Bull v The Australian Quarter Horse Association
[2014] NSWSC 1665
•26 November 2014
Supreme Court
New South Wales
Case Title: Bull v The Australian Quarter Horse Association Medium Neutral Citation: [2014] NSWSC 1665 Hearing Date(s): 3, 4, 5, 6 March 2014; 14 and 15 July 2014;Last submissions filed on 3 September 2014 Decision Date: 26 November 2014 Jurisdiction: Equity Division Before: Hallen J Decision: Direct the parties to bring in Short Minutes of Order reflecting these reasons for judgment within 7 days. The orders should include an order for the return of the exhibits and the Court Books.
Stand over the proceedings to a date to be agreed to deal with any outstanding argument on the form of the Short Minutes of Order and costs.
Catchwords: CORPORATIONS - Construction of Company's Constitution and Regulations - Company limited by guarantee - Aims and Objects - Application for registration of a cloned horse - Management and administration of corporation - Power of court to rectify corporate acts which are taken in contravention of corporate constitution - Resolutions passed by Board without proper notice - Validity of purported resolutions - Whether procedural irregularity under s 1322 - Validating orders - Whether substantial injustice - Oppression of single member - s 232 of Corporations Act 2001 (Cth) Legislation Cited: Civil Procedure Act 2005 (NSW)
Corporations Act 2001 (Cth)
Sherman Antitrust Act 1890 (15 USC § 1-2)
Uniform Civil Procedure Rules 2005 (NSW)Cases Cited: Abraham & Veneklasen Joint Venture, Abraham Equine Inc. and Jason Abraham v American Quarter Horse Association, No. 2:12-CV-103-J (N.D. Tex. July 12, 2012)
Ananda Marga Pracaraka Samgha Ltd v Tomar (No 6) [2013] FCA 284; (2013) 300 ALR 492
ASC v Multiple Sclerosis Society (Tas) (1993) 10 ACSR 489
Australian Hydrocarbons NL v Green (1985) 10 ACLR 72
Australian Innovation Ltd v Petrovsky (1996) 14 ACLC 1357
Beck v LW Furniture Consolidated (Aust) Pty Ltd [2012] NSWCA 76; (2012) 265 FLR 60
Broadway Motors Holdings Pty Ltd (In Liq), Re (1986) 6 NSWLR 45
Cameron v Hogan [1934] HCA 24; (1934) 51 CLR 358
Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55
Caysand No 64 Pty Ltd, Re [1994] 2 Qd R 467
Charter Hall Ltd, Re [2007] FCA 1316
Cordiant Communications (Australia) Pty Ltd v Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 194 FLR 322
Dixon v Australian Society of Accountants (1989) 95 FLR 231; 87 ACTR 1
Dome Resources NL v Silver [2008] NSWCA 322
Elderslie Finance Corporation Ltd v Australian Securities Commission (1993) 11 ACSR 157
Elemental Minerals Ltd, In the matter of Elemental Minerals Ltd [2010] FCA 687
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413; (1998) 28 ACSR 688
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672
Giga Investments Pty Ltd (In Administration), Re (1995) 17 ACSR 472
Hollen Australia Pty Ltd, Re [2009] VSC 95
Holmes v Keyes [1959] Ch 199
Howard v Mechtler [1999] NSWSC 232
Howard-Smith v Ampol Limited [1974] AC 821; (1974) 3 ALR 448
H&P Newcastle Pty Ltd (in liquidation), Re [2013] NSWSC 778
In the matter of Richardson & Wrench Holdings Pty Limited [2013] NSWSC 1990
Jordan v Avram (1997) 25 ACSR 153; (1997) 141 FLR 275
Lu v Hua Cheng International Holdings Pty Ltd [2010] NSWSC 228.
McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 187
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343
National Roads and Motorists' Association Ltd v Parkin [2004] NSWCA 153; (2004) 60 NSWLR 224
Oil Basins Limited v Bass Strait Oil Company [2012] FCA 1122
Pettit v South Australian Harness Racing Club Inc [2006] SASC 306
Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332
Sheahan v Londish [2010] NSWCA 270
Shew v Police and Citizens Youth Club [2013] NTSC 15
Simon v HPM Industries Pty Ltd (1989) 15 ACLR 427
St George Soccer Football Association Inc v Soccer NSW Ltd [2005] NSWSC 1288
Stanham v The National Trust of Australia (New South Wales) (1989) 15 ACLR 87
Super John Pty Ltd v Futuris Rural Pty Ltd [1999] NSWSC 627
Sutherland Shire Council v Leyendekkers [1970] 1 NSWR 356
Thomas v HW Thomas Ltd [1984] 1 NZLR 686
Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152
Turnbull v NRMA [2004] NSWSC 577; (2004) 50 ACSR 44
Union Club v Lord Andrew Charles Robert Battenberg [2006] NSWCA 72
Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459
Weinstock v Beck [2013] HCA 14; (2013) 297 ALR 1
William Buck (WA) Pty Ltd v Faulkner (No 6) [2013] WASC 342
Zusman v Royal Western Australian Bowling Association (Inc) [1999] WASC 86Texts Cited: Shorter Oxford Dictionary Category: Principal judgment Parties: Richard David Bull (Plaintiff)
The Australian Quarter Horse Association ACN 000 964 643 (first Defendant)
Peter John Bellden (second Defendant)
Patricia Sharon Wettenhall (third Defendant)
Terrence John McSweeney (fourth Defendant)
Simon Julian Myers (fifth Defendant)
Wendy Kim Johnson (sixth Defendant)
Elizabeth Keating (seventh Defendant)
Peter Stuart-Fox (eighth Defendant)
Pauline Stuart-Fox (ninth Defendant)
Carol Ann Ahern (tenth Defendant)
Paul Lorimor (eleventh Defendant)
Carol Ricketts (twelfth Defendant)
Glenn Ricky Noble (thirteenth Defendant)
Harry Van Dyk (fourteenth Defendant)Representation - Counsel: Counsel:
Mr A J McInerney SC; Ms S Clemmett (Plaintiff)
Mr G Craddock SC (Defendants)- Solicitors: Solicitors:
Zucker Legal (Plaintiff)
Gilchrist Connell (Defendants)File Number(s): 2012/380371
JUDGMENT
Introduction and a Summary of the Claims
HIS HONOUR: This is a case about quarter horses and, in particular, a cloned quarter horse. The cloned quarter horse is named "Smart Little Lena-D", also known as "Salute". (I shall refer to the horse as "Smart Little Lena-D" in these reasons as that is the name the parties used most often before, and during, the hearing.)
A quarter horse is a breed of horse with its origins in the United States of America. Quarter horses have been bred in Australia since about 1954. They are known for their speed over relatively short distances and are used in Australia in many spheres of horsemanship, including in sporting, and rural commercial, activities. The breed is distinguished from other horses by performance, conformation (which means the form or outline of the horse; the symmetrical arrangement of its parts) and colouring.
The Plaintiff, Richard David Bull ("Mr Bull"), the owner of "Smart Little Lena-D", sues The Australian Quarter Horse Association ("The AQHA"), and the members of its Board, by amended Summons dated 31 January 2014. At the hearing (which commenced on 3 March 2014), without objection, leave was granted to file a further amended Summons. In brief, Mr Bull seeks the following relief:
(a) A declaration that the Plaintiff is, and continues to be, a member of The AQHA.
