Long gone are the days when there was never more than six names listed as the Owners of a horse in the race book.  Now, you are more likely to find 20 names (which may include two or more Syndicates of additional names) racing each horse.

Racing is an amazing industry! Most Owners sign into the ownership of a horse with people they have not yet met, and may never meet. It brings together people who all share the dream of a fast horse. Is there any other endeavour where strangers pool capital to purchase a $200,000 asset with an annual maintenance fee in excess of $45,000, all on the hope that there may be some financial return, while having a lot of fun?

The benefits of large ownership groups are obvious, as the costs involved in purchasing and training the horse get carved up into small fractions that make it affordable for Mum and Dad‘s, young Professionals and even Students to be involved.  All fantastic until something goes wrong.

Racing Australia Trainers and Owners Reforms 

Racing Australia understand that relationships often sour when some of the owners are not paying their monthly commitment, or want to cash in and take the big offer from Hong Kong but others don’t. In an attempt to formalize the relationships between a diverse group of owners and the relationship those owners have individually and collectively with the Trainer, Racing Australia have introduced the Trainer and Owner Reforms (TOR) and the TOR Rules as of August 1st  2017.

In broad terms, Racing Australia have decided that everyone is to be bound by the Rules whether or not owners already have legally binding co-owners agreements or trainers have proper agreements in place with their owners, that set out both parties’ legal rights and responsibilities. The Rules and the accompanying Standard Training Agreement (STA) and the Co-Owners Agreement (COA), are to “take the place of any existing agreement unless agreed in writing by the parties that a pre-existing or another agreement operate in conjunction with, or instead of the new agreements”. Further the Rules state that where a private agreement is in conflict or inconsistent with a provision of the Rules then the Rules of Racing and the TOR Rules prevail to the extent of the conflict and inconsistency.  In other words, if any issue is covered by both your private agreement and the Rules then that part of your private contract can not be relied on according to Racing Australia.

One issue that is generally covered in a private co-owners agreement is what percentage of ownership interest is required for decisions to be made. Without any agreement each owner has the legal right to decline to sell their interest should an offer be made. With an agreement in place, owners may be compelled to sell their interest if the prescribed threshold of equity in the horse agrees to sell. The owners’ private agreement may set out that if 70% of the equity agree to sell, then the 30% minority are bound by that decision. However the COA stipulates that a simple majority, 50.01%, has the power to sell the horse. As the private agreement is in conflict with the COA the 49.99% are bound by the decision, even though the ownership group wished to ensure that a significant portion of owners made such an important decision.

It doesn’t seem right that if all agree to something and it doesn’t breach the laws of the land, then why can Racing Australia, a non-statutory body  take away the right’s of individual’s to negotiate.

As to whether the TOR Rules are legally enforceable, no doubt the Courts will in the future be asked to determine that answer after considering long held common law principals with regard the rights of co-owners of chattels, relevant State legislation as well as section 23 of the Australian Consumer Law which deals with unfair contracts.

The Role of a Managing Owner

One of the great defects of the Australian Rules of Racing, is the lack of direction as to how the Managing Owner is appointed. AR1 defines Manager as ‘the first named person recorded by the Registrar of Racehorses in the official ownership records…..’

This then begs two questions, first, how does one get to be the first named owner and, secondly, why is the first named owner the most competent owner to be the Manager?  Unfortunately the Rules don’t offer any assistance other than to provide for the mechanism for the removal of the Managing Owner (AR57). There is no mechanism for a Managing Owner to resign and no provision that covers the situation where all the owners object to being the Managing Owner. Unfortunately the owner named first assumes that position whether they want to or not.

As set out in AR57 the Managing Owner has always had the power amongst other things, to “’act for and represent the joint Owners, Lessees, or Syndicate members in relation to the horse in all respects for the purpose of the Rules of Racing.  (AR57(2)(d)) but TOR has now put significant obligations on the Managing Owner, including the overarching responsibility to manage the ownership for the benefit of all co-owners, ensuring the Trainer complies with his/her reporting obligations to the owners and comply with the obligation of being the middle person between the owners and the trainer in relation to the trainers fees and any objection to them.

Why be a Managing Owner? 

Generally most owners just want to race a horse. The great majority of owners will never read the Rules of Racing and will not be fully aware of the responsibilities of the Managing Owner. The good news for a first named person is that they may be remunerated if every owner agrees that the role of the Managing Owner deserves it.

The COA does provide for co-owners to indemnify each other and the Managing Owner except where there is fraud, willful misconduct or negligence. What will be the duty of care standard that applies to a Managing Owner? Will a Managing Owner be held negligent, having previously signed a trainer’s agreement that states that that the agreement is a Security Agreement, if he or she then fails to register the Security Interest of the co-owners against the trainer on the Personal Property Security Register and the trainer’s Bank takes possession of the horse due the trainer defaulting on loans to the bank? Technical stuff, but critical if the horse is in the possession of the trainer when he goes broke.

Any owner considering having his or her name placed first on the registration application should read the Rules carefully and seek legal advice before doing so. It might be best to leave that number one position to someone else.

Please follow and like us: