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Month: February 2023

The European Super League

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The European Super League – Part 2

Introduction

The idea of a super league competition in Europe has been floated around in one guise or another since 1968. However, in April 2021 a new European Super League (“ESL”) was announced but almost immediately collapsed amidst widespread condemnation from rival clubs, domestic leagues, and European politicians. Six English Premier League teams signed up to the ESL — Arsenal, Chelsea, Liverpool, Manchester City, Manchester United and Tottenham Hotspur.

Fast forward to 2023, the ESL has reared its head again this time with a new look proposal being announced by A22 Sports Management.

New Proposals

A22 Sports Management (“A22”), which is the company created by Barcelona, Real Madrid and Juventus to sponsor and push through legislation for the ESL, has released its 10-point principles for the competition.

Under the revamped system, the new Super League (“SL”) will consist of the following:

  • Up to 80 teams
  • Multi-divisional format
  • No permanent members
  • Minimum of 14 matches per season

It has been reported that A22 has consulted with 50 clubs across Europe since October 2022 and, as a result, has formed 10 principles that underpin plans for the new look SL.[1]

The new proposal consists of 60 to 80 teams, with no permanent members (in contrast to the 2021 concept) and will instead be based on sporting performance, avoiding the controversial closed league system as was highly criticised under the previous concept. The clubs would continue to play in their respective domestic leagues, however, would also compete in the SL for a minimum of 14 times per season. [2]

A22 have been at the forefront of the challenge to UEFA and FIFA’s right to block the formation of the ESL and, in doing so, also sanction the clubs who join the breakaway league. They (A22) have suggested that the governing bodies are abusing a dominant position under EU competition law.

Legal Position

The European Court of Justice (“ECJ”) is expected to issue its final decision on the case later this year. In December, however, the Advocate General, Athanasios Rantos (“Rantos”), provided a non-binding opinion on the case, which states that the regulations permitting the international governing bodies to prevent the establishment of new leagues must comply with EU law.[3] He added that sports governing bodies such as UEFA do not infringe EU competition rules by putting in place pre-authorisation systems ensuring all competitions respect common overarching standards.

The essentially closed character of the ESL made it incompatible with the principles of sporting merit and open competitions as enshrined in UEFA’s statutes. The ESL must have known what would lie ahead, as it took the step of initiating proceedings against FIFA and UEFA before a Madrid Court in parallel to the announcement of the project. The purpose of these proceedings was to avoid such constraints and prevent any potential disciplinary actions against the founding clubs.

Rantos’ opinion clearly hints at the legitimate, necessary, and proportionate character of UEFA’s procedure, and of its response in the face of the ESL project announcement.

Conclusion

Rantos’ opinion marks the last step of the preliminary ruling proceedings before the ECJ delivers its judgment answering the questions referred by the Madrid Court.

The new SL is undoubtedly a direct competitor to UEFA; even more so now as the proposed format is extremely similar to the new format of the Champions League that is scheduled to start during the 2024/25 season.

It goes without saying that the outcome of the ECJ case is eagerly anticipated and will undoubtedly have huge implications on the progression of the new SL.

[1] European Super League: Fresh plans for 80-team competition announced by chief executive Bernd Reichart | Football News | Sky Sports

[2] The Super League’s return explained: How it would work, the response — and what happens next – The Athletic

[3] European Super League: Fresh plans for 80-team competition announced by chief executive Bernd Reichart | Football News | Sky Sports

Football Governance: Independent Regulator

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The plan for a regulator, recommended by a fan-led review (the “Review”) last year, has been confirmed by the UK government. Preventing historic clubs from going out of business is one of the aims, as well as giving fans greater input and a new owners’ and directors’ test.

This White Paper builds on those recommendations and outlines a comprehensive plan to introduce an independent regulator (“Regulator”) for English football clubs. In theory, it will be a Regulator that is free from the vested and conflicting interests that have hindered progress in the past, and one that makes sure football works for its fans and communities.