(b) A declaration that a number of resolutions, purportedly passed at Board Meetings of The AQHA, was each invalid, null and void, and of no effect. The resolutions include:
(i) the Resolution to remove Regulation 22 (regarding cloned horses) on 18 December 2010 ("the First Resolution");
(ii) the Resolution to remove Regulation 22 on 3 April 2011 ("the Second Resolution");
(iii) the Resolution to introduce an amended form of Regulation 22 (that is, "No cloned horse will be eligible for registration") on 3 April 2011 ("the Third Resolution");
(iv) the Resolution to amend Regulation 18 (regarding imported horses) on 18 December 2010 ("the Fourth Resolution");
(v) the Resolution to amend Regulation 18 on 3 April 2011 ("the Fifth Resolution"); and
(vi) the Resolution to amend Regulation 10 (regarding the Stud Book) on 18 December 2010 ( "the Sixth Resolution").
(c) Orders, under the general law, or under s 233 of the Corporations Act 2001 (Cth), setting aside each of the First Resolution, the Second Resolution and the Third Resolution.
(d) A declaration that "Smart Little Lena-D" was, at all material times, eligible for registration in the Stud Book of The AQHA and that the refusal to register "Smart Little Lena-D" was invalid, null and void and of no effect.
(e) An order, under the general law, or under s 233 of the Corporations Act, that The AQHA register "Smart Little Lena-D" in the Stud Book.
(f) A declaration that The AQHA denied natural justice to Mr Bull or acted with apprehended or actual bias against him in relation to the First Resolution, the Second Resolution and the Third Resolution and in relation to the application to register "Smart Little Lena-D" in the Stud Book.
(g) In the alternative, a declaration that the Board Members of The AQHA, during the period commencing 18 December 2010 and ending on 15 September 2011, in respect of the First Resolution, the Second Resolution and the Third Resolution and in relation to the application to register "Smart Little Lena-D" in the Stud Book, acted in a manner prohibited by Part 2F.1 of the Corporations Act, namely in a manner:
(i) Contrary to the interests of the members as a whole;
(ii) Oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members, whether in that capacity, or in any other capacity.(h) Damages, interest under s 100 of the Civil Procedure Act 2005 (NSW), and costs.
(i) Compensation (equitable and statutory).
The Defendants oppose the granting of almost all of the relief sought by Mr Bull. However, they agreed that Mr Bull is, and continues to be, a member of The AQHA. In the circumstances, the parties came to the view that it was unnecessary to make the first declaration sought. I respectfully agree: Sutherland Shire Council v Leyendekkers [1970] 1 NSWR 356, at 361-362.
In relation to Mr Bull's claim asserting a denial of natural justice, or actual or apprehended bias, by The AQHA, towards him, the Defendants submitted, and I accept, that Mr Bull "put no case of denial of natural justice... [and] did not seek to establish that natural justice was owed [to him] in any exercise undertaken by [The AQHA]". I also accept the Defendants' submission, first, that "there was no attempt to establish that actual or apprehended bias would affect any relevant conduct of [The AQHA]" and second, that "no evidence of apprehended or actual bias was tendered" by Mr Bull. (A re-consideration of the affidavits and the documents tendered in the proceedings confirms that there was simply no evidence advanced, or submissions made, to permit me to do more than to record the relief claimed and the submission of the Defendants.)
In these circumstances, it is unnecessary to further consider these claims made by Mr Bull. I am of the view that a declaration, in the terms sought in the further amended Summons (and identified in sub-paragraph (f) above), ought not be made.
It was part of Mr Bull's case that The AQHA's Regulations, to which reference will be made, at the time of his purchase of "Smart Little Lena-D" (and at the time of the importation of "Smart Little Lena-D" to Australia) must be applied. His case was that The AQHA's Regulations were not validly changed, in any relevant respect, between 3 December 2010 (the date of purchase) and 15 September 2011 (the date on which the registration application was refused) by the resolutions to which reference has been made. It was his primary contention that "Smart Little Lena-D" was eligible for registration in The AQHA Stud Book under the Regulations prior to any amendment and that "Smart Little Lena-D" should, therefore, have been registered.
Mr Bull conceded that he would fail in the event that the court found, "on the Rules as they were, without any amendments, that the horse could not be registered". He accepted, also, that, if the Regulations had been validly amended, and, as amended, had the effect that "Smart Little Lena-D" could not be registered, he would fail: T41.33 - T41.39.
Even though the allegation made by Mr Bull of oppressive conduct in the eighth prayer for relief in the further amended Summons extended beyond the First Resolution, the Second Resolution and the Third Resolution, and included the conduct of the affairs of The AQHA in relation to the application to register "Smart Little Lena-D" more generally, it was not part of his case that, if properly applied, and if resulting in "Smart Little Lena-D" not being eligible for registration, the application of the unamended Regulations would be oppressive. It is, therefore, unnecessary for me to address whether, in the events that have happened, that is, or is not, the case.
On the second day of the hearing (4 March 2013), The AQHA sought, and, without objection, was granted, leave to file a Cross-Summons claiming the following relief:
"(a) A declaration that, at its meeting on 2-3 April 2011, the resolution of the Board of Directors of The AQHA, that Regulation 22 be amended such that clones are not eligible for registration in the Stud Book, is not invalid by reason of any breach of Clause 14.5.2 of the Constitution of the First Defendant.
(b) Costs."It can be seen that this relief is limited to one resolution to amend one Regulation only (presumably because, if made, it is unnecessary to declare not invalid the earlier resolution, or resolutions, dealing with Regulation 22.)
The hearing of the matter was listed for four days but it did not finish within that time. It was necessary to adjourn the matter part heard for submissions to be completed. During the period of adjournment, I received further detailed written submissions from each of the parties, the original of which will remain with the court papers. (Subsequently, after the conclusion of the hearing, additional submissions were delivered, the last of which were sent to my Chambers under cover of letter dated 3 September 2014.) I shall return to the submissions of the parties, in more detail, later in these reasons.
I should mention one other matter by way of introduction. Shortly prior to the matter being adjourned on 6 March 2014, the following exchange took place:
"HIS HONOUR: I have to ask this very, very obvious question and it may say more about my lack of knowledge of the intricacies of all of this but has anyone ever thought that perhaps the Quarter Horse Association could create a register for cloned horses? ... I hate to ask that question because it seems so obvious and there must be an answer to it, but has anyone ever considered that?
CRADDOCK [senior counsel for the Defendants]: I don't know whether that has been done. All I can tell your Honour is what is actually happening in America [regarding court-mandated rules for the registration of cloned horses and litigation on appeal regarding those rules] because that is what I have been told."
At the conclusion of the evidence of Ms Stuart Fox, to whom I shall refer later in these reasons, I raised the matter with her in the following exchange:
"Q. Is there any reason why The AQHA could not set up a register which simply identified cloned horses?
A. It's never been thought about.Q. Is there any practical reason, and perhaps this may be a matter better for Ms Ross [the Registrar of The AQHA], I'm not sure, is there any reason from a practical point of view why that couldn't be done?
A. I can't answer that question. I mean, I have not ever given thought to that. But it's an interesting point, yes."Finally, the following exchange occurred:
"CRADDOCK: I think the position is that it probably would be possible but some processes would have to be undertaken in order to bring it about. Everyone is nodding on my side, so that much is accurate.
HIS HONOUR: Mr McInerney [senior counsel for Mr Bull], let's assume for the purpose of the discussion that there could be a cloned horse register within the Australian Quarter Horse Association registry. If 'Salute' was included in that register, and any other cloned horses that Mr Bull decides to buy, would that be something that would be a satisfactory result from Mr Bull's point of view so far as this case is concerned?
