McHugh v Australian Jockey Club Limited and Ors

[2014] HCATrans 238

[2014] HCATrans 238

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S107 of 2014

B e t w e e n -

BRUCE McHUGH

Applicant

and

AUSTRALIAN JOCKEY CLUB LIMITED

First Respondent

VICTORIA RACING CLUB LIMITED

Second Respondent

AUSTRALIAN RACING BOARD LIMITED

Third Respondent

THOROUGHBRED BREEDERS AUSTRALIA LTD

Fourth Respondent

AUSTRALIAN TURF CLUB LIMITED

Fifth Respondent

Application for special leave to appeal

GAGELER J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 17 OCTOBER 2014, AT 12.54 PM

Copyright in the High Court of Australia

____________________

MR N.C. HUTLEY, SC:   If your Honours please, I appear with my learned friend, MR J.E. LAZARUS, for the applicant.  (instructed by Brock Partners)

MR A.J.L. BANNON, SC:   May it please the Court, I appear with my learned friend, MS R.C.A. HIGGINS, for the first, second and fifth respondents.  (instructed by Johnson Winter & Slattery)

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR G.E.S. NG, for the third respondent.  (instructed by Yeldham Price O’Brien Lusk Lawyers)

MR J.S. EMMETT:   May it please the Court, I appear for the fourth respondent.  (instructed by Esplins Solicitors)

GAGELER J:   Mr Hutley.

MR HUTLEY:   Your Honour, as your Honours know, in 1947 the proprietors of the Australian Stud Book agreed to impose the restraint which appears at application book 387, paragraph 1 in the Full Court’s judgment.  The sole reason for its introduction was to overcome the difficulty of reliably establishing the paternity of foals, and your Honours will see that from the trial judge’s finding at application book 10, paragraph 7, and more particularly, application book 342, paragraph 1453.

GAGELER J:   That was a matter of concession, was it not?

MR HUTLEY:   That was a matter of finding, we say.

GAGELER J:   I see.

MR HUTLEY:   I think there is a proposed notice of contention to the contrary, but I will leave it to my learned friends to deal with it.  But, anyway, that is the basis upon which the appeal proceeded and it is – what we say is approximately 40 years later that difficulty had been overcome in Australia due to technological advances and that appears from the Full Court’s judgment at application book 391, paragraph 12. 

The restraint, your Honours, was unlimited in its duration.  The Full Court held the restraint valid.  The reasoning which we say that ultimately is set out at judgment 27 at page 395 of the application book - and can I take your Honours there:

It is one thing to say that the forward march of science is foreseeable but quite another to say that the individual fruits of that stately progression have the same quality.  It may well be that a prohibition on breeding thoroughbreds by artificial insemination should be limited in its duration when current tangible scientific developments suggest that a solution to the problem of paternity –

The Full Court is presuming that that is the question –

testing might soon be at hand.  Such a state of affairs could be said to disclose a probable contingency, although a final determination of that issue would need to await an analysis of the particular –

et cetera.  Then they go on and say that anything else involves what they call, what the court refers to as “an improbable and extravagant contingency.”  In our respectful submission, that conclusion is wrong and appears to warrant perpetual restraints unless the problem which a restraint is seeking to overcome is one to which tangible scientific developments suggest a solution might soon be at hand.

GAGELER J:   Well, you accept that the question of reasonableness of the restraint is one to be determined as at 1947?

MR HUTLEY:   Yes, your Honour.

GAGELER J:   In the light of foreseeable technological developments as at that time?

MR HUTLEY:   No, your Honour.  We say, your Honour, the wrong question is asked.  What we say is what the question had to be is that there was foreseeability that no resolution would be achieved, not foreseeability that resolution would be achieved.  To do that, as the Full Court did, is to do the very thing which we say was the error at trial.  It is inverting the onus.  What we say is - the question is this and it can be explained this way and that is why that error led to the formulation which appears in paragraph 27.  One asks the question immediately, it leads to a very strange consequence.

Today I am contemplating putting into existence a restraint which I choose to put in indefinite interminable form, and I do that on the basis it is to meet problem A, and standing here today there is no foreseeable particular resolution of problem A.  I may believe, but if I am asked the question “Do you think it is foreseeable on the basis of scientific knowledge that no resolution will be achieved?” the answer might be, of course not.  I believe the resolution might be achieved because I have complete faith in the development of science, it is essentially a technical problem, but I accept readily that standing here today there is no foreseeable solution today.

Now, one says, if that is the case, according to the Full Court, you can put a perpetual restraint on.  If the answer to the second question – even though the answer to the first question, namely, is it foreseeable today that there will be no resolution might be of course there is not.

