking to breed or race in Australia only would be likely to purchase AI-bred thoroughbreds. 1444 I am therefore not satisfied that giving effect to the impugned provisions has the effect or is likely to have the effect of substantially lessening competition in that market.

Rules of sport 1445 An economic analysis must consider whether a particular rule has or is likely to have the effect of substantially lessening competition once its offsetting, pro-competitive benefits had been accounted for. 1446 In plain language, is the rule being challenged significant to the sport in question? Even though that rule has a degree of arbitrariness about it, it may nevertheless be significant to maintaining one or more aspects of the sport, its nature or quality, valued by participants in the sport or by spectators of the sport. 1447 Mr Houston, in his analysis on this point, referred to the article by Professor John E. Lopatka entitled "Antitrust and sports equipment standards: winners and whiners" Antitrust Bulletin vol 54.4 (Winter 2009) 751. This article in turn provided examples from the United States antitrust cases. 1448 Professor Lopatka wrote that antitrust claims of this sort have attacked standards regulating baseball bats, Baum Research & Dev. Co. v Hillerich & Bradsby Co., 31 F. Supp. 2d 1016 (E.D. Mich. 1998); In re Baseball Bat Antitrust Litigation 75 F. Supp. 2d 1189 (D. Kan. 1999); Easton Sports, Inc. v National Collegiate Athletic Association, No. 98-2351-KHV (D. Kan., dismissal order Sept. 29, 1999), tennis racquets, Gunter Harz Sports, Inc. v U.S. Tennis Association, Inc., 511 F. Supp. 1103 (D. Neb.), aff'd per curiam, 665 F.2d 222 (8th Cir. 1981), lacrosse stick heads, Warrior Sports, Inc. v National Collegiate Athletic Association, No. 08-14812, 2009 WL 646633 (E.D. Mich. Mar. 11, 2009), racing cars and parts, Sports Racing Services Inc. v Sports Car Club of America, 131 F.3d 874 (10th Cir. 1997), as well as racing car transmissions, Brookins v International Motor Contest Association, 219 F.3d 849 (8th Cir. 2000), tyres, Race Tires America Inc. v Hoosier Racing Tire Corp., No. 2:07-cv-01294, 2009 WL 2998138 (W.D. Pa. Sept. 15, 2009); M & H Tire Co. v Hoosier Racing Tire Corp., 733 F.2d 973 (1st Cir. 1984) and engines, STP Corp. v U.S. Auto Club, Inc., 286 F. Supp. 146 (S.D. Ind. 1968), harness-racing sulkies, Super Sulky, Inc. v U.S. Trotting Association, 174 F.3d 733 (6th Cir. 1999), golf clubs, Gilder v PGA Tour, Inc., 936 F.2d 417 (9th Cir. 1991); Boyd v U.S. Golf Association, No. Civ. 07-379-JJF, 2008 WL 2221050 (D. Del. May 28, 2008), golf shoes, Weight-Rite Golf Corp. v U.S. Golf Association, 766 F. Supp. 1104 (M.D. Fla. 1991), aff'd mem., 953 F.2d 651 (11th Cir. 1992) and other golf equipment, Windage, LLC v U.S. Golf Association, No. Civ. 07-4897 ADM/AJB, 2008 WL 2622965 (D. Minn. July 2, 2008) They have rarely succeeded. 1449 Professor Lopatka wrote that though the courts occasionally have worthwhile insights, referring to Brookins v International Motor Contest Association (above), their analyses lack rigour. In Brookins the dispute arose when the International Motor Contest Association (IMCA) amended its rules governing IMCA-sanctioned "modified class" auto races in a way that, at least for a time, barred the use in those races of two transmissions manufactured by the Brookins. After citing National Collegiate Athletic Association v Board of Regents of the University of Oklahoma, 468 U.S. 85, (1984) at 101-02 the Court of Appeals for the Eighth Circuit said: Without question, the way IMCA defines the rules for modified car racing will exclude some types of equipment. But the exclusion is an incidental and inevitable by-product of defining the game. A rule making body's impact on equipment manufacturers will vary depending on the popularity of the game, and the extent to which its rules are followed by the game's players - in other words, the extent to which they are seen as the rules of the game itself, rather than the rules of that body's league of game-players. 1450 Care of course is necessary in considering what assistance may be gained from United States law, first because the United States statutory context is quite different and second because equipment rules may affect performance whereas here it is accepted that breeding by artificial insemination does not do so. However Professor Lopatka's definition is a useful starting point: "A sport for present purposes can be understood as a physical activity defined by a set of rules and standards in which value is derived by participants and spectators from comparative performance." So also is his general distinction between rules, which define the manner in which the sport is conducted, and standards, which prescribe the attributes of physical inputs that participants in the sport are permitted or required to use. 1451 In the present case, it may be accepted, at one level, that the sport is to see which horse in a particular race comes first, rules having been applied to the race to enhance the contest. 1452 In my view the essential question is whether the impugned provisions deal only with an irrelevant, because not performance-affecting, mode of conception, as the applicant contends, or whether the method of conception, as between natural cover and artificial insemination, is an attribute of the sport of thoroughbred racing, as the respondents contend. 1453 In answering this question I bear in mind that the impugned provisions, while of some antiquity, were originally directed to another end, that is, the verification of thoroughbred pedigree. I also bear in mind however that that consideration does not prevent the impugned provisions from having become and being an attribute of the sport. At the same time, a thoroughbred horse is defined by its bloodlines and breeding and it is conceptually difficult, in that arbitrary world, to distinguish between limiting races to horses of particular bloodlines, which the applicant accepts, and limiting races to horses of particular bloodlines bred in a particular way, which the applicant does not accept. 1454 I also bear in mind that it is for the organisations involved in prescribing the rules who may seek to make each race more attractive by changing the rules, including the rule prohibiting the participation of thoroughbreds bred by artificial insemination. The question therefore considers the provisions as they stand, even though they are not immutable. In turn this involves 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. In part this is because there will be more than one voice or opinion in the sport at any one time which it is for those organisations to take into account in their decision-making. Those voices may include those of breeders, owners, punters and other spectators. By "deference" I do not mean to suggest that the Court would be slow to scrutinise the imposition by sporting bodies of rules or standards with anti-competitive effects where those rules or standards were not apparently related to the nature of the sport. 1455 I take into account that the question of not permitting thoroughbreds bred by artificial insemination to participate equally and indistinguishably in races with thoroughbreds bred by natural cover is contestable and contested by the applicant and others on grounds which, assessed only against reason or commonsense, have much to commend them. 1456 I place very little reliance on the media articles the relevance and cogency of which was pressed on the Court by the ASB respondents. No doubt some in the media are interested in and expect their readers to be interested in the process of thoroughbreds breeding by natural cover. But the small number of articles and the absence of material to show they were representative did not allow a qualitative assessment of the extent of that interest. 1457 I do take into account Mr Ford's evidence, metaphorical though it was, that the act of natural cover maintained the mystique and inherent skill of thoroughbred racing that have contributed to the appeal of the sport. He referred to the act of naturally being covered and born as a core feature without which you were taking away a large part of the fabric of the industry. 1458 In terms of attributes of the sport, I would also distinguish between the difficulty of breeding a champion, about which a number of the witnesses were asked questions, and the difficulty of conception. It was not clear to me that the difficulty of conception of itself, and apart from the different question of the potential for a large increase in the number of foals of a particular stallion by reason of artificial insemination, was or contributed to an attribute of the sport. 1459 I also take into account that the prohibition exists in a sport with an international nature, adherence to this prohibition transcending Australia's national boundaries and being universal. 1460 I do not accept that, as contended for by Dr Williams in his evidence, a distinction can be drawn between rules that define the game and rules that define who may play the game. Many sporting contests are defined by who may play in that contest. In any event, without a degree of anthropomorphism, the impugned provisions do not define who may play the game since it is not in any relevant sense the horses which play the game. 1461 In the present context the horses, despite being animate, share some attributes with equipment. To the extent that analogies are not distracting, a parallel may be drawn between thoroughbreds bred by natural cover and handmade sports equipment such as cricket bats or tennis racquets. 1462 The applicant accepted that any game or sport requires some sort of rules in order for the game or sport to have any meaning at all. He sought to distinguish between rules which had in common that they related to the way in which the particular sport was played or performed, on the one hand, and, on the other hand, a rule that appeared to have nothing to do with the performance or conduct of the activity itself or to the measurement of success. In those circumstances it was necessary to look further for an explanation. But the rule which restricted participation in horse races by reference to the mode of conception did not fit readily into any of the types of permissible rules because, so it was said, it had nothing to do with the performance of the activity or the nature or quality of the sport. 1463 It is in this last aspect, the nature or quality of the sport, that, as I have said, the key lies. In my opinion the evidence shows that the impugned provisions do contribute to the nature and quality of the sport and are an attribute of it. Here the whole sport, thoroughbred racing, is defined by reference to breeding so the mode of conception or "manufacture" is closer to the heart of the sport than, say, a prescription in tennis as to the mode of manufacture of a tennis racquet so as to require that racquets be handmade. In the case of thoroughbred racing the existing construct, involving the existing and unchallenged rules about breeding lines, involves humans racing thoroughbred horses bred from those breeding lines so as to exclude thoroughbred horses bred from those lines by artificial insemination. 1464 Thus the impugned provisions 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. I am not able to quantify either the extent of the contribution of the impugned provisions to the total value of the sport or the extent to which, if those provisions were held to be contrary to s 45, the demand would diminish. I am satisfied that there would be reduced competition in the absence of the impugned provisions. 1465 It also follows that thoroughbred horses bred by artificial insemination may not be described as actual or potential competitors in a market for thoroughbred breeding where that market is constituted by thoroughbred breeding by natural cover.

