Bull v Australian Quarter Horse Association

BATHURST CJ: I agree with the judgment of Beazley P and with her Honour’s reasons.

BEAZLEY P: The appellant, Mr Richard Bull, is a breeder of quarter horses. The first respondent, the Australian Quarter Horse Association (AQHA), is a “breed association” that registers quarter horses in Australia by way of a “Stud Book”. In December 2010, Mr Bull purchased a cloned horse known as “Smart Little Lena-D” in the United States of America and, in April 2011, imported Smart Little Lena-D into Australia. Mr Bull then applied to register Smart Little Lena-D in AQHA’s Stud Book. On 15 September 2011, the application was rejected by AQHA.

By way of further amended summons, Mr Bull sought relief against AQHA in respect of that refusal. On 26 November 2014, Hallen J declined to order the relief claimed by Mr Bull. Mr Bull appealed from the dismissal of his claim.

As finally argued before this Court, the following issues were raised on the appeal:

As is explained more fully below, AQHA amended the Regulations in December 2011 and April 2011 (that is, before Mr Bull lodged his application to register Smart Little Lena-D) so as to prohibit the registration of cloned horses. Mr Bull contended that the amended Regulations did not apply to his application to register Smart Little Lena-D. On the assumption that was correct, Mr Bull’s case was that he was entitled to register Smart Little Lena-D pursuant to the unamended version of the Regulations. Mr Bull submitted alternatively that, even if the amended Regulations applied, he was entitled to register Smart Little Lena-D under those Regulations.

Mr Bull also contended that AQHA was estopped from relying on the amended Regulations. That argument had not been raised in the court below and the Court refused leave for that issue to be argued on the appeal. The reasons for the refusal are given below.

I am of the opinion that his Honour was correct in finding that Smart Little Lena-D was not eligible for registration under both the unamended and the amended versions of the Regulations. Although it is strictly not necessary to decide, I am also of the view that the Regulations in their amended form applied to Mr Bull’s application to register Smart Little Lena-D. It follows, for the reasons given below, that the appeal should be dismissed with costs.

AQHA was formed in 1964. On 17 March 1972 it was incorporated as a company limited by guarantee. It has over 6,000 registered members. Each member pays an annual subscription fee and is listed on the Register of Members. AQHA is an affiliate of the American Quarter Horse Association (AmQHA). Mr Bull has been a member of AQHA for over 40 years, and has registered 12 quarter horses with AQHA.

AQHA is the only organisation that registers quarter horses in Australia. There are over 179,000 quarter horses registered in AQHA’s Stud Book. There are strict eligibility requirements for registration and certain equestrian events in Australia restrict competition to quarter horses registered by AQHA.

Smart Little Lena-D is a clone of Smart Little Lena, a successful quarter horse in the United States that died in August 2010. Smart Little Lena was registered by AmQHA in its Stud Book. Several of his progeny have been imported into Australia and registered in the Stud Book of AQHA. As a result, Smart Little Lena’s DNA is also listed by AQHA.

In December 2010, Mr Bull purchased Smart Little Lena-D for USD $27,000 in Fort Worth, Texas. At the time, Mr Bull was aware that Smart Little Lena-D was a cloned horse. As his Honour observed, at [41], 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 AQHA has not been, and presumably could not be, obtained for Smart Little Lena-D.

Mr Bull imported Smart Little Lena-D into Australia in April 2011 and he has since remained in Australia. In his affidavit evidence, Mr Bull stated that he purchased Smart Little Lena-D solely for breeding purposes, and that it was his belief that Smart Little Lena-D’s value would be “much reduced” if the horse was not registered as a quarter horse by AQHA. On 29 July 2011, Mr Bull applied to AQHA for the registration of Smart Little Lena-D in AQHA’s Stud Book. His application identified Smart Little Lena-D as a cloned horse.

