Post
by Chester Perry » Thu May 07, 2020 7:31 pm
Another legal advisory piece this time from Sheridan's - one of the most reputable Sports Law practices in Europe on the very topical subject of:
Claims by clubs in the event of a cancelled season
In this short piece, Andrew Nixon and Alex Harvey of Sheridans Sports Group, and David Reade QC and Nick Siddall QC of the Littleton Sports Group consider some of the potential claims which may arise from league seasons being cancelled, with a particular focus on the Premier League. The authors also look at how any losses may be assessed.
Bill Shankly famously observed “Some people believe football is a matter of life and death. I am very disappointed with that attitude. I can assure you it is much, much more important than that.”. The prescience of that observation may be demonstrated in the near future with clubs troubled by the financial ramifications of proposals as regards completion of seasons in the major European football leagues.
On 1 May 2020, the Premier League clubs met to discuss plans to restart, and complete, the 2019/20 season. According to the press release, the clubs discussed a number of possible ways to resume the season, including utilising neutral venues. Ultimately the league and clubs will only return to training and playing subject to Government guidance, under expert advice and after consultation with players and managers.
In other words, there is still no clarity on when, or indeed if, it will be possible to resume.
During the last few weeks we have seen the SPFL bring the lower-league seasons in Scotland to an end; a decision which resulted in the automatic relegation of Partick Thistle and Stranraer FC from the Championship and League One respectively. We have also seen the RFU cancel the remainder of the 2019-20 domestic rugby season (excluding the Premiership).
Those decisions, whilst in themselves significant, are not wholly unexpected in view of the relatively limited revenue generated by those leagues. However, the bringing to an end last week of Ligue 1 in France (with PSG now confirmed as Champions) has brought into sharp focus the challenges faced by the major sports leagues which remain focused on completing their seasons
Clearly there may come a time when the likes of the Premier League and EFL will have little option other than to follow suit. If that happens, whether the season is ‘voided’, decided on an ‘as it stands basis’ or determined on final standings calculated on a best playing record formula (akin to what the RFU used to determine the Championship standings) then there are likely to be legal challenges and claims given the significant financial consequences for the affected clubs. The example of the steps taken by Rangers in Scotland is not to be ignored.
Unfair Prejudice Petitions
The majority of leagues are structured in such a way that their member clubs essentially “own” the leagues as shareholders. This company structure is, for example, adopted by the Premier League (which is owned by the 20 Premier League clubs); and the EFL (which is owned by the 72 clubs in the Championship, League One and League Two). A not dissimilar structure is adopted by Premiership Rugby (albeit there are 13 shareholders, with 12 participating in the Premiership at any one time). All of this means that the leagues and the member clubs are bound together and governed not just by contract (namely, the rules and regulations of the relevant league) but also by company law.
This therefore allows the prospect of unfair prejudice petitions under section 994 of the Companies Act 2006 (“CA”) as an avenue of recourse for aggrieved clubs. These may be clubs which miss out on the opportunity to be promoted, or end up being relegated, as with, for example, Partick Thistle and Stranraer.
Section 994 CA provides:
“A member of a company may apply to the Court ...... on the ground (a) that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself); or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.”
In the case of the Premier League, if the season came to an end tomorrow with the final league places determined ‘as it stands’, AFC Bournemouth, Aston Villa and Norwich would be relegated. In addition to being able to argue that such a decision would breach the prevailing regulations (thus the admitting of a contractual claim) any such decision would also prejudice those shareholders. The same could also be said of Wolves and Sheffield United, who would narrowly miss out on European qualification.
Unfair prejudice petitions are not straightforward. Whilst it is fair to state that the decision referred to above would be prejudicial, that is in itself insufficient. An aggrieved club would also need to demonstrate that the actions of the league, or the other shareholders acting as a majority, were unfair and this is an objective test: i.e. would a reasonable bystander consider the actions of the company to be unfair. A good starting point is the contract between the shareholder and company (for example, in this case the articles of association and league rules), and in normal circumstances satisfying this objective test would be eminently achievable. However, in a COVID-19 ‘world’ it may be that the Courts will be prepared to take into account the unique circumstances of the pandemic, particularly if ending the season became unavoidable from a public health perspective or if, say, the Government intervenes (as has happened in France).
What would happen if a club was successful with any such petition?
If the Court agreed that the minority shareholder, in this case an aggrieved club, had been treated in an unfairly prejudicial manner, it has a number of remedies available to it. Amongst others, it can pass an order regulating the company’s future affairs or require the company to refrain from doing or continuing an act complained of, or to do an act which the petitioner has complained that it has omitted to do.