GAGELER J:   Is there a difference between an indefinite restraint and a perpetual restraint?

MR HUTLEY:   Your Honour, we say there is none because an indefinite restraint is merely a restraint until the parties agreeing to the restraint agree to remove it.  Even a perpetual restraint is that form, but if A agrees with B that C will be restrained indefinitely - now, if C is an industry, and it is important it is an industry - if it is an individual it will be for his or her life - if it is an industry that is a perpetual restraint because it lies in the will and whim of the parties to the restraint to change their mind.  What we say is that the Full Court made that fundamental error and I wish to make that point good. 

Now, the law is the beneficiary of a restraint, either party, must establish that at the time of the introduction that the restraint was no more than is reasonably necessary to protect their interest.  We say that if you ask the question, a restraint to meet problem A, what is, prima facie, no more than reasonable to protect their interests, it is a restraint for that duration. 

What would justify a restraint expressed in indefinite form?  We say it is when the state of science about that problem at the time the restraint is entered into is to the effect that the problem is intractable, thus there is no substantive difference between a restraint for the duration of the problem and a restraint of indefinite duration.

That is what makes a restraint in that form reasonable, not because it is, well, you can have a restraint forever if you cannot predict – have a resolution in the next few years.  Of course not.  It is because, as a matter of reasonable understanding in the state of technology at the time you are dealing with an intractable problem and that requires evidence of a belief of the intractability of the problem, thus there is no substantive distinction between a restraint for the duration of the problem and a restraint in indefinite terms.  That is why the question - and the question which we posed for the court was at paragraph 7:

‘that future developments in technology could not have been foreseen’ –

Now, that was converted by the court at paragraph 17 in the first sentence:

the legal onus of proving facts from which an inference of reasonableness might be drawn it was they –

that is, our learned friends –

who needed to prove that as at 1947 there were no future foreseeable probabilities.

That is a wholly different inquiry, and that is the inquiry they embarked upon at 27, and led, we said, to the wholly improbable result.  Their Honours characterised our answer as dealing with what they called, and took from various cases, “improbable and extravagant contingency”.  Now, the improbable and extravagant contingency seems to have been this, that somewhere over the future of modern science a problem of developing, solving the problem of identifying paternity would be resolved and this is for a restraint which you have to say is, I am choosing to say it is forever.

What the court failed to deal with, and when one is dealing with durations of this variety one has got to establish a negative, that is, the negative which has the result that the difference between the duration of the promise, limited to the problem and its indefinite form, is a matter in the state of knowledge at the time but there is no difference reasonably, and therefore it is no more to go back to the fundamental test which is set out in paragraph 4(b)(i) - “it”, the restraint:

affords no more protection than is reasonably necessary to protect the interests of the party in whose favour it is imposed -

You got that answer, except we got, with respect to the Full Court, an answer in paragraph 27 which is wholly improbable, with respect to them.  In other words, ask the question - it can be put this way.  Today there is probably no reasonably foreseeable cure for the Ebola virus, but it would be quite false to say it is reasonably foreseeable that no cure will eventuate.  Quite different inquiries, quite different questions and fundamental, we say, to a proper understanding of the interpretation of restraints of this variety.  It is a novel question.  It has never been decided.  It is absolutely ripe in this case.  This is the perfect vehicle for it and your Honours should take it up.  Those are our submissions.

KEANE J:   Just before you sit down, what do you say about the point that is made against you at page 429 of the application book at paragraphs 11 and 12 - the commercial reality, the current commercial reality that participants in the Australian racing industry would be adversely affected by the adoption of the technology that you are propounding because international racing would not participate with us, they would not allow us to participate with them.  When one is talking about foreseeing or what is foreseeable in 1947, should one be foreseeing that the rest of world will go along with what might turn out to be a technological possibility?

MR HUTLEY:   No, your Honour.  There was no evidence in 1947 there was an international trade at all.  There was no evidence really that there was anything which might approach an international trade.  It was, in effect, made feasible by technological developments such as aircraft - moving horses by air and the like.

KEANE J:   It is not just trade of the horses, but an international race ‑ ‑ ‑

MR HUTLEY:   Yes.  But, your Honour, can I answer your ‑ ‑ ‑

GAGELER J:   So we can foresee the science, but we cannot foresee the trade.  Is that your point?

MR HUTLEY:   No, but, your Honour, the onus is on our learned friends to prove that it is no more than reasonable.  It is not our onus.  It is no more than reasonable.  That is the difficulty and if their object is, in 1947, to meet a problem - and that was the evidence and it is clear that the Full Court proceeded on that basis, paragraph 27 shows it, the findings were to that case, that was the evidence, and it is to that then that the restraint is directed. 