In a letter dated 15 September 2011, Carol Ricketts, AQHA’s then General Manager, advised Mr Bull that his application had been refused. The letter stated as follows:

Smart Little Lena-D is a carrier of a genetic disorder known as HERDA (Hereditary Equine Regional Dermal Asthenia). Whilst Regulation 16 contained provisions relating to the disease, it would not have affected Smart Little Lena-D’s registration, either under the unamended or amended Regulations.

Article 2 of Part A of the Constitution of AQHA stated the objects of the Association, which included “to promote and encourage the breeding and exhibition of Quarter Horses”. Article 14.5 of the Constitution contained a regulation-making power and provided for the manner in which the regulations were to be made, relevantly as follows:

The Regulations were published in what was known as AQHA’s Black Book, an up to date version of which was published on 1 August of every second year. The closest publication date of the Black Book to the dispute between the parties was August 2010. As at that date, the relevant sections of AQHA’s Black Book were as follows.

Included in AQHA’s “Mission Statement” was its objective “to record and preserve the pedigrees of the Australian Quarter Horse while maintaining the integrity of the breed”.

Regulation 10 related to AQHA’s Stud Book, and was in the following form:

Regulation 18 dealt with the registration of imported horses, and provided:

Regulation 22 governed the regulation of cloned horses and stated:

The Regulation also contained a “hardship clause” whereby AQHA reserved the right to register a horse notwithstanding any other requirements within the Regulations: see Regulation 35. However, as Mr Bull did not rely on that provision on the appeal it is not necessary to set out its terms.

Following the refusal of Mr Bull’s application to register Smart Little Lena-D in September 2011, Mr Bull’s solicitor downloaded a version of the Black Book from AQHA’s website. In the online version of the Black Book, three relevant amendments had been made since August 2010:

At trial, there was a question as to whether the Directors had complied with the procedural requirements for amending the Regulations. There was also a question whether the minutes correctly recorded the resolutions passed at the meetings that purportedly amended the Regulations. There were two Board meetings of relevance: one held on 18-19 December 2010 (the December 2010 meeting) and the other on 2-3 April 2011 (the April 2011 meeting). The primary judge held that the deficiencies of which Mr Bull complained were procedural irregularities and ordered, pursuant to the Corporations Act (2001) (Cth), s 1322(4), that the resolutions passed were not invalid.

His Honour, at [396], found that, at least as at April 2011, AQHA’s Board of Directors had validly amended Regulations 18 and 22. His Honour declined to make a finding as to the resolution purportedly amending Regulation 10.5, as he took the view, at [401], that Regulation 10.5 was not relevant to the application to register Smart Little Lena-D, the horse “not being a horse ‘not born in Australia and residing outside of Australia’”.

Although his Honour found that Regulations 18 and 22 had been validly amended at least by the date of purchase of Smart Little Lena-D, his Honour’s principal finding related to the unamended form of the Regulations. His Honour found, at [386], that, prior to any amendments, Smart Little Lena-D could not be registered under AQHA’s Regulations, and therefore the relief sought by Mr Bull on the further amended summons could not be granted.

His Honour held, at [350], that Smart Little Lena-D was an “imported horse”, and therefore could not be registered under the unamended Regulation 10, not having been already registered with an international Stud Book recognised by AQHA: see Regulation 10.3. For the same reason, his Honour held, at [359], that Smart Little Lena-D, as an imported horse, could not be registered under the unamended Regulation 18.

His Honour took the view that Regulation 22, in its unamended form, did not provide a source of valid registration of Smart Little Lena-D, as Regulation 22 was dependent upon a horse meeting AQHA’s “registration requirements”. At [367], his Honour found:

His Honour thus, at [368], rejected Mr Bull’s submission that Regulation 22 “‘constituted a separate and distinct category’ for cloned horses to be registered without reference to the other Rules and Regulations”.

Mr Bull submitted that, at the date of acquisition of Smart Little Lena-D, the horse was eligible for registration under the unamended Regulation 10.5. Mr Bull contended that it was sufficient for the purposes of Regulation 10.5 that Smart Little Lena-D was a horse “not born in Australia and residing outside Australia” at the time of her acquisition, rather than at some later date. This submission was predicated on the amendments to the Regulations being ineffective and cloned horses being eligible for registration under the unamended Regulation 22.