McINERNEY: Mr Zucker [Mr Bull's solicitor] tells me he needs to speak to me, your Honour.
HIS HONOUR: We are not going to achieve the answer to that question today, so we will just put it on hold for a moment.
McINERNEY: An issue with the process would relate to the registration of the progeny from the cloned horse... that may mean there is a subset within the register.
HIS HONOUR: The good sense of the people involved might be able to work out that the register would contain the cloned horse[s]. How they [deal with] the progeny in relation to noncloned horses could be included in that register as well."
Following the adjournment, but before the recommencement of the proceedings, the parties advised that the matter would be proceeding and that the proposal, the subject of the discussion above, had not been implemented. It was then that the additional two days was spent dealing with the submissions of the parties.
When the hearing resumed, I was informed that Mr Bull embraced the possibility of a separate register for cloned quarter horses to be created by The AQHA. The Defendants, by senior counsel, stated that I should not make such an order as a matter of discretion.
Furthermore, senior counsel for the Defendants, after the conclusion of the hearing, in answer to another question raised, submitted, in writing, that the court should not make an order requiring The AQHA to hold an extraordinary general meeting of the membership directed towards a plebiscite upon the question whether The AQHA ought to establish a register for cloned quarter horses and any offspring of a cloned quarter horse.
Neither senior counsel, however, seemed to dispute that the court had power to make orders that might give effect to either matter. For reasons to which I shall come, and since I am not satisfied that Mr Bull should succeed on the relief that he seeks, it is unnecessary to consider the relief that could be given.
Background Facts
The following facts are uncontroversial. I have taken a number of these from a document headed "Facts which are Admitted" (Ex. RDB 1), from the submissions (where appropriate to do so), and from evidence that I am satisfied is not seriously in dispute, or which has been clearly established.
Mr Bull is a breeder of quarter horses. He owns and operates the "Tamarang Stud" with his wife. Some of the horses that Mr Bull breeds are what he described as "dual registered stock horses, but they are all quarter horse based". He is also an importer of horses and shows horses. He has bred close to one hundred, and imported no more than 10, quarter horses. He also competes in the sports of "cutting" and of "camp drafting".
He has been a member of The AQHA for about 40 years. As a member, Mr Bull has registered quarter horses with The AQHA. He has had registered more than 12 quarter horses bred in Australia or imported to Australia.
The AQHA is a company limited by guarantee. It was formed in 1964 but was registered as a company on 17 March 1972. It is an affiliate of The American Quarter Horse Association ("The AmQHA"). It has a Board of Directors and a number of Committees, and it employs various management staff. It is what might be described as a "breed association".
The AQHA website describes its aims as "to further the quarter horse breed in Australia, while maintaining the quality of quarter horse progeny". Its Constitution states its objects in more detail. These include the promotion and encouragement of the breeding of quarter horses, the maintenance and publication of a Stud Book, and the promotion and conduct of races, matches, competitions, shows and exhibitions.
It is the Constitution of The AQHA that confers power on the directors to make Rules and Regulations. Such Rules and Regulations must not be inconsistent with the Constitution and are binding on the members of The AQHA. It will be necessary to return to the Constitution and the Regulations of The AQHA, in more detail, later in these reasons.
The AQHA has a general membership, including youth members. There are in excess of 6,000 registered members. Certain members have voting rights. Each member pays a subscription fee and has his, or her, name entered in the Register of Members.
The AQHA maintains a Stud Book in which it enters, by registration, identified quarter horses. It is only by entry into the Stud Book, or into the Appendix of the Stud Book, that a horse is registered as a quarter horse. Over 179,000 quarter horses are registered in the Stud Book of The AQHA.
There are a number of Sub-Committees of The AQHA. One standing Sub-Committee is the "Stud Book Sub-Committee", which recommends amendments to the Regulations to The AQHA Board of Directors, which recommendations The AQHA Board either adopts or rejects.
"Smart Little Lena" is the quarter horse of which "Smart Little Lena-D" is the clone. "Smart Little Lena" was a famous and successful quarter horse in the United States of America. It was a stallion by "Doc O'Lena" out of "Smart Peppy" that was foaled in June 1979. It died in August 2010.
The AmQHA registered "Smart Little Lena" in its Stud Book.
A number of foals of which "Smart Little Lena" was the sire, which were born in the United States and have been imported to Australia, are registered in Australia by The AQHA. The AQHA Registration Certificates issued for the progeny of "Smart Little Lena" record The AmQHA registration number of "Smart Little Lena" as the sire.
Also, the DNA of "Smart Little Lena" is listed by The AQHA because of the offspring that have been imported and registered.
However, "Smart Little Lena" is not registered in the Stud Book, or the Appendix Register, of The AQHA. Similarly, neither "Doc O'Lena" nor "Smart Peppy" is registered with The AQHA. Importantly, since each horse is now deceased, each may now not be registered.
In the sport of cutting, "Smart Little Lena" won the United States Triple Crown, it being one of only three horses to ever win all of the Futurity, Super Stakes and Derby in the United States.
"Smart Little Lena" sired 17 World Champions, 11 Reserve World Champions and 110 Register of Merit member horses.
In an email dated 14 July 2014 (Ex. RDB11), The AmQHA provided Mr Bull with a copy of the Ownership Record of "Smart Little Lena" from the Records Research Area of The AmQHA "along with additional information listing that ["Smart Little Lena"] was Genetic Typed and Parent Verified".
There were five clones of "Smart Little Lena" foaled in the United States. One of them was "Smart Little Lena-D". It was foaled on 26 February 2006. It is said to have the same DNA as "Smart Little Lena".
In December 2010, Mr Bull bought "Smart Little Lena-D" at the Western Bloodstock Sales Limited, Fort Worth, Texas, in the United States of America, at auction, for USD$27,000 (A$28,067.38). Mr Bull knew, at the time of purchase, that "Smart Little Lena-D" was a clone of "Smart Little Lena".
On or about 3 April 2011, "Smart Little Lena-D" arrived in Australia. It was released to Mr Bull, from quarantine, on or about 24 April 2011.
The AQHA recognises the Stud Book of The AmQHA. As will be later discussed, it is significant that the country in which "Smart Little Lena-D" was foaled, and from which "Smart Little Lena-D" was imported, namely the United States of America, is a recognised international affiliate of The AQHA. (The other recognised affiliate of The AQHA, which is listed on The AQHA website, is the New Zealand Quarter Horse Association. There was also, in evidence, reference made the Brazilian Quarter Horse Association, which is one of the 35 recognised affiliates of The AmQHA, which, it seems, The AQHA has given some consideration to including as a recognised affiliate.)
There is no evidence of "Smart Little Lena-D" having been registered by The AmQHA, in its Stud Book. Thus, a Registration Certificate from a recognised international affiliate of The AQHA has not been, and currently cannot be, obtained for "Smart Little Lena-D".
(The significance of this relates to The AQHA registration requirements for imported horses. Detailed reference will be made, later in these reasons, to the nature of those registration requirements.)
Mr Bull did, however, submit an application to The AmQHA to have "Smart Little Lena-D" registered in the United States under court-mandated rules, to which I shall refer, the result of which, subject to a present appeal, is that cloned horses may be eligible for registration by The AmQHA.