What may have happened about the international market and its development and its significance and whether a restraint would be allowed under our law if a new one had to be looked at because of the Trade Practices Act and a whole series of other things is a matter that does not concern your Honours.  It is a diversion, with respect, by our learned friends to say that this is an inappropriate vehicle.

In our respectful submission, this case is a pure question of law of the purest variety and it raises that fundamental point, and it is a distraction, with respect.  There was no finding that absent a restraint Australia’s position would have been affected in 1947 with respect to horse racing because of international attitudes, none.  The problem was single.  It was a problem which was a real problem, paternity, but that was the object.

KEANE J:   You are not saying that this question was not litigated, because the primary judge made findings about it.

MR HUTLEY:   No, it was litigated as a section 45 case under the Trade Practices Act of giving effect to the provision today, that was litigated today, but that took as its point of departure that the restraint was valid.  So it was only in that context that that was relevant.  That was a 45 case giving effect to a promise, which of course took as its point of departure that the restraint was valid.  So it was litigated, but that was litigated between private parties.

If the restraint was invalid and a whole industry had to conceive to set itself up again to put that restraint, large interests might become involved at a national level because, in effect, regulating a whole industry by, in effect, agreements which are admittedly in restraint of trade carry vast policy issues.  That is a question which may or may not be confronted if we are successful. 

But that is a matter which, although our learned friend says it is inevitable this is all going to work, et cetera, well, let them try, have a go, that should not deter your Honours from dealing with what is a fundamentally important question.  Does that answer your Honour’s question?  Unless I can be of further assistance, that is the point, your Honour.

GAGELER J:   Thank you, Mr Hutley.  Yes, Mr Bannon.

MR BANNON:   Your Honours, we submit that this is quintessentially a factual question which is sought to be presented to this Court.  Perhaps just to deal with a couple of matters our learned friends raise and your Honours raised, we say that – and we say this in paragraph 5 of our submissions, on page 428 - the primary judge assumed for the purpose of the argument that the only purpose was the paternity issue and did not have to actually determine it.  There is a bit of a debate between us about that. 

Secondly, the background to the case was that the applicant started with saying that the validity of the reasonableness for the restraint should be determined effectively as at the date of the hearing or shortly thereafter.  There was a welter of evidence, admittedly current evidence, which we sought to take back as far as we could, to support the view that it was an international field and the only effect of getting rid of this rule would be to destroy thoroughbred racing in Australia, and not in the interests of any breeder.

There was a debate between us at the trial as to whether we got that evidence back to 1947 because there were obviously difficulties in identifying material which would reflect that, but the fact of the matter was as at 1947 the evidence was there had never been any artificial breeding of thoroughbreds, so the norm was, or the only situation was it was natural cover. 

Indeed there was in fact no artificial breeding taking place and there was a debate between us to whether or not this restraint, the wording of this rule actually restrained anybody because, on their own concession, there was no capacity to prove paternity on any effective test, so that the restraint probably did not operate as a restraint - another debate between us at the time which was not resolved. 

But coming back to the factual question, what we say is that if one goes to 389 of the application book, in Justice Perram’s reasons, his Honour sufficiently sets out the issue.  He sets out the concession at about line 30.  So when the restraint was introduced there was an:

absence of any effective tests –

That is an all‑embracing concession and, therefore -

The prohibition on AI . . . was therefore a reasonable response to the problem –

Then the reply submission at the foot of the page was:

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 –

In one sense there was debate about this at the Full Court, it is really for their evidentiary onus to say, well, there was some reasonable foreseeability about it, but be that as it may, the Full Court addressed it on the basis that the proper test was the test which is referred to at 396, namely, improbable and extravagant contingencies do not have to be addressed.  There is no suggestion that is an inappropriate test that has been applied, in other words, it is a practical business test or trading test.

KEANE J:   It is the traders whose expectations are relevant, is it not?

MR BANNON:   Yes.

KEANE J:   If your traders happen to be pharmaceutical companies their prospects of foresight or their powers of foresight are different from the powers of foresight of people who breed horses.

MR BANNON:   Quite so, your Honour.  It really is a drafting argument they impose on us.  They concede there was no effective test, but they say the problem was it was drafted in a way which did not have some contingency built into it.  If one pauses there and tries to think what the contingency is, you have people who are in the horse industry who are effectively running the thoroughbred industry.  They have to somehow or other draft something which they say well, just an effective test.  That does not mean much.  If you do not know what the test is you cannot frame it.  Is it going to be cost effective?  Will it require Nobel scientists?  What is the ASB to do?  They are people who run a book.  Will they know enough to interpret the test?  Will they have to employ scientists themselves?

