Club Menangle has dug itself a hole.
A huge hole.
A massive crater in fact.
The Australian Pacing Gold company was winning the battle with Nutrien Equine Standardbred for control of the yearling sales industry.
That was no surprise, because it held the home ground advantage, knew all the players well, controlled the major race track, and held influence over the rules.
All that APG and its associated companies had to do was keep it simple and mostly above board, and play it clever.
The Chairman of both organisations Robert Marshall couldn’t, and now we are.
How many problems has Chairman Marshall created for himself and his companies, and how many laws has he potentially broken?
Let me count the ways.
A cartel is formed when a businesses makes agreements with their competitors to fix prices, rig bids, share markets or restrict outputs.
Cartels are utterly unlawful, and the ACCC regards companies and individuals involved in them as thieves who are stealing from consumers and businesses by inflating prices, reducing choices and damaging the economy.
If Club Menangle has entered into an agreement, oral or otherwise. with any other party – including, but not restricted to, the Bathurst Harness Racing Club and/or Harness Racing NSW – to prevent Nutrien Equine Standardbred from entering the standardbred yearling sales market on an equal playing field and on just terms, and this can be proven, then the prospect of a prosecution for engaging in cartel behaviour becomes real.
The same applies to any agreement or shared undertaking entered into for this purpose between APG and any other company, including between APG and Club Menangle.
A cartel is the vehicle to deprive another company of its lawful rights, and – usually – of financial benefit or the opportunity to make fair financial gain.
A conspiracy is the aim of effecting the cartel, the reason for which the cartel was formed, although you can certainly have a stand-alone conspiracy without the requirement for it to be performed by a cartel.
For example, one company or individual conspires with one or more other companies to deprive another company of the opportunity to join a market and compete in that market on just terms. The company or individual that suffers the deprivation incurs a loss, or is unable to acquire a gain.
That’s a conspiracy, and if able to be proven to the requisite criminal standard, it is an offence punishable by imprisonment.
A secondary boycott occurs when one company acts to further the interests of another, unrelated company by causing damage or harm to a third party.
As an example, a yearling sales company (Company A) wishes to prevent a competitor (Company B) from entering the yearling sales market.
Company A prevails upon a third, separate company (Company C) to take unlawful steps to prevent Company B from entering the market.
Company C agrees, and does so by, for example, refusing Company B the opportunity to practice its trade on premises – say a trot track – owned by the company.
It does so for no rational business reason other than to support and further the anti-competitive aims of Company A.
That’s a secondary boycott. It too is highly illegal. All of the actions highlighted in bold in this article are, and each carry severe penalties if proven.
Deceptive conduct occurs when a company or individual misleads or deceives, or their conduct is likely to mislead or deceive, consumers or other businesses.
For example, a race club tells another business seeking to hold a race series on its track, and willing to pay to do so, that it cannot accommodate the series because there are no dates available in its racing schedule to host the series.
It is discovered that the race club does not in fact have a racing schedule set, and/or that there are indeed dates available on which the race series could be run.
That is deceptive conduct.
Unlike cartel behaviour and conspiracies, there is no requirement to prove deliberate intent in order to make out a charge of deceptive conduct. Similarly, there is no requirement for the other business to have suffered damage or loss caused by the deceptive conduct for the conduct to have been proven.
Broadly speaking, exclusive dealing occurs when one person trading with another imposes some restrictions on the other’s freedom to choose with whom, in what, or where they deal.
Exclusive dealing is against the law when it substantially lessens competition.
As an example, a standardbred sales company tells a race club with which it has a commercial contract that the club must only deal with their sales company. and none other than they.
The race club, under duress, agrees, and as a result is obliged to forego entering into a potentially more lucrative contract with another standardbred sales company.
That is exclusive dealing.
Breach of Fiduciary Duty
Directors of companies have a duty under law to exercise their powers and discharge their duties with care and diligence.
These powers must be exercised and discharged in the best interest of the corporation and for proper purposes, and the Director must not improperly use their position to gain advantage for themselves or someone else, or cause detriment to either company. They must also not improperly use information gained as a director to gain advantage for themselves or someone else, or cause detriment to the company.
