The Court of Appeal has ruled in favour of Racing NSW in its appeal against Justice Francois Kunc’s March judgement, upholding the regulator’s appointment of Morgan Kelly as administrator of the Australian Turf Club. The operation of that appointment remains stayed Monday, July 13, giving the ATC time to consider whether it will seek special leave to appeal to the High Court.
The decision is a significant legal win for Racing NSW. However, the judgement is more limited than a simple win-loss reading suggests, confirming the regulator’s power to appoint an administrator in this case while leaving important questions around how that power may be exercised.
What the Court found
The Court granted Racing NSW leave to appeal, allowed the appeal, dismissed the ATC’s notice of contention and set aside the orders made by Justice Kunc in March.
In practical terms, that means Justice Kunc’s finding that Racing NSW’s appointment of Kelly was invalid has been overturned. The ATC has also been ordered to pay Racing NSW’s costs at first instance and on appeal.
The central issue was whether Racing NSW’s concerns about the ATC’s financial position, corporate governance and board functioning were sufficiently connected to the regulator’s statutory role under the Thoroughbred Racing Act 1996.
Justice Kunc had found that Racing NSW had exceeded its powers. His judgement held that the regulator’s function to “control, supervise and regulate horse racing” did not extend to appointing an administrator over the ATC because of concerns about the club’s corporate governance and finances.
Justice Francois Kunc | Image courtesy of Legal Services Court
The Court of Appeal disagreed.
It found that, in the specific circumstances of the ATC, the club’s finances and governance were capable of falling within Racing NSW’s function to control, supervise and regulate horse racing in New South Wales.
The Court noted the ATC owns or operates Sydney’s four metropolitan racecourses, conducts race meetings at those venues and has horse racing as its primary purpose. It found the club’s financial viability and governance were integrally connected to its ability to function as a race club.
In that context, Racing NSW’s concerns were not treated as merely internal corporate matters. They were treated as matters that could affect the ATC’s ability to conduct racing in Sydney.
The Court also overturned Justice Kunc’s finding that Racing NSW had fallen into jurisdictional error over its treatment of the KordaMentha report. Justice Kunc had found Racing NSW materially misread the report, particularly on whether the ATC’s solvency depended on Racing NSW continuing to guarantee its debt facility.
The Court of Appeal disagreed. It found Racing NSW had not misread the report in the way identified by Justice Kunc and that it was open to the regulator to give no weight to the report’s ultimate conclusions. It also found Racing NSW was entitled to consider later correspondence from the ATC that placed greater weight on the need for Racing NSW to extend its guarantee.
The Court also rejected the contention that Racing NSW’s administrator power had been impliedly repealed by the legislation that created the ATC through the merger of the Australian Jockey Club and Sydney Turf Club. It also rejected the argument that the power was inconsistent with the Corporations Act.
A power not fully defined
While the decision is a clear victory for Racing NSW, the Court was careful not to define the full reach of the regulator’s administrator power.
The judgement expressly says it was dealing with the appointment in the “very specific factual context” before it. That context involved the ATC, its role as Sydney’s metropolitan race club, and Racing NSW’s concerns about the club’s ability to function as a race club.
The Court said it was neither necessary nor appropriate to detail the precise limits of Racing NSW’s power to appoint an administrator in other cases.
The decision confirms that Racing NSW can appoint an administrator to the ATC in these circumstances. It does not necessarily answer every question about when the power could be used against another club, how long an administration could continue, what would bring it to an end, or how disputes between Racing NSW, a club and an administrator would be resolved.
Nor should the judgement be read as giving Racing NSW an unchecked right to install an administrator who operates outside the club’s framework.
What happens to the board?
The judgement also gives some guidance on what an administration would mean for the ATC board.
The Court accepted that an administrator appointed under s 14(2)(g) would conduct the affairs of the race club, generally to the exclusion of the directors. However, it did not find that the directors are removed from office.
Instead, the judgement drew an analogy with receivership. The board may be substantially disempowered in ordinary management, but the company’s internal structure continues to exist and the directors retain residual powers.
The administrator may conduct the affairs of the ATC, but the board does not become legally defunct. The directors remain in office and retain some powers and responsibilities, particularly where those are not displaced by the administrator’s role.
Duties of an administrator
The Court also found that an administrator appointed under the Racing Act would be a director and officer of the company, and therefore subject to the duties attached to that position, including those under the Corporations Act.
This is where the judgement becomes more nuanced than much of the immediate reporting suggests.
Racing NSW has won the right to appoint an administrator in this case, but the person appointed would not simply be a Racing NSW agent placed inside the ATC to do the regulator’s bidding.
Once appointed to conduct the affairs of the ATC, the administrator would be operating within the company’s legal framework and would carry the duties of a director and officer.
In practical terms, that may matter if there is a conflict between the interests of Racing NSW, the interests of the broader racing industry and the interests of the ATC as a company.
The judgement does not spell out exactly how such a conflict would be resolved. But it does make clear that the administrator’s role sits inside a wider legal structure, not outside it.
Racing NSW’s appointed administrator, Morgan Kelly, whose formal appointment remains stayed, is already working with the ATC in a narrower capacity.
In April, as part of a short-term funding agreement between Racing NSW and the club, the ATC appointed Kelly, of Ernst & Young, to review and advise on its hospitality operations while the parties awaited the Court of Appeal decision.
'Administration remains unnecessary'
On Friday afternoon, ATC Chairman Tim Hale released a statement on behalf of the club, acknowledging the result of the Court of Appeal’s judgement.
“The ATC Board strongly believes the appointment of an administrator is unnecessary,” said Hale. “Throughout these proceedings, the Board has acted in what it believes to be the best interests of the Australian Turf Club and its Members.
“The Board and management have always been committed to the highest standards of governance and to ensuring the long-term sustainability of the Club.”
Tim Hale | Image courtesy of Australian Turf Club
Hale pointed to recent changes at the club, including the appointment of a permanent chief executive and the addition of another director to the board, Bernie Brookes AM. He also said the club had been working with Racing NSW on recommendations to Racing Minister David Harris for the appointment of two further directors.
"It is not in the interests of racing for Racing NSW and race clubs to be in conflict." - Tim Hale
“It is not in the interests of racing for Racing NSW and race clubs to be in conflict,” Hale said. “We should be working together.”
The statement did not indicate whether the ATC intended to appeal.
Questions still unanswered
The immediate legal result is that Racing NSW has won the appeal and Kelly’s appointment as administrator has been upheld, subject to the stay until July 13.
But the judgement is unlikely to be the final word on the broader governance questions raised by the dispute.
It confirms that Racing NSW’s powers can extend into the finances and governance of a race club where those matters affect the club’s ability to function as a race club.
But it leaves open a series of practical questions that may now become more important: how long an administration can last, what test should apply for returning control to a club board, what role members have during an administration, and how an administrator should act where the interests of the club and the regulator do not perfectly align.
For Racing NSW, the decision restores a major regulatory power.
For the ATC, it narrows the legal avenues available to resist the appointment.
For the wider industry, it raises a more enduring question: if a regulator can step into the affairs of a club, how visible should the limits and safeguards around that intervention be?
Hopefully those are questions soon to be answered by the review into the Thoroughbred Racing Act, expected to be delivered to government by Brad Hazzard in the coming weeks.
