Whether you are a breeder, owner, or simply involved in the equine industry, having an understanding of the commercial and legal considerations in the world of sports horse breeding is essential to minimise risks and maximise gains. We pick out three key legal aspects to give some thought to when drafting or dealing with these agreements, whether in the UK or abroad.

Ownership

The concept of ownership transfer isn’t universally clear-cut. Each country has its own set of laws and regulations governing when ownership is deemed to have transferred, which means that in multi-jurisdictional agreements, confusion and disputes can arise.

For example, possession of a horse’s passport doesn’t necessarily make you their owner. In the UK, the legislation specifies that ownership passes ‘at the time both parties intend’. Typically, this tends to be at the point where the buyer agrees to buy the horse on certain terms.  Contrast this with Germany, for example, where ownership shifts upon physical delivery. To avoid misunderstandings, agreements should explicitly outline the terms of ownership transfer. Failing this, buyers should consider taking the following precautions:

• Holding off on full payment until they take physical possession of the horse.
• Obtaining insurance coverage from the moment ownership is transferred.
• Preparing a bill of sale to document the change in ownership.
• Registering breeding papers and passports to provide concrete evidence of the change in ownership.

VAT (Value Added Tax)

VAT is a percentage-based tax paid by consumers when they purchase goods and services. All professional breeders, especially those within the EU, should carefully consider VAT.

In the UK, Brexit has brought about changes which breeders need to be aware of. Notably, the VAT ‘second-hand margin scheme’ for UK businesses sourcing horses from the EU has been removed. This scheme allowed UK dealers to pay VAT only on their profit margins. Now, dealers are subject to VAT on the entire sale price of the horse, significantly increasing costs.

For example, if a UK dealer buys a horse in the EU for £20,000 and sells it in the UK for £25,000, they would have previously paid VAT only on the £5,000 profit margin. Post-Brexit, they must pay VAT on the full £25,000 sale price. Dealers face a choice:

• They can raise prices to cover the VAT, risking their competitiveness in a crowded market.
• They can absorb some of the added VAT expenses, effectively taking a hit on profits.
• They can consider making a protective claim to HMRC in respect of the difference between the VAT payable on the full selling price and the VAT payable under the margin scheme.

Although there’s talk of a reduced EU VAT rate for horses, this is not yet in effect. To avoid potential investigations or penalties, both breeders and owners should stay informed about VAT rules.

Disputes

One significant challenge in sports horse breeding agreements (or the lack thereof) is the absence of a reliable authority to resolve disputes when things do go wrong. As equine trade is inherently international, choosing the right jurisdiction to govern these disputes is crucial. Here are a few key factors to consider:

• Practicality and convenience: Opt for a jurisdiction with a common language and easy accessibility to streamline communication.
• Procedural systems: Prioritise speed, cost-efficiency, quality of judges, and the availability of appeals in the legal process.
• Ease of enforcement: Take into account the horse’s location – foreign judgment enforcement rules can be complex.
• Legal expertise: Seek a jurisdiction with experience in handling equine-related disputes – a specialised understanding can expedite case resolution.

There are few regulations specifically tailored to international equine trade and related services, and even when regulations exist, enforcing them can be tricky.

The World Breeding Federation for Sports Horses (WBFSH), an international studbook association, serves as a representative body for the sport horse breeding sector. However, it typically does not get involved in commercial disputes among its members, and when it does, these disputes are governed by Dutch law, which may not be favourable to all parties involved.

Another option for parties in dispute is the United Nations Convention on Contracts for the International Sale of Goods (CISG), which governs international sales contracts between private businesses for various goods, including horses. CISG takes precedence over national law and applies to most EU member states, making it a useful legal instrument when needed.

Looking ahead

Advancements in reproductive technology are reshaping the industry. Breeders and owners now have more options in their breeding programs, with artificial insemination gaining popularity. Agreements related to sports horse breeding are no longer limited to live foals; they can encompass live covers, semen, embryo transfers, cloning, and sex-selection methods if desired.

In this dynamic landscape, how can you ensure you stay ahead whilst protecting your interests?

• Clear, written agreements: When venturing into breeding contracts, clarity is paramount. It’s prudent to specify the breeding methods and associated costs to ensure all parties are on the same page. Whenever possible, agreements should be in writing to eliminate ambiguity and reduce the likelihood of dispute.
• Contingency Planning: Provisions should be built into the contract to address what happens if reproductive technologies fail or yield unexpected results, especially in agreements with live foal guarantees.
• Staying Informed: The world of equine reproductive technology is constantly evolving. Breeders and stakeholders should stay informed about regulatory changes, emerging technologies, and market trends.