The restraint of trade case 1466 The applicant's case was that each of the ASB Provisions, the Combined Provisions, and the ASB Provisions in combination with the ARR Provisions, attracted the operation of the common law doctrine of restraint of trade. It was contended that there were in effect two distinct restraints incorporated into the three alternative formulations of the Provisions: the restraint on registering AI-bred horses in the ASB and the restraint on entering AI-bred horses in thoroughbred races (ARR 15A). The restraint of trade case involved the ARR provisions insofar as they formed part of the Combined Provisions and had effect in combination with the ASB provisions. 1467 The nub of the point was articulated by the applicant in opening submissions as follows: the ban on artificial breeding in Australia could be traced back to at least 1949, and probably before, although its form and its wording had varied frequently. But 1949 appeared to be the earliest extant version of what was then called the Rules of Procedure for the ASB, although the ASB, as a record, had originated in the nineteenth century. 1468 The accepted reason for the ban, when it was introduced, was in order to maintain the integrity of the ASB in respect of the pedigree of horses recorded in it by seeking to limit the scope for fraudulent conduct on the part of persons wishing to have their foals recorded, as well as to reduce or eliminate errors which might arise from false attribution of paternity, where AI had been used. However, by the middle of the 1980s at the latest in Australia, that justification had ceased to have any basis, a fact which was widely accepted because of the introduction, first of mandatory blood typing of horses, and later of DNA testing, both of which have an extremely high level of reliability. 1469 Some threshold issues may be dealt with shortly. 1470 In Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 (Peters), it was established, at [14], that whether there was a "restraint" within the meaning of the doctrine was to be answered by having regard to the practical working of the alleged restraint rather than merely to its legal form. 1471 Second, Peters confirmed that, for the purposes of the common law doctrine, the notion of "trade" was not to be read narrowly. 1472 Also in Peters the function of what is now s 4M of the Competition and Consumer Act was considered and the result of the enactment of the section in 1977 was said to be threefold. First, developments in the common law doctrine will not affect the interpretation of that Act. Secondly, the common law was free to develop independently of that Act, provided always that the common law was capable of operating concurrently with it. Thus, their Honours said, the common law may strike down a restraint which falls outside the operation of Part IV. The outcome in Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 (Adamson) was stated to be an example. 1473 Also, in Peters the following was said in the joint judgment at [33]: While s 4M leaves the common law free to develop in the fashion identified in the section, it does not deny that in such development the courts may have regard to the statute. Observations made by Deane J when dealing with the interrelation between the common law and the provisions of Pt V of the Trade Practices Act (especially s 52) are in point. His Honour's remarks in Moorgate Tobacco Co Ltd v Philip Morris Ltd [No 2] (1984) 156 CLR 414 at 445 suggest that, in deciding what development, if any, there should be of the common law respecting a particular subject, the court should have regard to what the Parliament had determined to be "the appropriate balance between competing claims and policies". That is a point of significance here, where the question is whether the restraint in Art 7.1 is to be reconciled with the public interest, and Pt IV of the Trade Practices Act establishes a detailed regime to which particular exceptions are stated. 1474 It is unnecessary for the applicant to show a contractual relationship. In Aerial Taxi Cabs Co-operative Society Ltd (t/as Canberra Cabs) v Lee (2000) 102 FCR 125, the fact that the taxi driver was not a member of the society was not a barrier to him obtaining appropriate declaratory and injunctive relief concerning an unreasonable restraint of trade (at [9] per Sackville J). His Honour referred to the principle that a person adversely affected by the rules of an association, where those rules constituted an unreasonable restraint of trade, may obtain appropriate declaratory and injunctive relief, whether or not the person is a member of the association or contractually bound by the rules. Justice Sackville said this principle was endorsed in Buckley (above) at 381, where the High Court cited with approval the decisions in Eastham v Newcastle United Football Club Ltd [1964] Ch 413 and Nagle v Feilden [1966] 2 QB 633. In those cases, persons who were neither members of, nor in contractual relations with, a particular body, were held to be entitled or arguably entitled to declarations that rules or practices of the relevant body were invalid as unreasonable restraints of trade or otherwise as contrary to public policy. In Buckley the rules were solely the creation of the League. The appellant argued that the common law rules regarding restraint of trade were inapplicable since there was no contractual relationship between Tutty, a player, and the League. The High Court held (at 375) that it was not necessary for Tutty to show a contractual relationship. The High Court said there was both ancient and modern authority for the proposition that the rules as to restraint of trade applied to all restraints, howsoever imposed, and whether voluntary or involuntary. 1475 The factual material relied on by the applicant to show how his ability to trade was affected by the restraints was paragraphs 25, 27-38 of his witness statement of 8 December 2010 and paragraphs 18 to 20 and 26 of his witness statement 28 March 2011. 1476 As to the applicant's first witness statement, paragraph 25 says nothing relevant. Paragraph 27 says that if AI were permitted, the applicant would purchase stallions to stand at his farm Rotherwood in Tamworth. He would also consider buying shares in stallions or buying the southern hemisphere breeding rights to a stallion. He would collect semen from his stallions or purchase semen from other stallions and impregnate broodmares on his stud using AI rather than transporting broodmares to stud. He would seek to purchase semen from stallions standing in studs located interstate or overseas. He would also offer for sale the stallions' semen to other thoroughbred breeders. If the court proceedings were ultimately successful and AI was permitted for the reproduction of thoroughbred horses, he would review his options at that time. At paragraph 28, he referred to his 2007 agreement with Dr Stuart Keller. Paragraph 29 indicated that Mr McHugh would not need to take into account the geographic location of the stud on which the stallion stood if AI were permitted. Paragraphs 30 to 38 went to the issue of the third register of the ASB and the amendment of the ARR to permit the horses on the new register to be registered for racing. 1477 As to the applicant's second witness statement, the applicant said that if thoroughbred horses produced by AI were registrable in the ASB he would expand his thoroughbred breeding activities. He would undertake the breeding of his broodmares using AI. He would purchase a stallion and use semen collected from that stallion to breed from his broodmares by AI. He also intended to offer for sale semen collected from that stallion for use in AI. He would also purchase semen from other stallions to use in AI to service broodmares. He had not purchased a stallion as he was not prepared to incur the significant expense until the ban on AI had been lifted and he knew he would be able to carry out the AI breeding activities he had proposed in his statement. Neither of the paragraphs numbered 26 appears to be relevant to this issue. 1478 The relief sought in the Amended Application filed on 16 May 2011 was: (1) a declaration that each of the ASB Provisions (as defined in the Statement of Claim) is wholly void as being in restraint of trade and against public policy; (2) a declaration that each of the Combined Provisions (as defined in the Statement of Claim) is wholly void as being in restraint of trade and against public policy; and corresponding injunctions to restrain the relevant respondents. 1479 The way the applicant put the restraint of trade cause of action, in written and oral submissions, was as follows. 1480 The question for the Court was whether the restraint was reasonably related to the objects of the organisation imposing it and afforded no more than adequate protection to its interests. It was not a balancing exercise. As a general proposition, the time for testing the validity of the restraint was the date when it was first imposed, however it was permissible to have regard to the operation of the restraint in the intervening period. A court will not enforce a restraint of trade and will treat it as void ab initio. These propositions were derived from Adamson at 285, 289 and 290. 1481 The applicant said that it appeared that the restraint contained in the ASB Provisions was first imposed at least as early as 1949. The first imposition of the restraint which became ARR 15A was in 1978 and took effect from then or 1 August 1980, it was submitted. 1482 It was for the respondents to justify the reasonableness of the restraints, both from the perspective of their interests and also that the restraints were in the public interest. 