High Court strikes out a £2.5m claim against football agent

His Honour Judge Stephen Davies sitting at the High Court in Manchester has struck out a claim in excess of £2.5m against a football agent represented by law firm FrontRow Legal and leading Counsel, Andrew Thompson QC of Erskine Chambers.

The decision seemingly hinged on the application of the exception to the reflective loss principle.

Background
The Claimants (C1, an individual and C2 and C3 corporate entities) and Defendant (D, an individual), were all members of an LLP in liquidation, (‘the LLP’). The LLP was in business as a manager of football players, including a number of Premiership players. By agreement a company under the D’s control was entitled to 50% of the LLP’s profits. C2 and C3, companies controlled by C1 were entitled to the other 50% of the profits. Those 3 companies and those 2 individuals, C1 and D, were the 5 members of the LLP.

The Claim was for damages for breaches of contractual and fiduciary duties allegedly owed by the D to the Claimants in relation to the D’s alleged conduct as a member of the LLP. It was alleged C2 and C3 also became insolvent (on their case as a result of the damage inflicted by D).

The D made an application for an order striking it out (under CPR 3.4 and/or the inherent jurisdiction of the Court) and/or for reverse summary judgment (under CPR 24).

This application was on the basis that of the various heads of loss pleaded, either those heads were expressly identified as loss suffered not by the Claimants themselves but by the LLP and/or they fell foul of the reflective loss principle, and/or they were hopeless because the conditions on which the alleged contractual liability might have arisen had not in fact been satisfied.

The D’s application first came before the Court in March 2018, but it was adjourned because there was uncertainty about who would end up owning the insolvent LLP’s own cause of action.

The liquidators of the LLP then agreed to assign to the D the LLP’s claims against all its members and their associates (not just the D, but also amongst others the 3 Claimants).

The application was relisted later in 2018 but adjourned again by consent because liquidators were due to be appointed for C2 and C3. In November 2018, C1 issued an application for permission to amend the POC to add further claims.

The liquidators for C2 and C3 then offered a bidding process inviting C1 and D to bid for the claims of the proceedings in respect of C2 and C3. The resolution of who acquired their causes of action was only reached in March 2019 where it was claimed that C1 was the owner of C2 and C3’s causes of action, prompting C1, to issue a further application for permission to amend the POC, to plead those assignments.

Reflective Loss Principle
The basic principle is that where both a company/LLP and a member have claims against a defendant, the member cannot bring proceedings to make good a loss which would be made good if the company’s/LLP’s assets were replenished through action by the company/LLP against the party responsible for the loss (derived from Johnson v Gore Wood (No.1) [2002] 2 A.C. 1). The principle was first established in relation to companies, but it applies equally to an LLP, which is a separate corporate entity.

There is only one possible exception to the reflective loss principle, which in exceptional circumstances allows a member to sue despite the prima facie application of the reflective loss principle, Giles v Rhind [2003] Ch 618. Generally and loosely, that exception arises “in a case where, by reason of the wrong done to it, the company is unable to pursue its claim against the wrongdoer” (Giles).

As a result of the recent Court of Appeal’s decision in Marex Financial v Sevilleja [2019] QB 173 in which the rationale for the rule was explained, the law as regards reflective loss had become even more favourable to the D in the present facts.

The facts in Giles were extreme and that even prior to Marex, the Giles exception had already been given a restrictive interpretation in subsequent Court of Appeal cases, including in particular Gardner v Parker and Webster v Sandersons [2009] P.N.L.R 37. Reflective loss is seen as an absolute defence and not a matter of discretion.

Hearing on 20 March 2019
At the hearing on 20 March 2019 there were 3 applications before the Court:-

a. the main application, made by the D to strike out the proceedings or for reverse summary judgment in respect of the reasons as set out above; b. an application seeking permission to amend the POC made by the First Claimant; and c. a further application for permission to amend the POC by the First Claimant to plead the assignment of C2 and C3’s claims in favour of C1.