In my opinion, this submission should be rejected. At the time that Mr Bull sought registration, Smart Little Lena-D was residing in Australia. On its plain words, Regulation 10.5 applied to a horse “not born in Australia and residing outside Australia” (emphasis added). There is nothing in those words that supports a construction of the Regulation whereby it is satisfied provided that, at some point prior to the making of an application for registration, a horse not born in Australia was residing outside Australia.

The use of the conjunction “and” and the present participle “residing” is a clear contextual reference to the horse’s residence at a particular time. I am of the opinion that that point of time is when the application for registration is made. Two particular features of the Regulations support this construction. First, Regulation 10, entitled “Stud Book”, provides an exhaustive list of the types of horses that may be included in the Stud Book. Entry into the Stud Book follows the approval of an application to register a horse and is the deemed means whereby registration is effected. Secondly, Regulation 10.5 must be read in context, including with Regulation 10.3, which specifies the requirements for registration for horses that have been imported into Australia. A necessary attribute of an “imported horse” is that, at some earlier point, the horse was residing outside Australia. To read Regulation 10.5 as Mr Bull has contended would be inconsistent with Regulation 10.3. Indeed, on Mr Bull’s construction, every horse born outside Australia would come within Regulation 10.5.

In argument before this Court, I raised a question as to whether Regulation 10.5 dealt with “recognition”, being something different from “registration”. Having regard, in particular, to the definition of “registered” in Regulation 5 and the structure of Regulation 10, I have come to the conclusion that, notwithstanding the phrase, “any horse … will be recognised by the Association”, Regulation 10.5 provides one of the means whereby a horse may be registered.

“Registered” is defined in Regulation 5.11, as follows:

A horse may also be “recorded”. “Recorded” is defined in Regulation 5.12 as referring to horses which have been included in the Association’s Records for breeding purposes. At various points in the Regulations, the phrase “registered or recorded” is used to describe applications that may be made in respect of a particular horse. For example, Regulation 12 provides for horses eligible to be “recorded” for breeding purposes. The term “recognised” (or the noun “recognition”) is not defined in the Regulations nor does the term appear otherwise than in Regulation 10.5.

Regulation 10.1 provides that “[t]he Official Stud Book of the Australian Quarter Horse Association shall consist of the following” and is then followed by Regulations 10.2, 10.3, 10.4 and 10.5. Each sub-Regulation provides for inclusion of a horse of a particular category in the Stud Book. Relevantly, Regulation 10.5 provides that horses not born in Australia and residing outside Australia may be included in the Stud Book. As a matter of definition, a horse entered into the Stud Book is thereby deemed to have been registered. Accordingly, a horse born in Australia and residing outside Australia may be registered by AQHA provided that the requirements of the Regulations are otherwise satisfied.

In its unamended form, Regulation 10.5 additionally required that, if a horse not born in Australia and residing outside Australia was registered with one of the international Stud Books recognised by AQHA, the horse must also satisfy the rules for imported horses in Regulation 18. As Smart Little Lena-D was not registered in an International Stud Book recognised by AQHA, he did not satisfy Regulation 10.5 in its unamended form and therefore could not be “recognised” and, on the view I have taken, could not thereby have been registered.

Smart Little Lena-D was nonetheless an “imported horse” entitled to registration if he satisfied Registration 10.3: see judgment at [350]. That Regulation required that an imported horse “be registered with an international Stud Book recognised by [AQHA]”. Further, as an imported horse, Smart Little Lena-D had to fulfil the additional requirements specified in Regulation 18, including that an imported horse be registered with an international Stud Book recognised by AQHA. As Smart Little Lena-D was not so registered, he could not be registered under the unamended Regulations.