1483 The ASB respondents submitted, first, that there was no relevant contract imposing any justiciable restraint. Second they submitted that no trading activity was restrained. Third, they submitted there was no conduct which attracted the restraint of trade doctrine. Fourth, these respondents submitted that the ASB provisions were in any event reasonable in the public interest. As to this last proposition, those respondents submitted that there was no dispute that at the time of the introduction of the provisions the restraint was reasonable to ensure correct parentage when the main means of identification comprised the physical observation of the sire and dam at the time of mating. The relevant time to consider reasonableness was the time of inception of the alleged restraint. Issues of reasonableness were to be judged by reference to the circumstances existing at the time of entry into the contract or the inception of the restraint. A restraint which was initially enforceable could not become unenforceable merely because it operated unfairly in changed circumstances. 1484 The third respondent, the ARB, submitted that the applicant's restraint of trade claim was hypothetical because it was predicated upon circumstances that had not occurred and might never happen, being the establishment of the applicant's proposed AI breeding services business. 1485 Further, the ARB submitted that the applicant was free to provide AI services: his difficulty was that he was unlikely to have any, or many, customers. Although the common law might well recognise the applicant's entitlement to carry on any trade or business he chose and in such manner as he thought most desirable in his own interests, Petrofina (Great Britain) Ltd v Martin [1966] 1 Ch 146 at 169, he was not entitled to the assistance of the common law in finding customers. 1486 The ARB also submitted that if the combined provisions existed, they did no more than regulate dealings between parties to the contract, arrangement or understanding allegedly constituted by them. They had no effect on dealings between parties and non-parties. Consequently, no issue of restraint of trade arose. 1487 If the combined provisions could be analysed as a potential restraint of trade, the ARB submitted that it was one of a number of entities that played a role in regulating thoroughbred racing in Australia. A regulator's interests lay in promoting the collective interests of participants in the relevant regulated sector, and in balancing their individual or sectional interests. Any rules adopted by that regulator should be seen as involving an exercise of judgment as to what might best achieve that outcome. This meant first that some deference should be given to the judgments made by that regulator. Second, having regard to the multiple interests required to be balanced by regulators, it was only natural and reasonable if the preferences of one part of the relevant regulated sector were not satisfied. But it would be a dereliction by the ARB and the PRAs of their various functions and duties to give preference to one voice or a limited number of voices over other majority voices. 1488 The ARB also submitted that, whatever the date on which the alleged restraints were imposed, the current rules of racing, and the combined provisions assuming them to exist, were reasonable. The applicant did not attack Article 12 and the Article should be taken as given and the impugned provisions gave effect to and proceeded upon the internationally agreed definition of a "thoroughbred" for the purposes of thoroughbred horse racing. In any event, the impugned provisions did not require any justification beyond their being the rules of a sport: they regulated conduct on the field of sporting contest. If necessary, the reasonableness of the combined provisions, assuming them to exist, could further be justified by reference to international comity and the risk that any success enjoyed by the applicant in the proceedings might pose to Australia's position in the international thoroughbred and racing industries. 1489 The fifth respondent, the TBA, submitted that the applicant had not shown that there was any restraint of trade. The fifth respondent adopted the submissions of the other respondents in relation to the non-application of the restraint of trade doctrine. 1490 The TBA also submitted that the Court should hold that the thoroughbred definition rule was reasonable to protect legitimate interests in the proper organisation and administration of the sport of thoroughbred racing: Greig v Insole [1978] 3 All ER 449 at 497; [1978] 1 WLR 302 at 347. It was submitted that there was a legitimate interest in sporting bodies prohibiting conduct that might have adverse consequences for the sport. Four matters were said to provide sufficient justification for the thoroughbred definition rule: (i) the tradition and character of the sport; (ii) the likely damage or risk of damage to Australia's standing in the international community, with the loss of international demand and international participation that would follow; (iii) the reduction in diversity and narrowing of the gene pool; (iv) the likelihood that removing the thoroughbred definition rule would lessen competition by concentrating market power in the top studs. 1491 In reply, the applicant submitted that his restraint of trade case satisfied the requisite level of certainty as a matter of "impression and practical judgement". The practical economic reality of the restraint was effectively conceded by the ASB respondents. The reasonableness arguments failed to grapple with the fact that the restraints were unlimited as to duration and were more than was reasonably necessary to protect any legitimate interest. 1492 The applicant submitted that it was difficult to appreciate how a trader's liberty of action could be unaffected by a restraint which its proponents conceded made the trader's products unsaleable. To submit that the combined provisions did no more than regulate dealings between parties, even if correct, would not exculpate ARR 15A from the purview of the doctrine of restraint of trade. As to the applicant's failure to attack Article 12, the Federal Court was not the appropriate forum for doing so. 1493 As to reasonableness, the applicant submitted that the ASB respondents had failed to plead that the restrictions in the ASB provisions were reasonable in the interests of the parties, but now sought to advance an argument along those lines. 1494 The applicant submitted a restraint must be reasonable as to its scope, area and temporal dimensions. The restraint when first imposed 60 years ago did not meet the requirement of reasonability as to its temporal dimension: it was not limited as to time and it was never suggested that it would cease to have effect once an effective test was available. It was always to be expected a test such as blood typing and DNA testing would evolve to a point where they would provide a reliable method of verifying pedigree. International comity would not have provided a justification in 1949. In the absence of any temporal limitation of the kind described, the restraint must be judged to have been void ab initio. 1495 As to rules of a sport, the applicant maintained the validity of the traditional distinction between rules going to performance, and in that sense defining a sport, and those that excluded certain persons according to criteria which had nothing to do with performance. Dictating the identity, or mode, of manufacture, for example of a tennis racquet, could only be a valid rule of the sport if those matters were relevant to performance of the sport as affecting the sport generally, not just a particular competition or contest. Here, the thoroughbreds conceived by one method were excluded entirely from the sport and its dependent industry which had many of the features of a natural monopoly. 1496 In oral submissions, the applicant referred to Pharmaceutical Society of Great Britain v Dickson [1970] AC 403, especially at pages 419-420, 426-427, 431, 433, 437 and 440. The applicant also referred to the first instance decision of Holland J in Nevele R Stud v The New Zealand Trotting Conference (High Court of New Zealand, unreported, 26 April 1982) and to Heydon JD, The Restraint of Trade Doctrine (3rd edition, LexisNexis Butterworths, 2008) at pages 52 to 57 which addressed the question "What is a 'Restraint'?" particularly in the absence of contracts. 1497 In relation to comity, which may be a basis for providing a justification for the restraint, provided the restraint was no more than reasonably necessary, the applicant submitted that the combined provisions went beyond what was required by comity. Rule 1.8, the rule against semen donation, had no parallel in the rules of racing of any other country and was not something required by Article 12. The restraint went beyond the legitimate interests that might be dictated by comity and on that basis the justification was not made out. 1498 A further matter related to the need to enquire into the reasonableness of the restraint at the time the restraint was first imposed. The applicant submitted that the question was whether the restraint, when introduced in 1949 in its basic core content prohibiting artificial insemination, was expressed in terms or had a scope that was no greater than was reasonable. If it was directed to the difficulties of detecting possible fraud or mistaken identity in relation to returns of foals, the restraint was not imposed in terms which suggested that it was a temporary restraint that should cease to have effect once some other method of detecting such difficulties had emerged and had been proved. When such methods did emerge in the 1980s the restriction continued without limitation as to time. It followed that the restriction went beyond what was reasonably necessary to protect the legitimate interests of the parties. The applicant submitted that the restraint could have been made in reasonable terms at the outset by being limited in time to the development of technology or some more efficient means of detecting fraud, but that limitation was never imposed. In this respect the applicant referred to Adamson especially at 285 per Gummow J. 1499 Alternatively, the applicant submitted, somewhat tentatively, that it was possible to look at facts which have occurred since the relevant date which may throw light on the circumstances. 