In Marex the Court of Appeal held amongst other matters that the exception can only apply in limited circumstances where the wrongdoing of the defendant has been directly causative of the impossibility the company faces in bringing the claim, the impossibility must be a legal one.

It was claimed by C1’s Counsel that this claim was within the Giles exception. Further C1 also called for an examination at trial of the circumstances in which a partner may owe a duty directly to the other members not just to the partnership itself (just as a director may owe a duty to shareholders) and arguments of a fiduciary duty owed by the D.

It was also pleaded by the D that C1’s application for permission to amend the POC should be refused on the basis that the proposed further claims are all unsustainable, for basically the same reasons that the originally pleaded claims are unsustainable.

In an oral judgment handed down on the same day the High Court ruled in favour of the D and so the claim in its entirety was struck out (six separate heads of loss) with the Judge finding that the exception to the reflective loss principle did not apply. Costs of the proceedings were awarded in favour of the D with a significant payment on account of costs ordered.

Following a refusal of permission to appeal at the hearing itself, any appeal shall lie to the Court of Appeal to which any further application for permission should be made.

Comment
This decision is the latest concerning the reflective loss principle and the Giles exception.

The decision is an important case in its own right and adds to the ongoing jurisprudence in this area of law with the decision consistent with the approach taken in Marex.

FrontRow Legal

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The Emiliano Sala Tragedy: Litigation on the Horizon?

As the general public and wider sporting world express their sympathies regarding the tragic loss of the newly inbound Premier League football player Emiliano Sala, brewing in the background is the potential legal embroilment between Cardiff City and FC Nantes.

The dispute began when Nantes demanded the first of three yearly transfer fee instalments for Emiliano Sala, who was on board a plane that went missing a little over a fortnight ago.

Cardiff City Chairman Mehmet Dalman has confirmed that the French club have billed the Bluebirds £5.27m for the first instalment of the forward’s transfer fee. On 5 February, Nantes also threatened legal action if the payment was not received within the following ten days.

It is thought that Cardiff will do the right thing with regards to any transfer fee, but they have currently frozen payments pending an investigation into Sala’s death. This includes a full disclosure of the facts surrounding his disappearance.

From a basic legal perspective, Nantes may succeed in bringing a claim for breach of contract if four main elements have been established. To be a valid contract, there must have been an offer, acceptance, an intention to create a legal relationship and a consideration (in this case money). Applying this, the above was satisfied during and after contract negotiations, as the offer of £15m was made by Nantes prior to Sala signing, and accepted by Cardiff.

Although one would assume that Nantes can rightly claim the monies owed to them on a breach of contract basis, there are other legal issues to consider.

Having taken legal advice themselves Cardiff believe that they have sufficient grounds to withhold the payment pending the investigation. This includes the issue as to whether Sala was officially registered or not as a Cardiff player.

It is thought that Sala’s name was likely added onto Cardiff’s club insurance policy when the transfer was completed on 19 January 2019. However other sources suggest that Sala’s international documents were in fact lodged with the Football Association of Wales but were not registered with the Premier League, meaning that Sala may not have been on Cardiff’s insurance policy.

There also seems to be confusion surrounding where the money for the payments will come from. It is thought that Cardiff have £16 million of personal accident protection per player to which 84% of this limit is funded by Lloyds Bank, the other 16% are to come from China Re Syndicate 2088 and brokered by Miller. Although this amount of money will cover Sala’s initial transfer fee, Cardiff may still incur excess when it comes to covering the salary for the duration of Sala’s three-and-a-half-year contract as well as the lost revenue that was anticipated for their club record signing. This would likely take the overall value of the transfer to around £25m.

What further adds to the potential litigation, is that Ligue 1 club Bordeaux are supposedly entitled to a 50% cut of the fee, as Sala was on their books from 2012 to 2015 before joining Nantes.

There is also jurisdictional confusion since the plane crashed between the two countries.