The AmQHA advised Mr Bull that the dam of "Smart Little Lena", "Smart Peppy", was not DNA typed with The AmQHA. Also, "Smart Peppy" was reported as deceased, with the result that a sample of DNA from her could not be obtained. The AmQHA stated, however, that it may be possible "to attempt to 'build' a DNA type" for "Smart Peppy" by "typing" no less than 5, but preferably 10, registered offspring and their other registered parent.
If The AmQHA were unable to "build" a DNA type for "Smart Peppy", it would advise Mr Bull that "Smart Little Lena-D" was not eligible for registration (even under certain court-mandated rules) in the Register of The AmQHA.
"Smart Little Lena-D" carries the HERDA (Hereditary Equine Regional Dermal Asthenia), also known as Hyperelastosis Cutis, gene. It is said to be a genetic disorder which is a skin condition characterised in afflicted horses by skin lesions. It is described, in the Black Book (to which reference will be made), as "a devastating disease that causes the skin to lift and peel away".
However, "Smart Little Lena-D" does not show the symptoms of HERDA. "Smart Little Lena-D" is what is described as "a carrier horse" and in genetic terms is depicted as "N/Hr".
Some other Introductory Matters
"Cutting" is an equestrian sporting event where a horse and rider are judged on the ability of each to separate a single animal away from a herd of cattle and keep it away for a short period of time. When the animal tries to return to its herd, the rider loosens the reins and leaves it entirely to the horse to keep the animal separated. A contestant has 2.5 minutes to show the horse and, each time the rider assists the horse, there is a penalty.
"Camp drafting" is a unique Australian equestrian sporting event that also involves a horse and rider working cattle in a similar way to cutting. In a camp drafting competition, a rider on horseback must cut out one animal from the herd of cattle in the yard and block and turn the animal, then take it out of the yard and through a course around pegs involving right and left hand turns in a figure eight, before guiding it through two pegs known as "the gate". The rider maintains control of the camp draft horse.
Some cutting and camp drafting competitions are restricted to quarter horses that are registered by The AQHA and some are not. Some are restricted to quarter horses that are registered with The AQHA and require, also, that the sire of a competing horse must be registered by The AQHA. (I should mention that a sire (a stallion) is the male parent, and a dam (a mare) is the female parent, of a horse. A foal is a young horse, typically under one year of age.)
The practice of cloning by somatic cell nuclear transfer is, relevantly, a method by which the genetic material of an unfertilised egg, or embryo, is removed and replaced by genetic material taken from another organism to produce a live foal. A nucleus is taken out of a cell from the horse to be cloned. That nucleus is matched with an unfertilised egg of a mare, which is removed from the mare, and stimulated in a test tube to cause the nucleus to divide and multiply. The test tube embryo, at about the age of 8 days, is inserted into a recipient mare and grows in that mare to be a foal. The ensuing foal has none of the genetic qualities of the mare in which it grew, or the mare whose egg was matched to the nucleus prior to stimulation in the test tube. The foal has all of the genetic qualities, or DNA, of the original horse from which it was cloned. In other words, the genetics of the donor horse are not changed but, rather, a genetic duplicate is created. The cloned horse is said to be a genetic twin of the original horse.
The cloning process is, self-evidently, different from the traditional breeding process. As was stated in Mr Bull's opening address (T2.07 - T2.13):
"The differences between fertilisation and standard nuclear transfer lies in where the chromosomes originate... [In] fertilisation, the sperm and egg each contain half the chromosomes needed in the functioning cell. When the egg is fertilised, the resulting embryo ends up with a complete set of chromosomes, half from the mother and half from the father.
However, in cloning, chromosomes come only from one source, the donor."
(What was stated appears to have originated from Ex. RDB7, which is an article appearing in The Australian Quarter Horse News of June/July 2008.)
Cloning is also different from artificial insemination, which is the reproductive method, or process, by which semen, previously collected from a sire, is inseminated into the uterus or vagina of the mare using instruments or equipment rather than by live cover. I shall return to this process, briefly, later in these reasons.
Other evidence read in the proceedings reveals that mitochondrial DNA (being the very small percentage of DNA which originates in the mitochondria of a cell, rather than in the nucleus of a cell) may be passed onto the cloned foal. The mitochondrial DNA is referable to the mare whose unfertilised egg is used in the cloning process. It is the mitochondrial DNA that is used to differentiate clones from each other and from their donor. This topic was not explored, in any substantial detail, as there is complex science involved in this aspect of the cloning process. It seems clear, however, that DNA profiling, currently, would not be able to distinguish between the cloned, and the original, horses - both will have the same DNA profile: Ex. CB1/170.
There was other evidence that suggests that there may be potential health issues relating to cloned horses. Some of these problems were identified in Ex. RDB7. However, this issue, too, was not explored in any detail. Email correspondence between a number of different experts and The AQHA formed part of the tender bundle of documents. I shall refer to some of these emails later in these reasons.
The AmQHA Litigation
In 2004, the AmQHA stipulated in its Rules and Regulations that cloned horses were ineligible for registration with the AmQHA.
There has been litigation in the United States of America involving certain plaintiffs who, and which, sought to force The AmQHA to repeal its regulation relating to the non-registration of cloned horses and to allow cloned horses, and their offspring, to be eligible for registration with The AmQHA. Those plaintiffs, in that case, also sought monetary damages from The AmQHA: Abraham & Veneklasen Joint Venture, Abraham Equine Inc. and Jason Abraham v American Quarter Horse Association No. 2:12-CV-103-J (N.D. Tex. July 12, 2012).
In broad substance, the claims in that litigation were that an agreement was made amongst the Committee members of The AmQHA to exclude the plaintiffs' horses, and other members with horses similarly situated, from registration with The AmQHA; that The AmQHA maintained a monopoly over the relevant market; that The AmQHA's conduct had an adverse effect on competition; that this conduct was without reasonable business justification; and that the plaintiffs had, thereby, been damaged. The case raised the question whether The AmQHA violated antitrust law by refusing to register clones of registered horses.
The AmQHA filed a Motion for Judgment as a Matter of Law (which I assume is in the nature of a summary judgment application), which the Northern District Court of Texas District Judge, Mary Lou Robinson, rejected in May 2013.
The substantive trial commenced in July 2013, before a jury. On 30 July 2013, the jury reached a verdict, finding that The AmQHA did violate s 1 (conspiracy to unreasonably restrain trade) and s 2 (monopolization, or attempted monopolization, of the market) of the Sherman Antitrust Act 1890 (15 USC § 1-2), and that it did cause damage to the plaintiffs. However, the jury awarded no monetary damages to any plaintiff.
In its final judgment, given in August 2013, the District Court enjoined The AmQHA's enforcement of the regulation regarding non-registration of cloned horses and mandated that it adopt and incorporate specific language into its Rules and Regulations to accomplish registration of cloned horses and their offspring.
Shortly thereafter, The AmQHA filed a motion for a stay, which motion was granted in part, staying, pending the resolution of an appeal, the requirement that The AmQHA register cloned horses and their progeny.
The appeal lodged by The AmQHA, as I understand it, is against the lower court's adoption of the jury verdict and the issuing of a final judgment requiring The AmQHA to include a number of specifically worded amendments to its Rules and Regulations. The hearing of the appeal by the Fifth Circuit Court of Appeals, Texas, took place on or about 4 September 2014. At the time of writing these reasons, the result of the appeal is not known.
The parties did not suggest that the determination of this case should be stayed until the litigation in the United States had been concluded and the decision of the Fifth Circuit Court of Appeals, Texas, is delivered.
Significance of The AmQHA Litigation
The AmQHA litigation is important because of its relevance to Mr Bull and the registration of "Smart Little Lena-D" by The AQHA.