1500 In the further alternative, the applicant submitted that with a restraint of such longevity and in light of the purpose of the doctrine to protect the public interest, the courts would strain against a conclusion that the mere fact that a restraint was reasonable at the time it was imposed would be sufficient to justify its continuance where the original justification had ceased completely to apply. 1501 The ASB respondents' oral submissions in relation to restraint of trade were first that the restraint of trade doctrine should not be regarded as applying to rules which defined the sport. On that basis Buckley was distinguishable as concerning a rule within a sport about the extent to which players could be transferred from one club to another. 1502 Second, those respondents submitted that if the restraint of trade doctrine could apply to this combination of rules, the applicant had not demonstrated that he was restrained in any relevant sense, in part because he had choices so there was no real restraint of trade. In addition the applicant's alleged proposed activity on its face made no sense whatsoever. This was because in an AI Australia-only world a breeder was not going to pay a large amount of money for semen to produce a yearling which was likely to be at risk of not having anything like the value of a direct breed. The first, second and sixth respondents adopted the third respondent's submissions about standing. 1503 Third, the ASB respondents submitted that the time for addressing the question whether any restraint was reasonable was when the matter was being negotiated, if it was a contract, or when the rules were imposed. Subsequent events were not relevant. These respondents accepted that one of the reasons for the rule was the prevention of fraud but they did not concede that that was the only reason. The ASB respondents referred to Putsman v Taylor [1927] 1 KB 637 at 642-643 and Lindner v Murdoch's Garage (1950) 83 CLR 628 at 653 as to the date for deciding the validity of the restraint, being the date it was imposed. Those respondents also referred to the reference to the judgment of Deane J in the judgment of the plurality in Peters at [33], set out above. 1504 The ASB respondents referred to the justification for the ASB provisions, at the time of their inception and since. They also submitted there were four additional justifications for the rule. First, it was a legitimate objective of the rules that they sought to promote the organisation and administration of the sport over time, including maintaining international comity: Greig v Insole (above) All ER at 497; WLR at 347. Second, the reasonable interests of the Joint Proprietors included preserving the valuable goodwill of the ASB. Third, the goodwill of thoroughbred racing was in large part a product of rules and the contest those rules defined. Fourth, the introduction of artificial insemination would inevitably lead to all artificial breeding technologies being utilised and the problems of enforcing any restraint against any form of artificial breeding on the assumption that the limitation to natural breeding was removed was a reasonable basis for not stepping on to that slippery slope. There was no countervailing public interest. 1505 In oral submissions the ARB submitted that examining an allegation of a common law restraint of trade could not proceed on the basis that what Parliament had required was contrary to public policy and was thus in restraint of trade. Counsel referred to ex parte Colman. He submitted that the New Zealand case of Nevele R Stud, whether at first instance (above) or on appeal, New Zealand Trotting Conference v Nevele R Stud Ltd (CA 82/82, 10 December 1982), was not authority for any proposition relevant to the present case. 1506 The ARB submitted that the courts would not accept the concept of thoroughbred in relation to horses, as being required to have or reputedly having descent from a particular named group of long-dead horses, but be interested in the AI notion within that world. It was submitted that this was simply not a realm for a court to be involved in but it was for the response and reaction of those responsible for or interested in the thoroughbred industry nationally and internationally by way of promulgation of rules by those who are rulemakers and by way of lobbying by those who were or regarded themselves as the victims of those rulemakers. It was not, the ARB submitted, an inherently justiciable issue as to whether it was a good thing now to do away with what might be regarded as outmoded ways of ensuring the pedigree of the runners in a horse race. It was submitted that the applicant sought to have the criteria for entry into a stud book for thoroughbreds altered by elimination of the AI prohibition. He wanted to enter by a different route the highly artificial world where the rules of the game were defined in a way that had little if anything to do with finding out which was the fastest horse. 1507 The fifth respondent, the TBA, submitted that the status of the thoroughbred definition rule as a rule of a sport meant that either at a legal level or factual level the Court could not conclude that the rule operated in restraint of trade. The TBA adopted the submissions of the other respondents. The applicant did not presently have a skill or product that he was not being permitted to sell. He was able to be a breeder. He was able to breed thoroughbred horses by natural cover for thoroughbred racing and he was able to breed horses of thoroughbred ancestry by artificial insemination for use in the performance horse industry. He was also able to breed standardbreds or warmbloods in whatever way he liked. The applicant was asking the Court to require the respondents to create another market for him because he perceived it as more profitable. The restraint of trade doctrine did not exist to do that. 1508 As to reasonableness, the TBA submitted that real risk of adverse consequences, objectively ascertained, was enough and there was a real risk of losing the charm and mystique; of losing diversity; of concentrating market power; or of losing international standing or international participation. The primary submission was that these identified risks were more likely than not to come to pass but the Court did not need to reach that conclusion as there was an objective basis for the real risks and that was enough to justify the rules. One of the justifications, the likely damage or risk of damage to Australia's standing in the international community, with the loss of international demand and international participation that would follow, was particularly important. The applicant appeared to accept that the thoroughbred definition rule may be justified by comity. 1509 The applicant submitted in reply that because the rules of racing were not a statutory instrument, albeit being referred to in legislation, the principle accepted in ex parte Colman did not prevent the doctrine of restraint of trade applying. The applicant submitted that there was no authority that suggested that the fact a body has a rule-making function which was of its own devising, albeit referred to in a statutory context, and those same rules were given force through other bodies in a statutory context, precluded the application of the common law doctrine of restraint of trade to those rules as made by that body. 1510 The applicant submitted that there was a difference between the requirement for a particular pedigree for thoroughbreds on the one hand and the natural cover requirement on the other: the rule in relation to the natural covering was a man-made rule and had something to do with competition whereas the pedigree requirement was something created by the natural environment and dictated the nature of a thoroughbred by reference to what occurred in that environment. Also, the prohibition on artificial insemination had been much debated over 30 years whereas the pedigree rule had scarcely been debated at all. 1511 As to the rules of the game argument, the applicant submitted that there were rules that related to the way in which the particular sport was played or performed and affected the nature and quality of the game to even out the contest. When there was a rule that appeared to have nothing to do with the performance or conduct of the activity itself or to the measurement of success then there was the possibility that the rule having a different character had a different purpose. A rule that prevented some participants from taking part on a criterion that was unrelated to performance needed to be examined for an explanation. Given that the racing performance of a horse conceived by artificial insemination was, by reason of that fact alone, no different from one conceived as a result of natural cover, the rule which restricted participation in horse races by reference to the mode of conception did not fit readily into any of the types of rules which were justified. This rule had nothing to do with the performance of the activity or the nature or quality of the sport; it did not determine any question of representation of a particular group or location; it was not for the purpose of providing a level playing field or eliminating unfair advantages or cheating by any participants; it was not a rule which was confined to limiting eligibility to a particular context such as handicapping all races for two year olds. It followed that its purpose must lie elsewhere. 1512 The applicant did not concede that what was put in relation to international comity made out the defence for the respondents, particularly having regard to the history of the abandonment as recently as May 2010 of the same person/same stud rule or rule 1.8 which had been in existence for 30 years although not sanctioned or required internationally.