With the possibility of these two club locking horns in a legal dispute, there are a number of solutions available. The first one is that the matter is litigated in a French or English court. The second option is that both clubs can establish to take the issue to FIFA and, in such a case, the matter is then submitted to the Players’ Status Committee in the first instance, with the possibility of an appeal to the Court of Arbitration for Sport (this is an independent institution based in Switzerland involved in resolving legal disputes in the sporting world (CAS)).

There is also the possibility that the clubs decide to skip FIFA and go direct to the CAS.

Although Nantes are clearly adopting a hard-nosed stance, this unique case could well be resolved amicably around a negotiation table, mitigating the dispute getting leaked into the public domain.

Whilst Nantes could well be missing out on some valuable interest from the transfer money not sitting in their bank account, many have questioned the French club’s morality demanding payment so soon.

One could say that this event has shown the true motives and underlying principles of the football business – and it’s not over yet.

Jonny Coser, Paralegal, FrontRow Legal

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Is it time to dispense with salary cap?

After a couple of weeks of good publicity and new beginnings, you have to ask whether the game has shot itself in the foot again.

Wigan Warriors have been fined and 2 points deducted for the 2019 season for alleged breach of a salary cap committed in the 2017 season. It does seem quite ridiculous that the Warriors are being punished for a violation committed 18 months ago. https://goo.gl/rRNQjm

Why has it taken so long?

The interesting aspect is that the regime of a salary cap is clearly a strict one and we have seen other clubs punished for breaches such as Salford Reds. However in the same month that Castleford Tigers have been given dispensation in relation to the salary cap to recruit a new player, to replace the injured Luke Gale, we now have this latest headline. Is it a wonder that the game cannot attract new highly successful entrepreneurs?

The Warriors are unsurprisingly appealing the decision. The statement from the RFL talks about an Independent Tribunal, but once again question marks are raised whether the tribunal is independent when members of the tribunal are hand-picked by the RFL-the very same organisation that prosecutes these claims. If we are to have a true independent tribunal should we not be referring these disputes to Sports Resolutions. https://goo.gl/k6uzZx

At least then there can be no argument about bias or questions about being independent. This is something that I have been harping on about for several years. While rules are rules, the messages coming out about the way salary cap is administered creates confusion. Last week Super League 2019 was launched with a real feelgood factor and yesterday we had the launch of the 2021 World Cup.

Surely the issue of this breach of salary cap should have been dealt with during the quiet months of November & December?

The game is desperate to attract new fans, as well as new sponsors and headlines of this nature, do not help.

What do you think?

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Have Celebrity Injunctions Become Virtually Impossible to Enforce?

The recently well publicised case of PJS v News Group Newspapers Ltd (‘NGN’) has seen the once powerful celebrity injunction – a court order preventing a party from doing something– appear to be of little use.

Here PJS, a well-known celebrity (PJS used to hide the party’s identity), requested that the court grant an injunction to prevent NGN from publishing a story about PJS’s private life in which he and the other parties involved would be named. The Court of Appeal granted the injunction in January 2016, preventing this story from being published as to do so would breach the injunction and this would trigger heavy consequences.

On 6 April 2016, however, a popular magazine in the USA published an account of PJS’s story and named all the parties involved. Consequently other publications in Scotland and Canada followed suit, as the injunction only applies to England and Wales.

This has created a situation whereby the English and Welsh press are prevented from publishing the story or identifying PJS, despite the fact that anyone in England or Wales can find the protected information by searching for one of the foreign publications online.

NGN has now asked for the injunction to be set aside given that it has been rendered useless by the easily accessible foreign publications with the result that PJS had lost his anonymity. Although the Court of Appeal agreed that the injunction should be set aside, PJS has taken the case to the Supreme Court in a final attempt to prevent publication in England and Wales.

This has brought the issue of public figures using injunctions and super injunctions – injunctions that are so secretive the injunction itself cannot be revealed – to gag the press under the spotlight. Is there any point in gagging the UK press when foreign publications remain free to publish whatever is protected by an injunction? Attempting to keep such stories secret has become nearly an impossible task in the internet age where information has never been spread so easily, or so rapidly. By gaining an injunction today, a party may create more interest in their story than there ever would have been if it was simply published.