In October 2013, following the determination of the first instance litigation, The AmQHA informed Mr Bull that it was possible to register "Smart Little Lena-D", pending the appeal of the final judgment which had mandated that The AmQHA register clones and their progeny.
If "Smart Little Lena-D" became eligible for registration under the court-mandated rules, it would be assigned a temporary Registration Certificate that "confirms registration of your clone with [The AmQHA] and may be used for all [The AmQHA] purposes, including registration and competition purposes." (The temporary Certificate was to be granted pending completion of certain computer programming requirements for The AmQHA.)
However, "Smart Little Lena-D", at least until the appeal is finally determined, will not, in fact, be registered by The AmQHA. Thus, pending the determination of the appeal, it remains unregistered in the Stud Book of The AmQHA.
If the appeal by The AmQHA is unsuccessful, then "Smart Little Lena-D" may be able to be registered in the Stud Book of The AmQHA. (This is, it seems, also subject to The AmQHA being able to "build" a DNA type for "Smart Peppy", to which reference was earlier made.)
If "Smart Little Lena-D" is registered with The AmQHA, the result is that Mr Bull may be able to obtain a Registration Certificate from a recognised international affiliate as mandated by The AQHA's registration requirements for imported horses.
The following exchange took place on the first day of the hearing (3 March 2014):
"HIS HONOUR: And could I just ask: In the event that the horse is registered in the United States, that will mean, will it not, that it can be registered in Australia?
CRADDOCK: Subject to the noclones rule. However, there's a practical question: If the Americans go that way, then do the Australians put their own members at a disadvantage in relation to international competition by continuing to decline to register clones? So there are legal and political [considerations involved]".
It will be for The AQHA to determine what should be done in the event that "Smart Little Lena-D" can be registered by The AmQHA. It is not necessary for me to consider that question in these reasons.
Dramatis Personae
I have identified, above, the principal parties to the proceedings, the horses involved, and the principal overseas Quarter Horse Association to which further reference will be made throughout these reasons. I shall now introduce a number of the other parties, witnesses, and persons to whom specific reference will also be made.
Peter John Bellden is the second Defendant and the current President of The AQHA. He joined The AQHA in 1990 and has been a director since 1996 (excluding the years 2000 and 2001), including, for a period, acting as Treasurer. He had previously acted as The AQHA President for the periods 1998 to 1999 and 2004 to 2007. He was also a member of The AmQHA for a short period of time in about 2002 and was, previously, a member of the National Cutting Horse Association in the United States.
Mr Bellden, as the President of The AQHA, attends, and has voting rights exercisable at, Committee and Board of Directors' meetings. Where, by referendum, the Board of Directors votes in favour of changes to The AQHA regulations, Mr Bellden, at the relevant times, was responsible for putting proposed changes into written form and preparing a brief summary of the regulations reflecting the changes that were to be distributed to all members of The AQHA.
In his capacity as President of The AQHA, Mr Bellden says that he is responsible for ensuring that it convenes meetings and makes any changes to regulations "in complete compliance with The AQHA Constitution and corporate law". From time to time, this involves him seeking advice from lawyers.
Pauline Stuart-Fox is the ninth Defendant in the proceedings. She has been a member of The AQHA since about 1978 or 1979 and has been a director of The AQHA Board, at different times, over the last 11 or 12 years. She managed one of the largest quarter horse studs in Australia between 1991 and January 2010. Since 2008, she has been a member of the Stud Book Sub-Committee of The AQHA.
Ms Stuart-Fox had been an international director of The AmQHA for more than four years. Her role as an international director of both Associations was to foster the relationship, and to liaise, between them. Part of her role was to facilitate the annual meeting for members of The AmQHA who were also members of The AQHA, the function of which annual meeting was to facilitate discussion between members of The AQHA so far as concerned their interest in The AmQHA.
Carol Faye Ricketts is the twelfth Defendant and the company secretary of The AQHA. The AQHA has employed Ms Ricketts since 2008, initially as the Manager, and then as the General Manager, of The AQHA. Her role involved finalising and signing the payment of accounts and dealing with legal matters on behalf of The AQHA. In addition, she was the main person responsible for preparing the agenda for Board meetings and keeping the Minutes of the Board meetings. She has "the ultimate responsibility for any issues arising from the registration of horses".
(The remaining Defendants, who have not played any part in the proceedings, are the third to eighth, the tenth, eleventh, thirteenth and fourteenth Defendants. Some of those Defendants are identified in the evidence because they attended one, or other, of The AQHA Board meetings or one, or other, of the Stud Book Sub-Committee meetings. Some voted on the amendments to The AQHA Rules and Regulations which are the subject of dispute in these proceedings. Otherwise, it is not necessary to refer to each. In fact, I note that there was really no case put specifically against any of the directors or officers of The AQHA.)
Robyn Lewis (who is not a Defendant in the proceedings) has been the executive assistant to Ms Ricketts since January 2006. Whilst she was appointed to the role of The AQHA Magazine and Website Coordinator in August 2011, she says that she continues to assist Ms Ricketts "with AQHA legal and Board issues that arise from time to time".
In her role as executive assistant, Ms Lewis was responsible for compiling Board Minutes (although, sometimes, Ms Ricketts compiled them personally). When Ms Lewis compiled Board Minutes, her "usual practice" was to forward them to Mr Bellden for approval and, upon receipt of his authorisation, to send an email of the Minutes to all Board members. She says that the Minutes "are customarily submitted for approval at the next Board meeting".
In her capacity as Magazine and Website Coordinator, another role that she performs, she has the responsibility to amend The AQHA website to reflect any changes made to the Regulations.
Toni Ross (who is not a Defendant in the proceedings) is the Registrar of The AQHA, which position she has held since 2009. She deals with the steps involved in achieving registration of a quarter horse with The AQHA. She processes the information into the database maintained by The AQHA when a quarter horse is registered.
Margaret Hausfeld (who is not a Defendant) is the receptionist for The AQHA. She is responsible for responding to telephone calls and, where required, taking notes of the telephone conversations that she has conducted.
Peter Banki, of Banki Haddock Fiora, is a solicitor who acted for The AQHA prior to the commencement of the proceedings.
Ellie Smith, also of Banki Haddock Fiora, is a solicitor who was involved in providing advice to The AQHA in Mr Banki's absence.
Christopher Zucker is the solicitor for the Plaintiff. He first obtained the file in relation to this matter in January 2013. (Mr Duncan MacLean, solicitor, then with MacLean & Curtis Solicitors, Tamworth, had previously acted for Mr Bull.)
Adele Pamela Jarrett is a Legal Administrator who works at Mr Zucker's firm, Zucker Legal, in Tamworth. She deals with incoming and outgoing correspondence in relation to the matters for which the firm is responsible, including in relation to these proceedings.
Professor Katrin Hinrichs is a veterinarian researcher and expert in the field of cloning. In November 2010, Ms Stuart-Fox, as a member of The AQHA Stud Book Sub-Committee, sought the advice of Professor Hinrichs. Reference will later be made to the advice that was provided.
Professor Ann Trezise of the University of Queensland is a director of The Australian Equine Genetics Research Centre, formerly the Australian Equine Blood Typing Laboratory. She, too, provided advice, to which I shall later refer, to the Stud Book Sub-Committee of The AQHA regarding cloning.
The Constitution of The AQHA
I shall next deal with the relevant parts of the Constitution of The AQHA (Ex. CB1/21-53) to which the parties made specific reference, or to which I consider specific reference ought to be made.