Consideration 1513 Lord Macnaghten said in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Limited [1894] AC 535 at 565 "[a]ll interference with individual liberty of action in trading, and all restraint of trade… are contrary to public policy". In Adamson, Gummow J stated at 284 that the principle on which the restraint of trade doctrine rested was that in the public interest the citizen should be free of any unreasonable restraint upon the exercise of his capacity to be gainfully employed or to engage in trade or commerce: see Howard F Hudson Pty Ltd v Ronayne (1972) 126 CLR 449 at 452-453. 1514 As I have said, it is clear that this cause of action may succeed in circumstances where the statutory cause of action does not. 1515 In light of paragraph 40, especially paragraph 40(l), of the defence of the ASB respondents I reject the applicant's submission that the ASB respondents did not plead that the restraint, if any, was reasonable. 1516 In considering this cause of action I shall make a number of assumptions in the applicant's favour in order to reach the crucial and dispositive point. 1517 I shall assume that in a broad sense it is the practical working of the rules which is relevant. 1518 Second, I shall assume that the applicant is relevantly constrained in his business and has standing. 1519 Third, I shall assume that the rules are not made under powers conferred by statute. 1520 Fourth, I shall assume that the conduct of which the applicant complains attracts the common law restraint of trade doctrine, that is, that where the person is not in a direct contractual relationship with the relevant body, the doctrine is not limited to unreasonable restrictions on a person's ability to earn a living: Dickson v Pharmaceutical Society of Great Britain [1967] Ch 708 at 719; in the Court of Appeal at 757; and in the House of Lords at [1970] AC 403 at 440. 1521 Fifth, I shall put to one side on this limb of the case propositions flowing from the status of the rules as rules of sport. 1522 Sixth, I shall assume that the respondents have not established adverse consequences or the risk of adverse consequences to their legitimate interests if the rules did not exist and they have not shown that the alleged restraint is currently reasonable. The applicant submitted, which I accept, that at least in certain circumstances subsequent events may be taken into account in assessing the reasonableness of an alleged common law restraint of trade at an earlier time. 1523 Seventh, and last, I shall assume that the only purpose of the rules was to ensure the correct parentage of thoroughbred foals and progeny. 1524 In my opinion, on those assumptions the common law restraint of trade case must fail on the following basis. 1525 The applicant accepted that the time at which the reasonableness of the assumed restraint of trade was to be tested was the time the restraint was imposed. This was, in substance, in the 1940s so far as concerns the ASB. The case was also put that the ARR restraint had an operation as "contained in the Combined Provisions, and in the ASB Provisions in combination with the ARR Provisions". In that case the relevant date was no later than 1980, when ARR 15A took effect. 1526 It was by no means clear on the evidence what rules or practices were in place before the making of ARR 15A to limit or prevent thoroughbred horses bred by AI being registered for racing, or from racing, in thoroughbred races conducted by or under the aegis of the Principal Clubs. For example, it was in 1978 when the PRAs adopted the predecessor of ARR 15A. 1527 However, the applicant also accepted, subject to one matter, that the common law alleged restraint was reasonable when it was imposed, that is, at those dates it was reasonable to prohibit conception by artificial insemination. The applicant submitted that when blood-typing became mandatory in Australia from 1 August 1986, the previous rationale of avoiding deliberate or accidental incorrect paternity had ceased to have any force. 1528 The "one matter" to which I have referred in the preceding paragraph is that the applicant submitted that the ban on the conception of thoroughbreds by AI should be read as if it was subject to an unexpressed condition or qualification to the effect that the ban should obtain only until there was a scientific method of checking for identity fraud and that that point had been reached by the mid-1980s. I reject that submission as having no foundation in the language of the relevant rules or in the evidence as to future probabilities which could have been foreseen by those affected at the time of the introduction of the ASB provision or at the time of introduction of ARR 15A. 1529 Notwithstanding the seven assumptions I have set out above, authority establishes that the validity of the restraint being imposed is to be tested at the time it was imposed: see Adamson at 285-286 where Gummow J said: The time at which validity is determined As a general proposition, the time for testing the validity of a restraint is the date when it was imposed, in the present case with the adoption of the relevant rules at the meeting of the Board of the League on 23 July 1990. This is because at common law (in the administration of which the court lacks the wide powers given by s 87 of the Trade Practices Act 1974 (Cth)) the issue is the absolute one of whether the restraint was void ab initio as offending public policy. It is not whether the restraint is voidable nor, it seems, whether it has become void by reason of later events which occurred before the institution of proceedings to challenge it. In a number of decisions, the High Court has treated the date of imposition of the restraint as the time for testing its validity: see Lindner v Murdock's Garage (1950) 83 CLR 628 at 653; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 318; Geraghty v Minter (1979) 142 CLR 177 at 179, 187-188, 193, 200. In the last cited case, Mason J alone (at 199-200) regarded the principle as unsettled. The Privy Council (to which Geraghty v Minter (supra) had been cited) has expressed the same view as the majority of the High Court: see Bridge v Deacons [1984] AC 705 at 718. However, Gibbs J pointed out in the Amoco case (supra) (at 318) that facts which have occurred since the relevant date may throw light on the circumstances existing at that date. … In many cases the restraint was imposed some considerable time before its validity was tested in litigation. In those circumstances, and subject to the caveat entered by Gibbs J in the Amoco case, the principle that the time for testing the validity of the restraint is that of its imposition has assumed particular importance. The caveat referred to was that facts which have occurred since the relevant date may throw light on the circumstances existing at that date. 1530 I also refer to The Restraint of Trade Doctrine (op. cit.) at page 45 under the subheading "Time Factors" where the learned author wrote: The circumstances with respect to which construction and reasonableness issues are to be judged are those existing at the time of entering the contract. However, the court may take into account future probabilities which could have been foreseen. Further, events occurring after the relevant date may throw light on the circumstances existing at that date … Further, a restraint which is initially unenforceable cannot become enforceable and the restraint which is initially enforceable cannot become unenforceable merely because it operates unfairly in changed circumstances. And the subsequent conduct of the covenantor, however unlawful it may be independently of the question whether it breaches the covenant, is irrelevant to the issue of whether the covenant is reasonable. The authorities cited for the penultimate proposition included Gledhow Auto Parts Ltd v Delaney [1965] 1 WLR 1366 at 1377 per Diplock LJ; Shell UK Ltd v Lostock Garage Ltd [1976] 1 WLR 1187 at 1198, 1201-2 and 1203, Passmore v Morland Plc [1999] 3 All ER 1005 (CA) at 1022-1023 and Geraghty v Minter (1979) 142 CLR 177 at 188. It may be noted that in Lostock Garage (above), Lord Denning MR recognised that this was the general rule, but suggested an exception; being prepared to hold that a covenant in restraint of trade, valid at the time that it was entered into, should not be enforced if circumstances afterwards arose in which it would be unreasonable or unfair to enforce it. The other members of the court disagreed: see at 1201-2, 1203. 1531 In particular I refer to Geraghty v Minter (above) where four of the five justices stated that the circumstances with respect to which construction and reasonableness issues are to be judged are those existing at the time of entering the contract: see at 179 and 181 per Barwick CJ, 187-188 per Gibbs J, 192-193 per Stephen J and 200 per Aickin J. I also refer to Lindner v Murdock's Garage (above) at 638 per Latham CJ, 641 per McTiernan J and 653 per Kitto J. 1532 I also add references to Adamson where Wilcox J at 269 and 271 and Gummow J at 285, said that the question was the reasonableness of the rules at the time they were made. The opinion of Sheppard J on this issue is not so clear: his Honour agreed generally with Wilcox and Gummow JJ, but see the report at 247-248. 1533 In the present case there was no contemporaneous relevant evidence of future foreseeable probabilities in this respect. Later facts do not relevantly throw light on the circumstances then existing. I reject the applicant's submission that it was always to be expected that tests such as blood-typing and DNA testing would evolve to a point where they would provide a reliable method of verifying pedigree. 1534 For these reasons the applicant's restraint of trade case fails.