Mr Bull submitted that Regulation 22, in its unamended form, provided a separate source of eligibility for registration for cloned horses. By way of written submissions, Mr Bull contended as follows:

I do not accept this submission. On its terms, Regulation 22 permitted cloned horses to be registered provided that they complied with the registration requirements. Regulation 22 did not provide a discrete basis by which a cloned horse could be registered where that horse did not fulfil all of the requirements mandated by the Regulations. For the reasons already given, Smart Little Lena-D’s application for registration did not fulfil the requirements of Regulations 10 or 18.

This ground of appeal may be dealt with briefly. Under the amended form of Regulation 10.5, assuming that it is valid, a horse that was not born in Australia and was not residing in Australia must first be registered in the Quarter Horse Association Stud Book of its country of origin, if that country has such a Stud Book, prior to being registered in Australia. As Smart Little Lena-D was not so registered, he could not be recognised by AQHA. It is not necessary, therefore, in respect of this aspect of Mr Bull’s case, to determine whether the requirements of Regulation 18 could be satisfied. In any event, Regulation 22, in its amended form, expressly excluded Smart Little Lena-D as a cloned horse from registration.

The appellant did not challenge the primary judge’s order pursuant to the Corporations Act, s 1322(4) that the resolutions passed at the December 2010 and April 2011 meetings were not invalid resolutions due to any procedural irregularity. The sole issue in respect of the resolutions was the date upon which those resolutions became binding on the members.

The appellant submitted that as the amendments did not become known to him until their publication on AQHA’s website on 14 September 2011, they could not alter the terms of the contract between him and AQHA that existed by virtue of his membership of the Association until after that date. It was not in dispute that Mr Bull was a member of AQHA. Nor was it disputed by either party that AQHA’s Constitution constituted a valid contract as between each member of AQHA and the company: Corporations Act, s 140. Mr Bull submitted that the terms of this contract had remained unaltered as a result of an implied term contained in AQHA’s Constitution. By way of written submission, Mr Bull formulated the alleged implied term as follows:

In oral argument, counsel for Mr Bull re-formulated the implied term as requiring that an alteration to the Regulations must be “unequivocally expressed” to be an amendment to the terms of the contract, and that notification must be to the “membership at large”. As I understand it, this was the term upon which Mr Bull relied and the consideration which follows proceeds on that basis.

Before proceeding to determine whether there was such an implied term, and by way of explanation, the requirement that the term be unequivocally expressed was designed to overcome to a notification on the website in April 2011 in the following terms:

The appellant suggested that it was not apparent from this notification as to whether there had been a change in the Regulations or whether this was merely a statement of policy.

It is necessary at this point to refer to the relevant terms of AQHA’s Constitution. Clause 14 of the Constitution specified the powers and duties of the Directors of AQHA. Pursuant to cl 14.5, the Directors had the power to make regulations and at any time, but subject to cl 14.5, to vary such regulations. The clause empowered the Directors, inter alia, to make regulations relating to the registration of horses, whether born in Australia or imported, the conditions of registration and the qualifications thereof: cl 14.5.1(d).

Clause 14.5.2 provided:

Clause 15.12 related to the Minutes of a Directors’ meeting. Clause 15.12.3 provided:

Clause 15.13 provided for the passing of a directors’ resolution by circulation of that resolution. Under that clause, a resolution will be passed if five or more directors who are entitled to vote on the resolution sign a statement that they are in favour of the resolution set out in the document. Clause 15.13.3 provided that the “resolution is passed on the day and at the time at which the last director signs [the] document”.

There is no provision in the Constitution that specifies a time or date when a resolution becomes operative, nor is there any requirement in the Constitution for the giving of notice to the members of the passing of a resolution by the directors, either at all or as a condition of the resolution becoming binding. The Regulations themselves provide, in Regulation 3, for their amendment in the following terms:

Where the relationship between the parties occurs in a formal context, it is accepted that for a term to be implied into a contract, five conditions are to be satisfied: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; 144 CLR 596; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; 149 CLR 337. The conditions necessary to be satisfied for a term to be implied are that the term must (1) be reasonable and equitable; (2) be necessary to give business efficacy to the contract; (3) be so obvious that “it goes without saying”; (4) be capable of clear expression; and (5) must not contradict any express term of the contract: BP Refinery v Shire of Hastings at 283.