I shall also refer to the Rules and Regulations of The AQHA, in what is described as "The Black Book" (Ex. RDB 4), which are incorporated by reference in, and constitute Rules and Regulations made pursuant to, the Constitution.
Article 2 of Part A of the Constitution sets out the objects for which The AQHA was established and include, relevantly:
"(a) To promote and encourage the breeding and exhibition of Quarter Horses.
(b) To compile, print and publish at intervals a Stud Book of Quarter Horses.
(c) To collect, verify and publish information regarding Quarter Horses and to compile and maintain [a] register of such of information.
(d) To compile and maintain a list of persons competent to act as judges of Quarter Horses.
(e) To promote, foster, encourage, support and conduct races, matches, competitions, shows and exhibitions in relation to Quarter Horses and to give or contribute to such prizes, awards, distinctions and trophies and to guarantee prize money and expenses in collection [sic] with any such races, matches, competitions, shows and exhibitions.
...
(f) To subscribe to become a member of and co-operate with any other incorporated association, club, or organisation, whose objects are altogether or in part similar to those of the Association, provided that the Association may not subscribe to or support with its funds any club, association, or organisation which does not prohibit the distribution of its income and property among its members to an extent at least as great as that imposed on the Association under or by virtue of clause 3 of this memorandum.
...
(v) To print and publish any newspapers, periodicals, books or leaflets that the Association mat think desirable for the promotion of the Objects.
...
(bb) To do all such other things as are incidental or conducive to the attainment of these Objects and the exercise of the powers of the Association.
...
(dd) To promote, foster and encourage the development of and public interest in horse racing over distances of less than 800 metres and to promote, foster and encourage the development, breeding and exhibition of horses of all breeds capable of racing over such distances."The registered office of The AQHA is to be situated at Tamworth or any such other place in New South Wales as the directors may, from time to time, determine: Article 12 of Part A.
In Part B of the Constitution, there are some definitions set out, which include, in Article 1.1.1:
"Breeder" means a breeder of any Quarter Horse who is the owner or registered lessee of the dam at the time of service.
"Constitution" means part A and part B of the Constitution of the Association.
"Member" means a person whose name is entered in the register as a Member of the Association.
"Stud Book" means the register of Q numbered Quarter Horses, the register of R2 numbered Quarter Horses and the register of R1 numbered Quarter Horses.
There is no definition of "Quarter Horse" in the Constitution. Nor is there any definition of "breeding".
Article 1.6 provides that headings and the table of contents must be ignored in the interpretation of the Constitution.
Article 2 deals with membership. The maximum number of members is unlimited and identified as the subscribers to the Constitution and such other persons as the directors may admit to membership in accordance with the Constitution. Article 2.3 defines several categories of membership, including full membership, Constituent Membership, Affiliate Membership, Youth Membership, Associate Membership and Life Membership. Article 2.6 requires an application in a form approved by the directors for one, or other, appropriate class of membership to be made. Article 2.11 provides that The AQHA must keep a Register of members in accordance with the provisions of the Corporations Act.
Article 3 provides that each Life Member, Full Member, Constituent Member, Affiliate Member and Honorary Member has one vote at meetings of Members.
Article 4 deals with the entrance fee payable on election to membership.
Article 5 provides for Members to pay an annual subscription.
Article 12.2.1 provides for the Board of Directors to consist of 12 directors, all of whom must be members and resident in Australia. The directors are not to be paid any directors' fees for their services as directors of The AQHA: Article 13.1. Article 14.1 provides that the business of The AQHA is to be managed by the directors.
Article 14.5 provides the power to make regulations and states:
"14.5.1 The directors may make regulations, not being inconsistent with this constitution or the memorandum and at any time in like manner, but subject to this clause 14.5, to annul or vary any such regulations so made. All regulations so made and for the time being in force are binding on the members and have fall [sic] effect. Without limiting the generality of the foregoing, the directors have power to make regulations with respect to:
(a) brands;
(b) grading up programs;
(c) the keeping of the official Stud Book and the contents thereof and the compiling, printing and publication thereof;
(d) the registration of horses eligible for a 'Q' number being imported or born in Australia and the conditions of registration and the qualifications thereof;
(e) the recording and acceptance of appendix horses and the conditions of recording and acceptance and the qualifications thereof;
(f) classification of horses;
(g) identification of horses;
(h) progeny registration;
(i) transfer or lease of horses in the Association's records;
(j) registration, recording and transfer fees;
(k) deregistration of horses;
(l) show and performance recording;
(m) certificates of service, stallion breeding reports and brood mare returns;
(n) all facets of sprint racing (being racing over distances of less than 800 metres) including the conducting of race meetings and the licensing and control of trainers, jockeys, stewards, other racing officials and the like.14.5.2 Alteration of any regulations for the time being in force by addition, deletion or amendment may be effected by resolution of the directors carried by at least three-fifths of the votes cast at a duly convened meeting of the directors pursuant to a notice of intention to move the resolution or one substantially similar lodged with the Secretary at least 21 days before the day on which the meeting was convened. Any such notice must be included by the Secretary in the notice convening the meeting."
Article 15.2 provides the mode of meeting for directors. It states:
"The directors are to be regarded as present together when in communication by telephone or other means of audio or audio visual communication if each of the directors participating in the communication is able to hear each of the other participating director."
Article 15.3 provides for notice of meeting for directors. It states:
"Notice of each meeting of the directors must be given to each director at least 24 hours before the meeting or at another time determined by resolution of the directors. The notice must include full particulars of the business to be discussed by the directors and any business which may come to hand subsequently to the notice but prior to the meeting must, so far as possible, be notified to each director provided that:
(a) all directors may waive in writing the required period of notice for a particular meeting; and
(b) it is not necessary to give a notice of a meeting of directors to a director who is out of Australia or who has been given leave of absence."Article 15.4 provides for the quorum at the meeting for directors. It states:
"15.4.1 At a meeting of directors, a quorum is present if there are present at the meeting at least 4 directors or such greater number as may be fixed from time to time by the directors.
15.4.2 The continuing directors may act notwithstanding any vacancy in their number, but if and so long as their number is reduced below the number fixed by or pursuant to this constitution as the necessary quorum of directors, the continuing, directors may act for the purpose of increasing the number of directors to that number or of summoning a general meeting, of the association but for no other purpose."Article 15.5.1 deals with voting at directors' meetings. It states:
"Questions arising at a meeting of directors must be decided by a majority of votes of directors present and voting. A decision of the majority is for all purposes a decision of the directors."
Article 15.9 provides for the delegation of powers to a Committee. It states:
"15.9.1 The directors may delegate any of their powers to Committees consisting of directors or Members as they think fit, to act in Australia or elsewhere.
15.9.2 The exercise of a power by a Committee in accordance with this constitution is to be regarded as the exercise of that power by the directors.
15.9.3 In the exercise of any powers delegated to it, a Committee formed by the directors must conform to the directions of the directors."Article 15.10 relevantly provides:
"15.10.1 Except as provided in a direction of the directors, the meetings and proceedings of a Committee formed by the directors must be governed by the provisions of this constitution, in so far as they are applicable, as if meetings and proceedings of the Committee are meetings and proceedings of the directors.
...
15.10.3 A Committee may meet and adjourn as it thinks proper. Questions arising at any meeting must be determined by a majority of votes of the Committee members present and, in the case of an equality of votes, the chairman has a second or casting vote."Article 15.12 provides:
"15.12.1 The directors must cause minutes of all proceedings of general meetings and meetings of the directors and Committees formed by the directors to be entered, within 1 month after the relevant meeting is held, in books kept for the purpose.