Rulings on evidence 1535 MFI 67 was admitted as an exhibit following my reasons for judgment on 2 December 2011 in McHugh v Australian Jockey Club Limited (No 12) [2011] FCA 1374. The effect of that ruling was that paragraph 193 of the applicant's final written submissions should be read as follows: After the merger (which gave Aushorse 2 members on the board, in addition to the State representatives) Mr Messara, who took over as Chairman, had a role in persuading the [fifth respondent] to change its position to one of support for reinforcement. At the same meeting a proposal from South Australia to debate AI was not approved, Mr Messara having commented that "there is no debate on AI". I also then noted, at [27], that Mr Messara's comment was, as reproduced, an accurate restatement of what appeared in the minutes of the Board Meeting of the fifth respondent on 14 September 2007 and I read it in the context of what was there said about artificial insemination and the debate or absence of debate on the subject of artificial insemination. 1536 In an interlocutory judgment of 1 November 2011, McHugh v Australian Jockey Club Limited (No 11) [2011] FCA 1247, I postponed ruling on MFI 72. I said: 26 There are, I was informed, some 150 documents in dispute as listed in a document entitled "Schedule of Documentary Issues in Dispute between the Applicant and the First, Second and Sixth Respondents" which I now mark as MFI 72. 27 The parties agreed I should defer ruling on these documents until it could be seen how the parties, particularly the applicant, sought to use these documents in submissions. In my view, although not orthodox, this is a necessary approach in the circumstances and I defer ruling on the admissibility of these documents until those submissions are made. Those submissions should state whether the objections in that schedule, that is MFI 72, are maintained. 1537 The limited number of documents which remained in dispute, because the applicant relied on them in his submissions, therefore require a ruling. Those rulings now follow. 1538 A letter dated 14 April 1993 was from the Executive Director of the New Zealand Thoroughbred Breeders' Association (NZTBA) to the International Breeders' Meeting Secretariat in England with reference to an agenda item 11 for the International Breeders' Meeting in Rome: tab 88 of the tender bundle. It was discovered by the fifth respondent. The first, second and sixth respondents submitted that the document should be admitted as a communication only. The applicant contended that it should be admitted to establish that the New Zealand Commerce Commission had been in fact examining the prohibition of AI with a view to considering whether it was a restrictive practice. 1539 I do not admit that letter as establishing that fact. I admit it as establishing that the Executive Director of the NZTBA considered that the New Zealand Commerce Commission was so examining the prohibition. In any event it is of the most marginal relevance. 1540 A document bearing a facsimile stamp October 1996 and headed "Results of Information Night Questionnaire", discovered by the fifth respondent, was apparently (see below) tendered by the applicant (tab 109). The first, second and sixth respondents objected to it on the ground of relevance. The applicant tendered it only for the fact of the "survey" rather than the truth of the responses. At most the document shows that the fifth respondent asked a question at an information night in 1996 "Do you think the ban on Artificial Insemination for thoroughbreds in Australia should be lifted" for certain purposes. I reject this document as irrelevant. 1541 In oral submissions the applicant said that the reference to tab 109 in footnote 225 should read tab 199. Tab 199 is a document dated 18 December 2001 seemingly extracted from a forum on the ISBC's website with the subject line: "ISBC, artificial insemination". It was discovered by the AJC. It was relied on at footnote 225 to evidence the view of the Indian authorities that India and many other Asian countries "will not be severely affected if the ban on AI was to be removed". 1542 The applicant submitted it was a business record. The first, second and sixth respondents submitted it should be admitted as a communication only. 1543 I admit this document as a communication only and not as evidencing whether in fact India or other Asian countries would be severely affected if the ban were to be removed. 1544 The next document is a report dated 28 November 1996 by the then Keeper, Mr Digby, about the 1996 ISBC meeting (tab 116). It was objected to by the first, second and sixth respondents who submitted that the document should be admitted as a communication only. The applicant submitted it was a business record and an admission as against the first, second and sixth respondents under s 81 of the Evidence Act. The applicant sought by this document to support the proposition in his footnote 235: "It appears to have been a generally held view that the prohibition on AI was liable to challenge." In turn, that footnote is referable to the proposition that: "If the ASB Provisions are found to be unlawful because they are anti-competitive, then it is highly likely that a similar conclusion would be reached in the likely event that the equivalent rules of overseas jurisdictions were challenged". The disputed evidence states: "Most delegates agreed that sooner or later an authority would be challenged over the ban - of course all are hoping it won't be their authority." 1545 This document is of the most marginal relevance as it would not tend to establish the likelihood contended for. I admit this statement as a communication only. In my view it is not an "admission" because it is not adverse to the entities' interest in the outcome of the proceeding. 1546 Next was a letter dated 30 May 1997 from the Manager, Racing Administration of the Jockey Club of Southern Africa to Dr Digby, the Keeper. The applicant submitted that the document was a business record of the AJC, which had discovered it, and should be admitted as an expression of the true views of the Jockey Club of Southern Africa. The first, second and sixth respondents submitted the document should be admitted as a communication only. 1547 The proposition in the applicant's written submissions to which this document is said to relate was as follows: "The South African authorities have made it clear that they are opposed to the continuation of the AI ban, and consider that its removal would be of substantial benefit to South Africa because of quarantine issues." 1548 The letter constituted a commentary on a paper by Dr Digby. The writer of the letter said: "I support the view that the only reasons for retaining the ban relate to commercial disruptions (reorganisation?)." It goes on to say that the most important difficulty the writer had with the draft statement was "I do not believe that commercial disruption is a valid reason for retaining the ban." 1549 I do not admit the document as an expression of the true views of the Jockey Club of Southern Africa. In any event, in my view it does not tend to establish the proposition in the applicant's written submissions. 1550 The footer to the next document, discovered by the fifth respondent, states it was from a September 1998 "International Breeders' Meeting". The applicant submitted it was a business record of the fifth respondent, at least. It was said to support the proposition that the removal of AI would be of substantial benefit to South Africa. 1551 All the document says on this aspect is: "In South Africa, the Jockey Club administers the Stud Book on behalf of the South African TBA. The Jockey Club would not act contrary to the wishes of breeders. However, the Jockey Club would follow the lead of major breeding countries if there was a change to AI rules". I do not admit it on the basis contended for by the applicant as it is irrelevant. 1552 The applicant also submitted that the discussion about the legal opinion obtained by Weatherbys was relevant but the endpoint of the submission was that the Stud Book and Racing Authorities would pay close regard to any legal opinions they obtained. I do not admit this document on that basis either, as it is irrelevant. 1553 Next was a record of a meeting of the Joint Proprietors on 1 September 1998. The document was discovered by the AJC. The first, second and sixth respondents submitted that it should be admitted as a record of meeting only. The applicant submitted that the document should be admitted as an admission. It was sought to be deployed in footnote 235 of the applicant's written submissions, for the same proposition as the document at tab 116 which I have considered above. 1554 In the case of the present document the alleged admission is that the Keeper said at the meeting of the Joint Proprietors in September 1998 "the industry could not bank on the ASB being able to maintain the ban on artificial insemination in thoroughbreds forever. There was a view around the world that the thoroughbred ban would not stand up in a court of law - particularly in English speaking countries." 1555 The applicant submitted that so long as the opinion was contained in a business record there was no separate requirement for the Court to be satisfied as to an exception to the opinion rule, however I reject that submission: see Lithgow City Council v Jackson (2011) 244 CLR 352. 1556 I admit this document only as proving that the then Keeper said to the meeting what I have set out above. I would not admit it as establishing that there was such a view or that the thoroughbred ban would not stand up in a court, particularly in English-speaking countries. 1557 Next, tab 152, was a letter dated 21 March 2001 from the then Keeper, Dr Digby, to Paul Jones. It was discovered by the AJC. The applicant submitted the document should be admitted as a business record and as an admission. 1558 The relevant statement was that recently the Chairman of the British TBA wrote to his Australian counterpart advising that the British TBA had received legal advice that any challenge to the AI ban was very likely to be successful. 