The main purposes of the proposed Regulator will be:

  • Stopping English clubs from joining closed-shop competitions, which are judged to harm the domestic game.
  • Preventing a repeat of financial failings seen at numerous clubs, notably the collapses of Bury and Macclesfield.
  • Introducing a more stringent owners’ and directors’ test to protect clubs and fans.
  • Giving fans the power to stop owners from changing a club’s name, badge and traditional kit colours.
  • Ensuring a fair distribution of money filters down the English football pyramid from the Premier League.

Issues

In short, the government believes there is an unacceptably high and growing risk of financial failure among football clubs throughout English men’s professional football. This, and the risk of breakaway competitions, threatens the stability of the football pyramid. Many clubs lack resilience against financial ‘shocks’, as Chelsea and Derby have highlighted.

Furthermore, breakaway competitions represent another potential shock to the market. Proposals like the European Super League would exclusively benefit a small number of clubs at the expense of others.

Intervention

Fans

The government believes that clubs play a pivotal role in many communities. Which is true. Fans of these clubs have deep emotional and social connections to their club. In economic terms, this means when their club ceases to exist, they will not substitute for an alternative ‘supplier’.

Communities

Football clubs are community assets with cultural heritage value. In addition to the direct and indirect economic benefits they deliver to local areas, they benefit the local and wider society.

Government

The Football Creditors Rule also affects HMRC. HMRC estimates that administrations at EFL clubs have contributed to the UK Government being unable to collect nearly £30 million in unpaid taxes since 2019.

Football clubs are more community and heritage assets than typical businesses, with fans rather than consumers. As such, football clubs should not be left to fail. However, if football continues on its current trajectory there is a material risk of further and extensive financial failures.

Industry self-regulation

Many problems in football are not new. However, despite repeated calls for reform, neither clubs nor leagues have taken the necessary actions to transform. As such, the government is of the view that football alone warrants intervention.

Independent regulator

Several options were considered, but none were considered independent of influence or that reforms would be guaranteed long-term. In contrast, the UK government believes that there has been widespread public support for a Regulator, including from fans and football finance experts. The UK government has also heard from football investors, club owners, and representatives of the EFL and National League who all support a new statutory independent regulator.

The government will seek to introduce the Regulator to reform the culture of governance in English football clubs and mitigate the risk of clubs being entirely lost to fans and communities. It would have three secondary duties, to have regard to:

  1. Domestic competition,
  2. International competitiveness, and
  3. Investment. This would ensure it balances these objectives when striving for its primary purpose.

Furthermore, the government believes regulated clubs should bear the cost of regulation. Therefore, the Regulator would be funded by a levy on clubs proportionate to their revenue.

Scope

The Regulator will consider the top 5 tiers of the English men’s football pyramid. It’s unclear where the Regulator will be housed (i.e. government department or a football body). Nevertheless, the government believes that football has shown itself incapable of sufficient reform and of taking the necessary decisions for the good of the whole pyramid. The governance arrangements mean football has the wrong incentives and is therefore unlikely to deliver the protections the game needs.

Framework

The Regulator would set detailed Specific Licence Conditions to clubs, under each Threshold Condition as set out below:

  1. Appropriate resources – The club must have adequate financial and non-financial resources and controls in place, to meet committed spending and foreseeable risks.
  • Fit and proper custodians – Persons at a club deemed to exercise significant decision-making influence must be fit and proper custodians.
  • Fan interests – The club must have appropriate provisions for considering the interests of fans on key decisions, and issues of club heritage, on an ongoing basis.
  • Approved competitions – The club must agree to only compete in leagues and competitions that are approved by the Regulator based on predetermined criteria

While the four Threshold Conditions above would be set in legislation, there will be detailed requirements underlying each called Specific Licence Conditions which would be determined by the Regulator. Clubs would have to comply with these Specific Licence Conditions in order to meet the overarching Threshold Condition.