Should the Supreme Court set aside the injunction this could severely weaken what was once a celebrity’s most powerful weapon. The same problem was faced by Ryan Giggs once he was named in Parliament as the man behind a super injunction in 2011. The dissemination of news today has never been so easy. The question is, will this make media injunctions too difficult to enforce?

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Characteristics of the Reader Taken into Account When Deciding the Meaning of Words in Defamation Cases

In Theedom v Nourish Training (t/a CSP Recruitment) the Claimant, a former employee of Nourish Trading (NT), brought a claim against NT after the managing partner sent e-mails to 124 other employers complaining about the claimants alleged conduct. The e-mail stated that the Claimant was sacked for passing confidential information to his girlfriend which amounted to gross misconduct. Additionally, in 109 of the e-mails NT also suggested it may bring criminal charges against the Claimant.

The parties disagreed on the detail and gravity of the meaning that would be conveyed to the mind of the hypothetical reasonable reader. The claimant alleged the reader would take into account the specific allegations and NT argued that the reader would simply form a broad impression of the allegations.

The Judge noted that:

‘…the key to resolving this dispute between the parties is…to take into account the characteristics of the typical reader of this particular type of publication and, I might add, the circumstances in which he is likely to read it.

The judge gave weight to the fact that the e-mails were sent to business professionals from the managing partner of a recruitment firm that either provided their staff, or at least offered them that service. He also acknowledged that the readers were told that the Claimant had betrayed the confidence of the employer’s clients and that the readers themselves may be approached by the Claimants associates, to whom he had given confidential information.

Due to these reasons the judge concluded that ‘the hypothetical reasonable reader of this publication having the above characteristics’ would have read the e-mail very closely, as suggested by the Claimant.

The ordinary meaning a court attaches to the material complained of is crucial in defamation proceedings, as this will have an effect on whether the words are deemed to have caused a claimant reputational damage.

Expert legal advice should be sought immediately in order to ensure a comprehensive analysis of the strength of a case.

Written by Guest Blogger Jonothan Scollen

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The Requirement for Claimants in Defamation Proceedings to show that their Reputation Suffered, or is Likely to Suffer, Serious Harm Emphasised by the High Court.

In Sobrinho v Impresa Publishing SA the High Court was asked to determine whether a Portuguese banker, living in Switzerland, was able to bring a claim for defamation against a Portuguese newspaper which had made certain allegations regarding the claimant’s role in the failure of a Portuguese bank. Although not resident in the UK, the claimant was chairman of a UK based charity and had business relations in the UK.

Section 1(1) of the Defamation Act 2013 reads as follows:

A statement is not defamatory unless its publication has caused or is likely to cause serious harm to the reputation of the claimant.

The court confirmed that mere injured feelings would not amount to ‘serious’ reputational damage and that this issue must be determined before a defamation claim could continue. The court took a number of factors into account when considering whether the claimant had satisfied this requirement:

Circulation and Readership of the publication

The newspaper had a hardcopy circulation of the relevant edition totalling 136 in England and Wales, 52 digital subscriptions and could be accessed through a particular business information and research service. The court calculated that a total of 33 people had read the entire article.

It was confirmed that whether serious harm had been caused, or was likely to be caused, was not simply a matter to be decided by numbers. Due to the small circulation, however, the court ruled that no inferences in favour of the claimant could be drawn from the circulation alone.

Vindication of the Claimant’s Reputation in Portugal

The court noted that the Claimant had previously brought a libel claim against the same publisher in Portugal, but dropped his claim following a Portuguese Parliamentary investigation into the bank collapse, during which he was able to deliver his side of the story to the public.

The claimant noted that the investigation was widely reported in Portugal and this provided his opportunity to set the record straight, rendering the libel claim in Portugal redundant. The claim in the UK was continued as the Claimant alleged that there was ‘very little if any’ coverage of the investigation in the UK.