An example is a person that holds Directorships of say a race club and a standardbred sales company. The Director must not permit the conflict between their roles in each company unduly or improperly affect their decision making when acting in the role of Director for the other.
If for example a third party offers the race club a deal that is materially better for the shareholders or members of the race club than one presently enjoyed, and the Director decides to decline the preferable deal because it may impact negatively on the other company that they direct – e.g. that company would lose its monopoly over horse sales if the race club allowed its competitor to run a sales series on its track – then that is likely to constitute a breach of the Director’s fiduciary duty to the club.
Conduct may be unconscionable when it is particularly harsh or oppressive. The conduct must be more than just unfair to be unlawful, it needs to be particularly harsh or oppressive when judged against the norms of society. Often this means conduct that involves serious misconduct or which is clearly unfair and unreasonable.
Conduct such as lying to a competitor during negotiations for a contract or potential contract, or failing to disclose information to the other party, in circumstances where the failure to disclose has a material impact on the other party’s decision making process, and usually in circumstances where it caused damage or loss.
A feature of unconscionable conduct is usually an imbalance of power between the negotiating companies. For example, the stronger party to the negotiations – by virtue say of joint directorships in companies held by a person or persons involved in the negotiations – holds information about the marketplace and the other party’s competitor that the weaker party does not, and fails to disclose it.
Something like, for example, the availability of race dates, or the future business plans of a competitor. The stronger party to these negotiations does not share this information with the weaker party, and does not alert them to the fact they hold the knowledge. As a consequence of this failure, the weaker party is placed in a position of disadvantage, and is forced to enter into a contract with terms much poorer than it would otherwise have been able to negotiate.
That is unconscionable conduct.
Misuse of Market Power
It is not illegal to have market power or to use it, however conduct by a business with market power is unlawful if it has the purpose, effect or likely effect of substantially lessening competition.
Think Apple or Samsung, the two companies that dominate the mobile phone market, for the simple reason that they offer a superior product to their competitors. Their dominance of the market is not a misuse of market power, as it comes about by virtue of their phones being better than everyone else’s, and more wanted by buyers of phones.
Now imagine a company that runs standardbred sales and race series. This company does not offer a superior product, as its business practices have been the subject of much discord and discontent in the market place.
A competitor emerges, and attempts to establish a rival sale and series, but are prevented from doing so because the other company exercises its power in the market to – for example – block the rival from being able to access a race track in the market sector (say NSW), and thus prevents it from entering the market.
That is a misuse of market power.
Refusal to Supply Products or Services
A company unlawfully refuses to supply products or services to another person or company, even though these services or products – for example, race day services or access to the track – are available to others.
In circumstances where the refusal to supply the race day services or track access is related to unconscionable conduct, misuse of market power, cartel behaviour or engaging in exclusive dealing, such a refusal is an offence.
The above are all laws, rules or regulations that Club Menangle have arguably breached by its conduct in dealings with Nutrien Equine, and each is actionable and punishable under a range of applicable laws.
Equally, the conduct of Club Menangle is arguably actionable by Nutrien under an array of civil torts and common law contract laws.
The Chairman of both APG and Club Menangle may have imagined that he was being clever in the way he has dealt with – or more correctly, dealt to – Nutrien Equine Standardbred, but Robert Marshall is wrong, very very wrong, and his poor decision making has placed both the harness racing club and the APG at considerable risk.
By his actions Mr Marshall has demonstrated that he is unfit to hold the position of Chairman of Club Menangle, or to remain a member of the board.
The time for games is over. This is serious Mum, and it needs to be sorted out quick smart, before the lawyers start drawing pistols at ten paces, and harness racing game to suffer irreparable harm.
The only way for this to happen is for Robert Marshall to stand aside from the Chairman’s role at Menangle, and to resign immediately from the board. By one’s needs others know you, and Marshall’s deeds demonstrate that he cannot be trusted.
If he truly cares about our great sport, he will do the right thing and walk.
If he doesn’t, then he will quickly find himself sinking into a mire, and Club Menangle will follow him down into the mud.
This is industry money at stake, and this is the future of our game.
It will be interesting to see what happens next.
Watch this space.