If you own a mare with an outstanding pedigree, magnificent performance record or unrivalled history of producing competitive progeny, it makes sense to profit from her breeding potential.  The sale of embryos occurs across many breeds and disciplines in just these sorts of cases, but legal risks abound and must be managed.

Breeding by embryo transfer is complex medically and legally. There are 2 mares, the donor and the recipient, owned by different people. There is a buyer of the embryo. There is a semen supplier. There is a reproduction veterinarian who will inseminate the mare and flush her. The embryo might be cryogenically stored and transported by someone. Another reproduction veterinarian might be engaged to implant the embryo in the recipient mare although commonly there is only 1 veterinarian involved in the process of flushing and implantation. Even though there are multiple contributors to breeding by embryo transfer, it is the particular relationship with the buyer of the embryo that the seller must document to get clarification and agreement around some critical issues from a legal point of view.

Evaluation of the Semen

The seller should have the right to pre-approve the semen.  The buyer should also warrant that the semen is feasible, disease free and not otherwise harmful to the donor mare. The seller must nominate the reproduction veterinarian who will play a gatekeeper role by evaluating the semen.  If the semen is doubtful, the breeding process should stop.  Whether the buyer should forfeit any pre-payment if the semen is unfeasible or poses a risk is a matter for agreement.

Evaluation of the Embryo

The seller’s nominated reproduction veterinarian should check the donor mare’s reproductive potential. He or she should also evaluate and certify the viability of any embryo(s) flushed. These steps are important to help the seller refute any claim that a problem with producing a live foal out of the recipient mare was due to the quality of the donor mare or her embryo.  Such a claim might involve an allegation of non fulfilment of a guarantee under the Australian Consumer Law, such as the donor mare or her embryo was not fit for the purpose.  Such a guarantee will apply if the seller agreed to sell the embryo in the course of a business of offering embryos for sale.  Even if the sale was not in the course of such a business, a disgruntled buyer might rest a claim on an alleged misrepresentation as to the breeding quality or characteristics of the donor mare to produce a healthy embryo.

Payment of Embryo Sale Price

A deposit or booking fee should be sufficient to cover the costs of transporting the donor mare to the breeding facility and the inconvenience of her being examined and prepared. If through no fault of the seller, the donor mare is not bred (for example, the semen does not arrive or on time or is unfeasible or is risky or if the buyer just doesn’t want to continue for any reason) the money is forfeited.  But more importantly, when is payment of the balance of the sale price of the embryo due? From the point of view of the buyer, success is a live foal out of the recipient mare. Uncertainty about this outcome is reason enough to insist on pre-payment of the sale price of the embryo. So the seller must be paid in full either before the donor mare is transported to the breeding facility or at the latest, once she arrives but before being prepared for insemination.  Deferring payment until the donor mare is bred poses a risk of non-payment if for any reason the buyer is unwilling or unable to complete payment and the seller is left with an unwanted pregnancy and a donor mare unable to produce further embryos until after the birth of the foal or the pregnancy is terminated.

Who Owns the Embryo Pre-Flushing

To avoid any argument by the buyer that the donor mare and her embryo are divisible in property law terms, the sale agreement must state that the buyer has no proprietary title, claim or interest in the donor mare or in the embryo before it is flushed.

It also possible for more than 1 embryo to be flushed, so the seller should provide for the sale of 1 embryo only and on what terms the buyer can acquire the right to it, for example a repeat payment of the price of an embryo.

Right to Re-Breed the Donor Mare

A free return (also known as live foal guarantee) is often expressly conferred on a semen buyer by the stud if a mare fails to conceive or to produce a live foal. The seller must consider carefully if any right to re-breed the donor mare will be granted to the buyer. The seller must set a time limit on the exercise of any such right after which the seller is free to re-breed the donor mare.

As the seller will not and is not required by law to guarantee that the recipient mare will produce a healthy live foal, there will be no right to re-breed the donor mare if the recipient mare fails to carry the foal or to produce a live foal.

If the buyer has an expectation around re-breeding the donor mare it will relate to the failure to flush a viable embryo. Or it might extend to the failure of the embryo to survive 30 days in the recipient mare. If the seller wishes to meet the market for these sorts of expectations, the right to re-breed must be clearly defined along with any conditions attaching to it, such as the payment of further money, the donor mare remaining fertile or in the ownership of the seller and so on.

These are issues that the seller can and must control by agreement with the buyer.  The selection and care of the recipient mare and if any free return (vis-a-vis the semen supplier) applies to a breeding by embryo transfer are some of the factors that are up to the buyer to investigate and manage.  A reputable seller will engage with the buyer about such factors to make breeding by embryo transfer an informed and enjoyable process.

14 May 2019

© 2019 Michael Mackinnon, Solicitor & Independent Counsel