15.12.2 The directors must cause all minutes, except those deemed to constitute minutes by virtue of section 255 of the Corporations Law, to be signed by the chairman of the meeting at which the proceedings took place or by the chairman of the next succeeding meeting.
15.12.3 A resolution in writing signed by at least those directors sufficient to constitute a quorum at meetings of directors is to be regarded as a determination of the directors passed at a meeting of the directors duly convened and held."Article 15.13.1 deals with circulating directors' resolutions. It states:
"15.13.1 The directors may pass a resolution without a directors' meeting being held if 5 or more directors entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document.
15.13.2 For the purposes of this clause, separate copies of a document may be used for signing by directors if the wording of the resolution and statement is identical in each copy.
15.13.3 The resolution is passed on the day and at the time at which the last director signs a document.
15.13.4 In relation to a resolution in writing:
(a) a document generated by electronic means which purports to be a facsimile of a resolution of directors is to be regarded as a resolution in writing; and
(b) a document bearing a facsimile of a signature is to be regarded as signed."Article 17 deals with urgent business. It states:
"If, in the opinion of the chairman of the directors, any matter of urgent importance has arisen which requires immediate discussion of the directors, any director may, with the consent of three-quarters of the directors present, submit any urgent motion without having given the special notice required in clause 15.1.3."
Article 19 provides that volumes of the Stud Book must be supplied to Members and non-members of the Association at such price (if any) as the directors may from time to time determine.
Article 20.4 provides that the Secretary must keep, at the Office, the Register, setting forth the names in full and addresses and stud prefixes (if any) and brands (if any) of all Members and the date of the latest payment by each member of his/her subscription.
Article 25 provides for the method by which a notice to The AQHA may be given.
The Regulations - The Black Book
The parties referred to the book containing the Rules and Regulations of The AQHA as "the Black Book". However, this appears to be only because the book in existence in August 2010 had a black cover. I have referred, and shall continue in these reasons to refer to, the Rules and Regulations of The AQHA in this way.
The Black Book contains the General Regulations (section 1), the Stud Book Regulations (section 2), the Show Rules, Amateur and Youth Regulations (section 3) and Contest Rules and Regulations (section 4).
The Black Book identifies, on page 1, the following "Mission Statement":
"* To record and preserve the pedigrees of the Australian Quarter Horse while maintaining the integrity of the breed,
* To provide beneficial services for its Members which enhance and encourage Quarter Horse ownership and participation.
* To develop diverse educational programs, material and curriculum that will position the AQHA as one of the leading organisations in the Australian Equine Industry.
* To generate growth of AQHA membership via the marketing, promotion, advertising and publicity of the Australian Quarter Horse."
Also on the same page is the following passage which appears under the heading "PLEASE NOTE":
"By resolution of the Board, the Regulations and Rules shall become effective on and from 1st August 2010, and therefore all Regulations and Rules heretofore in force are hereby repealed. All State and Federal Laws can override our Rule Book."
Regulation 2 includes:
"Membership of the Association is a privilege not a right, application for which shall be made on forms and by payment of fees and according to the procedures as prescribed from time to time by the Association."
Regulation 3 provides:
"3 ALTERATIONS TO REGULATIONS
Alterations of these Regulations by addition, deletion or amendment may be affected by resolution of the Board in accordance with the Constitution."
Regulation 5 of the Black Book contains definitions, which include, relevantly:
"The interpretations contained in the Constitution of the AQHA shall be deemed to be embodied in these Regulations.
5.1 'Association' means The Australian Quarter Horse Association, ABN 41 000 964 643....
5.3 'Imported Horses' shall be deemed to be horses foaled outside the territorial limits of Australia.5.4 'Q Numbered' in relation to a Quarter Horse, means a horse which is registered as such by the Association.
...
5.6 'Breeding Year' shall be the period commencing on 1st August in any year and ending on 31st July of the next succeeding year....
5.9 'Appendix Register' means the register of appendix numbered Quarter Horses.5.10 'Progeny Recorded' shall be deemed to refer to horses, which because of their breeding are eligible for registration.
5.11 'Registered' shall be deemed to refer to Q, R2 and R1 numbered horses which have been included in the Stud Book or AX, A, A1, A2 and A3 numbered horses which have been included in the Appendix Register ...
5.12 'Recorded' shall be deemed to refer to horses which are included in the Association's Records for breeding purposes only being Foundation Mares and Foundation Stallions that are accepted by the Association in the Breeding Program.
...
5.14 'Owner' shall be deemed to be the registered owner of the horse as recorded in the Association's Stud Book, Appendix Register or Foundation Recorded and shall include a lessee...".(Regulation 5 also includes the definition of "Breeder", "Member" and "Stud Book" in identical terms to the Constitution, which definitions have been extracted above.)
As with the Constitution, there is no definition of "Quarter Horse" in the Black Book, although the Stud Book Regulations refer to a particular "Standard of Excellence" and include a reference to the conformation of a quarter horse.
Regulation 8.6 deals with horses not eligible for registration or recording that show specifically identified characteristics.
Regulation 10 relates to the Stud Book and provides:
"10.1 Application for registration into the Stud Book must be in the name of a financial member of the Association who is entitled to vote at a general meeting of the Association. Any application for registration into the Stud Book may be refused by the Board without assigning a reason therefore. Youth members may only have two (2) horses registered in their membership (no colts or stallions).
The Official Stud Book of the Australian Quarter Horse Association shall consist of the following:
10.2 Horses Born in Australia
Any horse include in the Registrar of Q, R1 and R2 numbered horses and such other horses eligible for inclusion and which the Association may, at its discretion, include at a later date subject to the rules of the Association which include Genetic testings as described in Rule 15.10 and 16.
10.3 Imported Horses
Any imported horse registered with an international Stud Book recognised by the Association provided that such horse meets all registration requirements outlined in the Association's rules which include Genetic testings as described in Rule 15.10 and 16.
10.4 Imported in Utero Horses (IIU)
Any horses imported in utero with parents registered with an international Stud Book, recognised by the Association, provided that such horses meet all IIU registration requirements as outlined in the Association Rules & Regulations which include Genetic testings as described in Rule 15.10 and 16.
10.5 Horses not Born in Australia and residing outside Australia
Any horse not born in Australia and residing outside Australia will be recognised by the Association provided that such horse meets all registration requirements outlined in the Association's rules which include Genetic testings as described in Rule 15.10 and 16.
If the horse is registered with one of the international Stud Books recognised by the Association, then the rules for Imported Horses Rule 18 must be adhered to."
I am similarly not satisfied that a notice of intention to move the resolution, or one substantially similar, was lodged with the Secretary at least 21 days before the day on which the meeting was convened, and that such notice was included by the Secretary in the notice convening the meeting in respect of the meeting held on 3 April 2011. However, I note Mr Bellden's evidence that he considered that the Board, in April 2011, had sufficient notice of the intention to put a motion to change Regulation 22 even though there was no written notice of that proposal.
The lack of satisfaction about these matters does not, however, mean that the resolution, or resolutions, passed at each meeting is invalid if the court is satisfied that each resolution should be validated pursuant to s 1322(4)(a) of the Corporations Act.