The court concluded that the Claimant had not suffered, nor was likely to suffer, serious reputational damage due to the publication of the article in question. This was due to the relatively small circulation and the fact that the coverage of the Portuguese Government’s investigation was just as easily accessible in the UK as the disputed article. For these reasons they court ruled that it would be a waste of time and effort for the claimant to take the case any further.  

The decision provides a practical example of the ‘serious harm’ test a claimant must satisfy before the attention shifts to the defendant following the 2013 reforms. The courts will scrutinse the effect of the publication in order to determine whether there is a possible claim, including all the surrounding circumstances.  

As this case shows, the 2013 act has made pursuing defamation claims much more difficult for claimants. Specialist legal advice should be sought as early as possible in order to analyse the claim, and ensure the best possible chance of satisfying the ‘serious harm’ hurdle.

Written by Guest Blogger Jonothan Scollen

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Sporting testimonials now the subject of new legislation

Testimonial matches are a long standing practice in the sporting world to honour and pay tribute to a sportsperson’s playing career. These events are often held to signify the end of a sportsperson’s playing career, but can also be to acknowledge a particular period of service.

The practice was introduced at a time when professional players were relatively poorly paid and had limited earning potential following retirement from their sport. Over the years, the concept has evolved from a time when the amount a sportsperson received from the event reflected little more than passing a bucket around spectators attending the match, to thousands of pounds being generated from a special event or a series of related events.

Current legislation allows sportspersons to keep the entire proceeds of any such event without having the obligation to pay tax on it, in some circumstances. However, all of this is about to change.

From 6 April 2017, all income from sporting testimonials and benefit matches for employed sportspersons will be liable to income tax, with an exemption of up to £50,000 available for employed sportspersons with income from testimonials that are ‘not contractual or customary’. This new legislation will apply where the sporting testimonial is granted on or after 25 November 2015, and only to events that take place after 5 April 2017.

Manchester United Football Club recently announced that they are planning a testimonial for club captain, Wayne Rooney, during the summer of 2016. Whilst Mr Rooney has already revealed his intention to donate every penny raised to four charities close to his heart, this event would not be subject to the new legislation in light of the time-frame above.

With many current sportspersons adopting the same approach as Mr Rooney, in donating all proceeds to charitable causes, it will be interesting to see just how much of an impact this new legislation has on Testimonials come April 2017.

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FrontRow Legal Principal Richard Cramer provides expert opinion on takeover of Leeds United

Following the recent press reports that Leeds United owner Massimo Cellino is currently in the process of attempting to sell the Club, Richard was on hand to provide an expert opinion on this issue to BBC Radio Leeds.

To listen to this interview, please click on the following link: http://www.bbc.co.uk/programmes/p037vt8w

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Leeds United President Massimo Cellino banned under Football League’s Owners’ and Directors’ test

The Football League announced on 19 October 2015 that, following a review of the reasoned Judgment of an Italian court, it had deemed that the President of Leeds United Football Club Massimo Cellino’s conviction under Italian tax legislation relating to the non-payment of VAT constituted a disqualifying condition under its Directors’ and Owners’ test.

As a result of this finding, Mr Cellino will be suspended from running the club at an executive level from 11 November 2015, unless he appeals against the decision and permission is granted for the decision to be stayed, pending this appeal. Mr Cellino has stated that he intends to appeal, however the grounds for doing so are relatively limited and he must confirm any appeal by 28 October 2015.

In accordance with section 5 of Appendix 3 of The Football League’s rules, an appeal against a finding that an individual is subject to a disqualifying condition will only be upheld if either it can be demonstrated that they are not subject to a disqualifying condition, or that this resulted from a conviction by a Court outside of England & Wales and there are compelling reasons why the League should not prevent him acting as a ‘relevant person’ i.e President.