A contract between a large association such as AQHA, which amongst other things is directed to the maintenance and preservation of the pedigree of quarter horses in Australia and therefore to the protection of the commercial interests and investment of its members in their quarter horses, is properly to be regarded as a formal contract to which these principles apply. This is to be contrasted with an informal contract, where the test for implied terms is less rigorous: see Byrne v Australian Airlines Ltd [1995] HCA 24; 185 CLR 410 at 422.

The criteria for an implied term are not necessarily independent of each other. If a term such as is sought to be implied is not necessary to give business efficacy to the contract, it does not matter that the term is otherwise capable of clear expression, although if a term is so obvious it goes without saying it may well be that it is necessary to give business efficacy to the contract. To require each and every criterion to be independently satisfied could lead to a degree of artificial characterisation. Some of Mr Bull’s submissions had this tendency.

Having said that, whilst I consider that the implied term for which Mr Bull contends fails each of the specified criteria it does so for three principal reasons: First, an implied term that there must be notification to the membership at large begs the question as to how such notification is to be given and would at least require some term as to the mechanism whereby that was to be done.

Secondly, the putative implied term is not necessary to give business efficacy to the contract for the same reasons that apply in respect of the third matter to which I next refer.

Thirdly, and perhaps most relevantly, such a term would be inconsistent with the express terms of the Constitution: see Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; 160 CLR 226. The Constitution and the Regulations provide that an amendment to the Regulations is effected by a resolution of the directors: see Regulation 3. Clause 14.5.2 provides that an amendment “may be effected by resolution”. If an amendment is effected by resolution, subject to any contrary indication in the Constitution, it must be effective when the resolution is passed. In short, it is the resolution that effects the amendment. Unsatisfactory though it may be, it is not to the point that AQHA’s communication mechanisms, such as posting on AQHA’s website, may lag behind the passing of resolutions that affects its members.

It follows, for the reasons I have given, that the appeal should be dismissed with costs, with the intent that under the costs order, the appellant should be liable for only one set of costs, notwithstanding the joinder of the members of the Association. It remains, however, to state the reasons why leave was refused to raise the estoppel issue.

Mr Bull submitted that having regard to AQHA’s “usual practice” of publishing proposed changes to the Regulations on the website and in AQHA’s monthly magazine before any proposed amendment was put to the Board for resolution, AQHA was estopped from relying on the amendments. In support of this submission, Mr Bull submitted that AQHA had:

Mr Bull submitted that he, and other members of AQHA, continued to conduct their affairs up until September 2011 on the basis that the Regulations were those contained in the Black Book as published as at August 2010. He contended that in the circumstances, AQHA was estopped from contending that his application for registration of Sweet Little Lena-D could be refused on the basis of the Regulations in their amended form.

It is a well-established principle that a party is bound by the way in which the case was conducted at trial. In Coulton v Holcombe [1986] HCA 33; 162 CLR 1, Gibbs CJ, Wilson, Brennan and Dawson JJ at 8, affirmed the following passage of University of Wollongong v Metwally (No 2) [1985] HCA 28; 59 ALJR 481:

The corollary of that principle is that, except in limited circumstances, a party is not entitled to raise a new issue on the appeal. Such exceptions were considered in Blue Oil Energy Pty Ltd v Tan [2014] NSWCA 81 by the Court at [29]:

This case does not fall within the exceptions to the basic principle. The estoppel issue potentially raised factual questions that could have been the subject of evidence at trial. Mr Bull was required to adduce evidence, for example as to detriment, and was required to give AQHA an opportunity to contest this evidence. Leave to appeal to raise the issue of estoppel was therefore refused.

The order I propose is as follows:

SACKVILLE AJA: I agree with the order proposed by Beazley P and with her Honour’s reasons.