In this regard, I consider that the court is entitled to have regard to the fact that the subject matter of the resolution had been on the agenda of The AQHA since August 2009 and had been discussed on a number of different occasions at both Stud Book Sub-Committee meetings and at the meetings of the Board. Also, each of the resolutions could readily have been and, bearing in mind what occurred, would have been, passed, but for the lack of notice. None of the directors has asserted that he, or she, would have taken a different course had the requisite notice been given.
Also, by defending the proceedings in the manner that the Board has, the court is entitled to assume that it has not been suggested, by any member of the Board, that the result would have been different had the requisite notice been given. Nor was it suggested to any director who was cross-examined, that the resolution would not have been passed had the requisite notice been given.
It was not suggested by Mr Bull that any person involved in having failed to give the notice required by Article 14.5.2 had not acted honestly. There is simply no evidence that would support a finding had that been put. That would be sufficient, in itself, to warrant an order for validation provided that the requirement in s 1322(6)(c) was established, namely that no substantial injustice is caused to any person.
The detriment, or injustice, to Mr Bull, if an order were made under s 1322(4)(a), does not rationally affect the registration of "Smart Little Lena-D" since registration was not possible in any event for the reasons previously given. It cannot, in those circumstances, be said to be a substantial injustice of the type contemplated by s 1322(6)(c) to have ordered the validation of the Regulations that were amended without notice.
I am of the view, in relation to the validity of the amendments made to Regulation 22, the passing of the Second Resolution and the Third Resolution at the April 2011 meeting superseded the First Resolution made at the December 2010 meeting. This may explain why the relief claimed in the Cross-Summons was limited in the way that it was. In relation to each of the Second Resolution and the Third Resolution, I am satisfied that there was, in fact, a procedural irregularity regarding notice but that each resolution is not invalid by reason of the absence of proper notice, pursuant to s 1322 of the Corporations Act.
Therefore, an order, pursuant to s 1322(4) of the Corporations Act, that each of the Second Resolution and the Third Resolution made by the first Defendant at the meeting on 3 April 2010 was not an invalid resolution of the first Defendant by reason of any contravention of the Constitution of The AQHA should be included in Short Minutes of Order to be prepared by the parties.
In relation to the amendments to Regulation 18 (the imported horse rule), I am of the view that any resolution, said to have been passed at the December 2010 meeting (the Fourth Resolution), would have been superseded by a resolution, in identical terms, said to be passed at the April 2011 meeting (the Fifth Resolution).
I am also of the view that the notice requirements in The AQHA Constitution were not complied with in relation to any resolution pertaining to Regulation 18 (whether in December 2010 or in April 2011). In addition, I accept Mr Bull's submission that the wording of the amended Regulation 18, as published on The AQHA website, does not match the text of any wording in the Minutes of the April 2011 Meeting (or the Minutes of the December 2010 Meeting).
I am of the view that the absence of notice and the issue regarding wording is each a procedural irregularity pursuant to s 1322 of the Corporations Act. However, in circumstances where no relief is sought by the Defendants, in the Cross-Summons, in relation to either the Fourth Resolution of the Fifth Resolution (or any amendment to Regulation 18), I do not propose to make any order in relation to either the Fourth Resolution of the Fifth Resolution.
In relation to the Sixth Resolution, I have earlier referred to the amendment carried by the motion at the December 2010 meeting which amended Rule 10.5. I am of the view that the Sixth Resolution is not relevant to the application to register "Smart Little Lena-D", "Smart Little Lena-D" not being a horse "not born in Australia and residing outside of Australia". In any event, in circumstances where no relief is sought by the Defendants in the Cross-Summons in relation to the Sixth Resolution, I do not propose to make any order in relation to the Sixth Resolution.
I turn, now, to the claims based on oppression under s 232 and s 233 of the Corporations Act. Again, my conclusions will be brief. I note that Mr Bull's claims regarding oppressive conduct did not extend to an allegation of oppression on the part of The AQHA were the court to find that The AQHA properly applied the Regulations contained in the August 2010 Black Book and, in so doing, validly refused to register "Smart Little Lena-D".
In reality, the Board of The AQHA is confronted with a conflict between the rights of Mr Bull, on the one hand, and the rights of The AQHA, as a whole, on the other. The exercise of the powers conferred by the Constitution, in the circumstances of this case, necessarily results in what appears to be prejudice to Mr Bull as the owner of a cloned imported horse.
However, the bona fide, and proper, exercise of the powers conferred on the Board in pursuit of the objects for which they were conferred, and the caution which a court must exercise in determining an application under s 232 of the Corporations Act in order to avoid an unwarranted assumption of the responsibility for the management of a corporation, results in Mr Bull facing a difficult task in seeking to prove that the passing of the resolutions, the result of which was said to be the decision to not register "Smart Little Lena-D", was unfairly prejudicial to him and, therefore, not in the overall interests of the members of The AQHA as a whole.
I am not satisfied that the decision made by the Board of The AQHA was such that no Board, acting reasonably, could have made it. The effect on Mr Bull of the passing of the resolutions may be considered by him to be harsh. It has not, however, been shown that it was oppressive, or unfairly prejudicial, or discriminatory, or that its effect is such as to warrant the conclusion that the affairs of The AQHA were, or are, being conducted in a manner that was, or is, oppressive or unfairly prejudicial in the manner prescribed by the legislation.
I also bear in mind my conclusion that, prior to the resolutions being passed, "Smart Little Lena-D" would not have been able to be registered. That being so, Mr Bull has failed to make good his submissions.
The court should not assume, particularly in a case where a lack of probity or want of good faith is not alleged or established, that substituting its own assessment for that of directors, who can be expected to have a much greater knowledge and more time and expertise at their disposal to evaluate the best interests of the members of The AQHA as a whole, and to determine how the objects of The AQHA would best be met, is the way to proceed.
Even if I considered the decision to not register "Smart Little Lena-D" a harsh one, so far as Mr Bull is concerned (and I am not expressing the view that it was), that is not sufficient to cause the decision actually made to be an unreasonable or irrational decision of the kind which would require judicial interference. This is heightened because of the earlier conclusion that the application to register "Smart Little Lena-D" was validly refused even before the resolutions, the subject of the claim for oppression, were passed.
It is not possible to conclude, in this case, that the directors did not weigh the furthering of The AQHA's objects against the disadvantage that the passing of the resolutions and the decision would impose upon Mr Bull, and address their minds to the question whether what was proposed was unfair.
Finally, it is also important to note that The AQHA does not prevent the cloning of quarter horses, or the sale and purchase of a cloned quarter horse from occurring. Mr Bull, and any other breeder of quarter horses, may continue to buy, and import, a cloned quarter horse. Each is simply not entitled to have the cloned quarter horse that is bought and imported, registered in the Stud Book or Appendix Register of The AQHA.
The claims based on s 232 and s 233 of the Corporations Act, therefore, fail.
Finally, I bear in mind that Mr Bull accepted that, if the passing of the resolutions was found to be oppressive (which, in the events that have happened, is not the case), the least intrusive remedy would be to remit the application to register "Smart Little Lena-D" to the Board of The AQHA for reconsideration in accordance with the Regulations before any amendment. To do so, for the reasons given, would not alter the result of the application.
Subject to any argument on costs, I am of the view that the Plaintiff should pay the costs of the Defendants of these proceedings.
In the circumstances, I direct the parties to bring in Short Minutes of Order reflecting these reasons for judgment within 7 days. The orders should include an order for the return of the exhibits and the Court Books.
I shall stand over the proceedings to deal with any outstanding argument on the form of the Short Minutes of Order and costs to a date to be agreed.
**********
6
45
4