On the basis that the finding of guilt was in relation to the non-payment of VAT on an imported vehicle, it will certainly be a challenge to demonstrate that this should not be seen as falling foul of the Football League’s rules in that this was either a dishonest act or any of the other failing provisions contained within the Owners’ and Directors’ test. Accordingly, should this ground of appeal fail, then Mr Cellino will have to demonstrate that there are compelling reasons why the League should not suspend him. As this definition is wide, it will be for Mr Cellino’s lawyers to prove and it is not possible to accurately predict what any appeals panel are likely to accept.

It should however of course be taken into consideration that this is not the first time that Mr Cellino has fallen foul of the Owners’ and Directors test. Following a similar conviction for failing to pay £305,000 import tax on a yacht in March 2014, Mr Cellino was originally suspended, however this was lifted pending receipt of the final Judgment of the Italian court. Following receipt of this, the suspension was imposed until such time as the conviction was deemed ‘spent’ under UK law, this being 1 year after it was imposed.

Accordingly, should Mr Cellino’s current appeal fail, then the suspension, which arises due to non-payment of the much lesser sum of £28,400, will remain until the latest conviction is spent, in June 2016.

Leeds fans will no doubt be waiting with anticipation to see what the outcome of any appeal is, therefore what role Mr Cellino will have at the club this season. However, if the previous suspension is anything to go by, then the Club certainly seemed to cope in Mr Cellino’s absence and Leeds fans will probably just be hoping that the current off-field activities do not detract from new manager Steve Evans’ tasks on the field of play.

This continuing story will certainly be reported by the national and local press, who have turned to expert opinion such as FrontRow Legal’s principal Richard Cramer to offer opinion and guidance.

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Do Athletes Need to Know They Are Using Prohibited Substances in Order to Violate Anti-Doping Rules?

 

Doping – taking banned substances in order to enhance sporting performances – is an issue that many are aware of at the moment due to the much publicised test-data leak placing professional athletics under the spotlight.

The amended World Anti-Doping Association Code that came into force in January 2015 (‘The Code’) emphasizes that it is the athlete’s personal duty to ensure they do not take any prohibited substances, with Article 2.1.1 of The Code stating:

“Accordingly, it is not necessary that intent, Fault, negligence or knowing Use on the Athlete’s part be demonstrated in order to establish an anti-doping rule violation under Article 2.1. [Author’s emphasis]”

This duty even extends to an athlete’s entourage and if found to have not taken sufficient steps to vet staff, liability could arise even for substances administered by staff without the knowledge of the athlete. The Court of Arbitration for Sport (‘CAS’) has in numerous cases upheld the strict liability of Article 2.1, making it clear that a lack of knowledge is not an automatic defence. Even if the court finds no significant fault or negligence, the consequences can range from a reprimand to a maximum 2 year ban.

Where the athlete falls within that range depends on their degree of fault, therefore it is crucial that athletes research items such as supplements thoroughly, question manufacturers and make sure their products have been fully tested for any substances found on prohibited lists. Databases such as Informed Sports should be a crucial part of any research.

The case of UKAD v Gareth Warburton and Rhys Williams makes this clear as the two athletes were given six and four month bans respectively for taking a substance without any knowledge or intention to cheat. The bans were given as they were found to be at fault due to their ineffective research, Warburton’s ban slightly longer as he didn’t review the Informed Sports website at all. William’s had searched for the product on Informed Sports but when he asked the manufacturer why it wasn’t listed, took the responses at face value. The decision highlights the stringent application of the code, with superficial research not enough to account for a lack of knowledge and intent.

Although the media is concentrating on Athletics, given such bodies as World Rugby, the International Cricket Council and the Football Association are all adherents to The Code it is important that all athletes take note. Failure to do so could mean a long spell on the side-lines and a costly battle to rebuild a damaged reputation.

Rugby League player Sean Penkywicz is the most recent example of The Code’s strict application, receiving a two-year ban for testing positive to a substance which was only found after a negative sample in 2014 was re-tested. Sean had no knowledge of the re-tests and told the media that he had “not knowingly injected myself with drugs”, but that he was “now legally advised to accept a two-year ban which effectively ends my career…”

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