1559 In the applicant's written submissions this document was put in the context that the major overseas jurisdictions will follow Australia's lead and if the ASB Provisions are found to be unlawful because they are anti-competitive then it is highly likely that a similar conclusion would be reached in the likely event that the equivalent rule in the overseas jurisdictions were challenged. However, in oral submissions, counsel for the applicant said that he did not rely on the relevant paragraph for the truth of its contents but for the fact that it had been communicated and that the ASB was aware of the opinion and presumably was likely to, and did in fact, give it serious consideration. 1560 I admit this document as establishing that the Chairman of the British TBA had written in those terms to his Australian counterpart, and not for any broader purpose. 1561 A March 2001 document, discovered by the AJC and entitled "Proposal for a Fall Back Position in the Event of the Ban (on Artificial Insemination) Being Found Not Legal in a Court of Law", is in the same category as the document at tab 152 and I admit it on the same basis. 1562 Next was a document discovered by the AJC dated, relevantly, 4 September 2001 and apparently consisting of comments on a third draft of a document called "Change of Approach to Paper AUS20013". The immediate context seems to be the possibility of a legal challenge to the ASB rule banning embryo transfer technology. The question was posed "Could AUS establish a separate register for recording artificial breeding to enable progeny so got to be recorded for use in Australia only." 1563 The applicant submitted that this material should be admitted as a business record. The relevance appears from footnote 196 to the applicant's written submissions to the effect that when the issue of a legal challenge to the rule banning embryo transfer technology was discussed at the 2001 ISBC meeting it was Weatherbys that proposed a solution involving the establishment of a separate register, in which case it would be up to Australian racing authorities to determine whether a horse recorded in the artificial breeding register could at least race in Australia. 1564 I would admit this document as a business record. However in light of its form as a question in a comment and in light of the balance of the evidentiary material, I regard it as of very little weight in establishing what the English authorities would or might do. 1565 Next was a document dated 28 September 2001 and discovered by the AJC. The applicant submitted that the letter to Dr Digby should be admitted as a business record. In the applicant's reply submissions the relevant proposition is "There is a lengthy history of interest in the topic [of artificial insemination]. In 2001 there was a survey of studs in the Hunter Valley and Tamworth on AI." 1566 In my view this document could not be relevant to that issue as at most it shows that an inspection was done of 29 studs with a view to ensuring that there was no artificial insemination being practised. I reject the tender. 1567 The next document was a report dated October 2001, discovered by the AJC, on the meeting of the ISBC. This document is in the same category as the other documents referable to footnote 235 of the applicant's submissions and I admit it on the same basis as the document at tab 116. 1568 Next were the minutes of the 2001 annual meeting of the ISBC. The document was discovered by the AJC. Its relevance was said by the applicant to be that the minutes recorded the consensus that semen donation "would not be banned": footnote 10. It was also said to be relevant to the matter in footnote 235. 1569 The applicant drew my attention to two parts of these minutes. The first was that the Committee agreed that the use of stallions as semen donors would not be banned; those Stud Book Authorities which permitted dual purpose stallions should be encouraged to have in place adequate rules and procedures so that the practice could be monitored effectively. 1570 The second part of the minutes relied on by the applicant, again for the truth of the statements, was that it was agreed that it was likely that a legal challenge to permit registration of a foal produced by AI or ET would have to be faced at some point in the future and that it might be successful. Two of the established arguments (effect on the gene pool and difficulty in determining parentage) to support the ban on AI or ET were open to question and may not be sustainable in a court of law. It was agreed that the proactive approach was more sensible and that the way forward was for the Committee to develop a contingency plan, although strictly not for publication. The Secretary would collate work already done in the field and provide a composite document on the website by the end of March 2002. It was also agreed that in due course, after members had had the opportunity to consider the issues to be covered by a contingency plan, the opinion of an international lawyer might be sought. It was also recognised that ultimately the IFHA would need to decide its policy in conjunction with the ISBC. 1571 I admit the first part of this material as a business record. The second part, going to footnote 235, I admit on the same basis as the document at tab 116. 1572 Next was a document, discovered by the AJC, which was a full report on a business session of the Asian Racing Conference on 13 November 2001. The applicant submitted that the document should be admitted as a business record. 1573 The document was referred to in five footnotes of the applicant's written submissions. One of those references was that, over many years, racing authorities in foreign jurisdictions had been concerned that their analogous rules may contravene relevant national or supranational laws dealing with competition. I admit the document for that purpose. I also admit it for the purpose of showing what Mr Hamish Anderson said at that meeting. 1574 Next was a paper for the 4 February 2002 meeting of the Joint Proprietors, discovered by the AJC. The applicant seeks to use it to prove that Dr Digby expressed the view that whether or not such horses bred by embryo transfer technology were allowed to race in New Zealand, Hong Kong, Singapore, Malaysia, South Africa etc would be a matter for the authorities in those countries. 1575 I admit this material as evidencing what Dr Digby then wrote but I note that it was on the basis that a parallel register was established for embryo transfer bred horses and on the further basis that the ARB agreed to change the rules so that horses in that register could race in Australia. 1576 Next was a paper dated March 2002 for the Dubai meeting, written by Dr Digby. There is no reference in the applicant's footnotes to his written submissions, as amended, to this document. If relevant, I would admit it as evidencing what Dr Digby then wrote. 1577 Next was a document consisting of notes from the extraordinary meeting of the ISBC on 22 March 2002 in Dubai. The applicant referred to this at footnote 224 for the proposition that the South African authorities had made it clear that they were opposed to the continuation of the AI ban and consider that its removal would be of substantial benefit to South Africa because of quarantine issues. However in oral submissions this document was said to be relevant to the separate register proposal in relation to horses bred by embryo transfer. 1578 The applicant also referred to this, at footnote 198, to evidence one of the conclusions of the ISBC at the meeting that the question of a separate register was a matter for the Australian Stud Book but the meeting believed that should such a separate register be set up in any country it would only be a matter of time before a further challenge could be expected to try and elevate the status of any horse of ability within that register and with breeding potential. There was also reference to the advent of DNA typing having perhaps removed one of the historic objections to the introduction of artificial insemination but science continued to move on and it was therefore concluded that the ISBC should revisit its definition of artificial breeding and that this subject should form an agenda item at the next full ISBC meeting. 1579 I admit this document as showing what was said at the meeting. 1580 Another document in issue was a note on the extraordinary meeting of the ISBC in Dubai on 22 March 2002. 1581 The relevant footnote in the applicant's written submissions sought to rely on this document as showing that a challenge to the ban on AI in the United States had been mooted at various times. The document says that a Mr Stahl advised that the US Jockey Club was facing a potential challenge to the ban on AI but "its attorneys were confident that the ban can be defended." 1582 I will not repeat what I have said above about the substantive submission to which footnote 235 relates. 1583 I admit this document as showing what was said at the meeting. I note it was also said at the meeting, according to this document, that the meeting was advised that the ASB "will be retaining the ban on AI until such time as the breeders have a change of heart or until the ban can no longer be sustained under the law." 1584 Next was an opinion dated 22 March 2002 by South African counsel, David Unterhalter. It was produced on subpoena by Dr Digby. It was referred to twice in the applicant's written submissions, first as to what the South African authorities have made clear (footnote 224) and secondly in relation to the subject matter of the likely consequences in overseas jurisdictions of the court finding that the ASB provisions were unlawful as anti-competitive (footnote 238). 1585 I do not admit this document to prove what the legal position in South Africa is or was. I will admit it as a communication. Further, I note that the document was not discovered by any of the respondents. 1586 There was argument about a document dated 8 June 2002 from the Chief Executive of the Jockey Club of Southern Africa to, I assume, Dr Digby. It was discovered by the AJC. Its relevance was said to be the views of the South African authorities (footnote 224). I will admit it as a communication. 1587 Next was a document dated 14 June 2002 discovered by the AJC and described in the footer to the document as AHRC Notes, second draft. The document was said to be referred to at footnote 10 to the applicant's submissions but it does not there appear. It refers only to the position of standardbreds. The applicant said in oral submissions that he did not rely on the document for the proof of the underlying facts concerning the standardbred industry. It simply went to the submission that the standardbred analogy was relevant and, because the document was discovered, it showed that there had been some exploration or consideration of what had happened in the harness racing industry after the introduction of AI in that industry. 