KEANE J:   The cases have never suggested that.

MR BANNON:   No, absolutely not.  So, sitting there in 1947, on the evidence, the ASB people, they cannot rationally formulate anything sensible which has some sort of sunset or contingency.  It will be used against them.  It will create uncertainty.  What we do know is that the rule was simply recording what had happened to that point in time - and going back to your Honour’s point, the relevance of the findings as to the goodwill built up which related to natural cover, which is related to the fact that there is a mystery about having studs and - even the difficulty of breeding horses by natural cover, that adds to the excitement.  If a small person manages to -out of a small stud - it is just one of the odd things about any sport, why things are successful.

KEANE J:   It is the romance of racing, which is pretty important, I suspect.

MR BANNON:   Exactly.  So that we fully embrace what fell from the Bench, namely that the applicant cannot have it both ways, they cannot sit back and say that it was unreasonable for the ASB not to predict science, but not take the view that as proprietors, in effect, of thoroughbred racing they are entitled to set in train something – well, this is the way it is always been, this is the way it should be.  It is certain for everybody.  People can organise their affairs and we will not have some sort of rule which we cannot even – have to draft which has some uncertain thing which will operate in the future which might damage the very goodwill of the thing we are trying to protect.

But they are the sort of debates which all speak of a factual question, and they are not some general point of law.  The evidence which was before the Full Court - there is a welter of evidence about every little piece of paper one could find in the racing industry around the world as to what people knew or did not know in relation to all of this.  The starting point was the concession.  There was no effective test.  The second point was there was absolute silence in all this welter of paper suggesting anything was going to happen, and, thirdly, the position that at first starts to percolate to the surface in about 1972 only as a new type of thing.

So the inference that no one had evening thought in 1947 that something like this could sensibly, effectively, in a commercial way be solved and not otherwise have some sort of impact on the goodwill looking forward, if one sat back and thought about it, the factual finding of the Full Court was absolutely and perfectly open and if the matter was to go to this Court, well we would be getting into basically a factual debate with no point of law.

GAGELER J:   Yes.  Mr Walker, Mr Emmett, we do not need to hear from you.  Yes, Mr Hutley.

MR HUTLEY:   Your Honours, it is not, with respect to our learned friends, to do with the romance of racing and nothing – that was not adverted to by the Full Court.  The “romance of racing” evidence was the romance of racing which was evidence directed to in – to the later period.  That may itself have been affected by the fact of the restraint.  There was no evidence that the romance of racing back in 1947 demanded that, in effect, the mystique of – that there be no AI.  If that was the case ‑ ‑ ‑

KEANE J:   But is that because no one not only had actually thought about it, but no one was disposed to think about it either.  No one was going to scientists and raising these possibilities.  There was not a motivation on anyone’s part, on anyone in the industry?

MR HUTLEY:   Your Honour, with respect, the problem is that is speculation.  We do not know because the exercise was not undertaken.  A person of the sophistication of Sir Adrian Knox was on the - associated with the owners of the stud book, so it is not that they were little, simple horsey people by any means, your Honour.

KEANE J:   I am not suggesting ‑ ‑ ‑

MR HUTLEY:   Quite.  Your Honour, the horse field is pervaded by sophisticated veterinarians, and sophisticated veterinarians have regard to developments in science for reasons.  No evidence was led about this.  It

becomes, with respect, a matter of speculation, and that is the difficulty which leads to the reversal of the onus by, in effect, speculating.  Our learned friends could have called, had they wished to, evidence as to the state of science, state of veterinarian science at the time and the like.  They chose not to. 

What we say is is it not a factual issue.  It is a characterisation of what question do you have to address to satisfy the onus that it is no more than is reasonable to protect your interests?  If it is to protect a problem one asks rhetorically, why would not it be limited to the duration of the problem?  The problem - there was no difficulty in formulating a restraint, not by reference to a particular answer, by reference to until there be an adequate means of assuring the paternity of horses.  That would be the restraint.  That would be valid. 

In our respectful submission, it is a pure question of law.  The questions of fact raised were not adduced to that point.  It will not arise.  Their Honours set out all the facts in their judgment and we accept every finding of fact in the Full Court judgment, every one relevant to the question.  We say it follows from those findings of fact that we should win.  So there is no factual issue, in our respectful submission, it is a pure question of law.

GAGELER J:   Thank you, Mr Hutley. 

Given the absence of any dispute that the reasonableness of the restraint was to be judged as at 1947, having regard to what were then foreseeable developments, we are not satisfied that an appeal to this Court would have sufficient prospects of success to warrant the grant of special leave.  Special leave is refused with costs.

AT 1.21 PM THE MATTER WAS CONCLUDED