In the present scenario, that might involve seeking a remedy in which the Court requires the relevant league to refrain from sanctioning a decision which leads to certain outcomes, such as relegation. It would remain to be seen whether, given the circumstances of COVID-19 and the general reluctance of Courts to intervene in sporting matters, such a remedy would be ordered. Plainly, any decision by the league is going to lead to aggrieved shareholders: their identities varying on the basis of the decision reached, and all of this would need to be weighed up by the Court. Indeed, even if the season is completed, by the use of a series of neutral venues, as has been mooted, that decision in itself may still result in certain clubs being prejudiced (for example, if a club near the relegation zone has the advantage of its stadium being used as one of the neutral venues). That would complete the season, but there could still be a question as to whether there would be unfair prejudice to certain shareholders.
One alternative remedy might be for the Court to exercise its power to authorise civil proceedings, subject to terms directed by the Court. This can be a particularly powerful remedy, as it enables an action to be pursued by the Company, meaning that the majority of the costs of that action would then be borne by the Company rather than by the petitioner, and would also enable the petitioner to seek damages, which may, in reality, prove to be the only feasible remedy for aggrieved clubs.
Loss of chance?
Of course, a unique aspect of any claim by an aggrieved club is that the club’s loss would not have crystallised. For instance, it is perfectly feasible that Norwich, Bournemouth and Aston Villa will be, or would have been, relegated at the end of this month. The Court would also, at least in the context of a damages claim, have to assess a number of hypothetical outcomes where the claimant is deprived of the opportunity to obtain a benefit: namely, promotion, or not being relegated (or winning a league, or winning a European place). But the Court would not need to come to a firm conclusion on those hypothetical outcomes.
In the seminal loss of chance decision of Chaplin v Hicks (1911), an actress, Miss Chaplin, successfully brought a claim for loss of the chance to win a beauty contest after the defendant had failed to invite her to the final stage of the contest in breach of contract. Whilst the court acknowledged that it is difficult to assess damages for loss of chance, it went on to emphasise that “the fact that damages cannot be assessed with certainty does not relieve the wrongdoer of the necessity of paying damages”. The case of Sheffield United v West Ham (2008), arising from West Ham’s signing of Carlos Tevez and Javier Mascherano in breach of prevailing third party ownership regulations, is also notable in this context. Sheffield United’s claim dated back to the 2006-07 season when Tevez played a major role in helping West Ham avoid relegation, at the expense of Sheffield United. In April 2007 West Ham were fined £5.5m by the Premier League for breaching the rules in relation to Tevez (and Mascherano) but were not docked any points. Sheffield United lost their appeal but thereafter proceeded with arbitration proceedings, which were ultimately successful. Sheffield United claimed £30,396,897.32 from West Ham, with £21,788,795 of that figure considered to be compensation for the loss of Premier League status: so the loss of the opportunity to remain in the Premier League, with the panel stating that they believed West Ham would have secured 3 fewer points had they not had the benefit of Tevez. The rest of the sum was based on reduced transfer fees, season ticket sales, merchandising and lost business opportunities. Clearly, the opportunity value of the Premier League in 2020 is far more significant some 12 years on.
In the case of, say, clubs in the Championship (or League One or League Two) being denied the opportunity of promotion, those clubs would firstly need to establish that there has been wrongdoing by the relevant league. Clubs at the top of the Championship might point, for example, at Regulation 10.1.1(b) of the EFL Rules which states that: “At the end of each Season, the two Clubs finishing in the highest positions in The Championship of the League Competition shall be promoted to The Premier League …”.
The argument might be that the EFL Rules are akin to a shareholders’ agreement and it would unfairly prejudicial conduct to disregard them. There is no ambiguity in the provision. Additionally there is no reason why a Court would not be prepared to assess damages based on the loss of this opportunity. That will boil down to the Court’s assessment of the likely outcome of those hypothetical scenarios; and the Tevez case demonstrates that it is possible to make such an assessment.
Going forward
These are uncertain times for professional sports leagues, and understandably all leagues (especially those which are underpinned by lucrative broadcasting contracts) will wish to explore every feasible way to restart, and complete, the current season.
Greater certainty inevitably will follow in the coming weeks as the leagues are dealing with finite blocks of time. This is not like a music concert which can simply be rearranged at an alternative date in 12 months. Whatever the outcome, however, it is inevitable that there shall be clubs who are prejudiced as a consequence. It would then remain to be seen whether any such club, or group of clubs, would be prepared to take legal action: as set out above, given the huge financial consequences for certain clubs such a prospect cannot be ruled out.
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