1588 I admit the document as a communication only. I note that it is of the most marginal relevance. 1589 Next was a letter dated 7 January 2003 from the President of the TBA to Dr Digby. The applicants referred to this document at footnote 229 for the proposition that the TBA appeared to have been of the view that Asian countries with no breeding industry would be happy to see the AI ban lifted. I admit the document for that limited purpose. 1590 Then there was a letter dated 19 January 2004 from the outgoing chairman of the Jockey Club of Southern Africa to the Secretary General of the Asian Racing Federation (ARF). It was discovered by the ARB. 1591 It was referred to, amongst other documents, in footnote 224 for the proposition that the South African authorities had made it clear that they were opposed to the continuation of the AI ban, and considered that its removal would be of substantial benefit to South Africa because of quarantine issues. 1592 The letter contains, largely, extracts of the minutes of the session of the 28th Asian Racing conference held in Bangkok in November 2001. The letter is largely a complaint by the author as to what the ARF had done, or not done, in light of the debate at that conference. 1593 I admit that document as showing that the author was strongly in favour of the present implementation of long-term planning to deal with the coming of AI "as it must in the likely event of a successful challenge to the retention of Article 12 and for sound commercial reasons in the interests of the international breeding and racing community as an industry at large." 1594 Next in issue was an email from Derek Major, an equine veterinarian, sent on 3 December 2007 to Mr Ford, the Keeper. It responded to a letter by Mr Ford seeking information on aspects of artificial breeding in thoroughbred horses. It was referred to in the applicant's reply submissions at footnote 85 for the proposition, under the heading "likely demand AI", that there was a lengthy history of interest in the topic including the EI enquiry conducted by Commissioner Callinan QC. The document was discovered by the AJC. 1595 In oral submissions it was made clear that this document was not relied on by the applicant for the truth of its contents but merely to establish that artificial insemination was at least considered by the EI enquiry and others to be a potential answer to the problems of EI and other such diseases and that was what prompted Mr Ford to communicate with Mr Major in order to provide some expert assistance. 1596 I will admit it for that limited purpose, that is, that artificial insemination was at least considered by the EI enquiry and others to be a possible answer to the problems of EI and other such diseases although, in my view, it is of marginal relevance to the issue of the likely demand for AI. 1597 I note also that Mr Ford was cross-examined on the form of the questions which he asked Mr Major. 1598 There was then was a chain of emails in May 2009. The document was discovered by the AJC. It was said to be referred to in the applicant's submissions at footnote 10 but it was not there listed. There was some suggestion that Mr Ford may have been cross-examined on this document but I have not been able to find such questioning. In oral submissions the applicant contended that the emails were relevant to the issue of whether service fees would decline as a result of AI and it was said to be more generally relevant to the issue as to whether the Australian Stud Book considered the experience in the standardbred industry was relevant to what would happen in thoroughbreds. Those two matters were as high as the applicant put that document. 1599 I do not admit the documents to establish whether or not service fees for thoroughbreds, or some thoroughbreds, would decline as a result of AI. I do admit it as going to the issue as to whether the ASB considered the experience in the standardbred industry could be relevant to what might happen in thoroughbreds. 1600 Next was a letter dated 1 June 2009 to Mr Ford, the Keeper, from the applicant's then solicitors. This was discovered by the AJC. In oral submissions this was said to be simply Mr McHugh's solicitors writing to the Keeper in relation to a third register. It was not tendered to prove any underlying fact. It was referred to in footnote 106 of the applicant's reply submissions under the general heading that the applicant has standing and his claim is not hypothetical. 1601 I admit this document as correspondence, that is, the basis on which it was tendered by the applicant, and not as proving any underlying fact. It summarised Mr McHugh's position. 1602 Next was an email from July 2009, discovered by the AJC. In oral submissions the applicant said the document was not relied on for the proof of its contents but for the fact that someone considered the experience in standardbreds to be relevant. The substance of the document was a letter from the Chief Executive of Harness Racing Australia to the applicant, Mr McHugh. It provided to Mr McHugh information he had asked for. Mr McHugh forwarded Mr Harding's email to a Sharon Skeggs at Saatchi who forwarded it to a Mr Ingham who forwarded it to Mr Ford, the Keeper. The document was referred to in footnote 23 of the applicant's submissions in support of the proposition that both expert economists sought to rely on the harness racing experience and Mr Houston described it as a useful natural experiment from which inferences might be drawn as to the way in which breeding patterns for thoroughbreds might change if AI were introduced. This document was said to go to the relevance of the consideration of the actual experience in the standardbred industry as a result of the liberalisation of the restrictions on AI. 1603 There was some difference in emphasis between the use to which this document was sought to be put in the written submissions on the one hand and the oral submissions, to which I have referred, on the other hand. 1604 I admit this document to show that Mr McHugh and those making representations to the ASB on his behalf considered there was a useful analogy provided by standardbreds. 1605 Next was a series of emails dated November 2009. The document was discovered by the fifth respondent. It was referred to in footnote 226 of the applicant's submissions under the general heading "likely international reactions" and for the more particular submission that New Zealand, an important breeding centre, appears to be in favour of least encouraging debate on the subject of AI. 1606 The email exchange was between Mr Blackburne, then Director of Racing at the Orient Lucky Horse Wuhan Jockey Club, PRC, who had previously been an administrator of the New Zealand Stud Book, and Mr McGauran, CEO of the TBA. 1607 In fact all the email relevantly states is that Mr Blackburne said that he raised the AI issue with the ISBC in about 2004 at the request of the NZTR Board following strident calls from an independent breeder. 1608 At that level of generality and given its terms the document is of no relevance and I reject it. I do not admit it as a business record. 1609 Last was an email thread in January 2010 between Mr Peters of the fifth respondent and Mr Michael Martin, the Chief Executive of the New Zealand TBA (NZTBA). It was discovered by the fifth respondent. It was referred to in footnote 226 of the applicant's written submissions for the same proposition as the document at tab 353, that is, in relation to the views in New Zealand. Mr Peters said he had been asked, I infer by Mr McGauran, whether NZTBA had a policy on AI and whether NZTBA had stated its position towards the use of AI breeding practices. The response was that AI in the thoroughbred breeding industry was discussed at the NZTBA's most recent meeting held in Auckland on 14 May 2007. A wide range of opinions were expressed in response to a questionnaire posted on its website to assist any of their 2,300 members to submit an opinion and the NZTBA Council had not adopted an official view on AI. The Council did support international debate on the subject and also supported further discussion with the international thoroughbred community on the development of an international protocol for artificial insemination which could be implemented in the event of a major equine health catastrophe. 1610 I admit this document as evidencing the position of the NZTBA, although it has only marginal relevance. Orders 1611 The order I make is that the application be dismissed. In relation to costs, my provisional view is that the applicant should pay the costs of the active respondents apart from the fifth respondent which was joined on the basis that, unless good reason was advanced to the contrary, it would be responsible for its costs of the proceeding. I propose in the first instance to reserve costs and to give directions making provision for an exchange of written submissions in the event that any party wishes to contend against my provisional view. I certify that the preceding one thousand six hundred and eleven (1611) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson.

Associate: Dated: 19 December 2012 ABBREVIATIONS AI Artificial Insemination AJC Australian Jockey Club Limited ARB Australian Racing Board Limited ARR Australian Rules of Racing ASB Australian Stud Book ATC Australian Turf Club Limited Blue Book International Cataloguing Standards Book Federation Agreement International Agreement on Breeding, Racing and Wagering ICHRA International Conference of Horse Racing Authorities IFHA International Federation of Horse Racing Authorities IFHRA International Federation of Horse Racing Associations IRPAC International Grading and Race Planning Advisory Committee ISBC International Stud Book Committee Joint Proprietors The Australian Turf Club Limited and the Victoria Racing Club Limited as Joint Proprietors of the Australian Stud Book NZTBA New Zealand Thoroughbred Breeders' Association PRA Principal Racing Authority SITA Society of International Thoroughbred Auctioneers STC Sydney Turf Club Limited TBA Thoroughbred Breeders Australia Limited VRC Victoria Racing Club