Four Pillars

There are 4 proposed pillars and foundations for reform, these being:

  1. Financial regulation

Clubs would be required to demonstrate good basic financial practices and have appropriate financial resources or ‘buffers’ to enable the club to meet cash flows in the event of a financial shock, and to be able to protect the core assets and value of the club – such as the stadium.

This regulation would be delivered through the Regulator’s licensing system under the first Threshold Condition of ‘Appropriate Resources’. The Regulator will also want to see that clubs can demonstrate and have in place good contingency/scenario planning, multi-year forecasting, monitoring, and reporting procedures.

  • Corporate governance

The Review found poor internal governance at clubs allowed owners to act unilaterally, pursuing short-term interests with little accountability or scrutiny. The Regulator should seek to improve corporate governance through the creation of a compulsory ‘Football Club Corporate Governance Code’. Compliance with the code would be enforced through the ‘Appropriate resources’ Threshold Condition.

The Football Club Corporate Governance Code would draw on established corporate governance principles applied in other industries. The Football Club Corporate Governance Code would adopt a tiered approach to accommodate the vast difference in scale and resources of the clubs across the pyramid. Each tier would have a different level of requirements.

The government believes corporate governance will not be an unnecessary burden. Rather, corporate governance is an opportunity for clubs, helping them to achieve better business outcomes, risk management and transparency for fans. There will be a requirement for clubs to report and publish on corporate governance annually.

  • Owners and Directors’ Tests

The Review found examples of unsuitable custodians, including owners with long histories of business bankruptcies, owners with serious criminal convictions, owners later imprisoned for crimes including money laundering, and directors recruited without a proper, transparent appointment process.

To address these shortcomings, the Regulator would establish new owners’ and directors’ tests consisting of three key elements:

  • a fitness and propriety test (owners and directors),
  • enhanced due diligence of source of wealth (owners); and
  • a requirement for robust financial plans (owners)

The Regulator would establish and implement new tests for owners and directors, which would be enforced through the ‘Fit and proper custodians’ Threshold Condition.

Tests would consist of three key elements:

  1. fitness and propriety test (owners and directors);
  2. enhanced due diligence of source of wealth (owners); and
  3. a requirement for robust financial plans (owners).
  • Fan engagement and club heritage

The Regulator would set a minimum standard of fan engagement as part of its licensing regime through the ‘Fan interests’ Threshold Condition, in line with the aims of the Review. This would require clubs to have a framework in place to regularly meet a representative group of fans to discuss key strategic matters at the club, and other issues of interest to supporters (including club heritage).

Clubs will need to satisfy the Regulator that they have appropriate and proportionate provisions for considering the interests of fans on key decisions and issues of club heritage. Clubs will need to show they are regularly consulting a representative group of fans on key strategic matters at the club, and other issues of interest to supporters (including club heritage).

Financial distributions

English football clubs have been highly successful in growing their income. Combined revenues across the top four men’s leagues. Despite this, analysis of the financial health of English clubs indicates that a large number of clubs struggle to remain financially viable without the help of external owner funding.

A football-led solution to solving distributional issues remains the strongly preferred outcome both now, and for the future. Both the Premier League and EFL agree that a greater quantum of cash needs to flow through the pyramid, alongside cost controls, in order to achieve the financial sustainability that is so urgently needed.

The Regulator will undertake a periodic assessment of how the industry is working and the health of finances. Any Regulator intervention would only come after the market has been given adequate opportunity to reach a settlement. This could potentially involve an arbitral process whereby the Regulator would set out the terms of the process, including the issues that any financing would need to address.

Conclusion

The government is due to go through a process of targeted engagement and consultation with key tenets identified in the White Paper. Targeted consultation will take place shortly, following the publication of the White Paper. Alongside this, the government is to continue to draw on advice from legal, regulatory and industry experts.

On one hand, the White Paper should be applauded for attempting to tackle the endemic failings within professional football in England once and for all. Given the recent financial issues facing Premier League clubs such as Man City and Chelsea, as well as EFL clubs such as Derby County, Bury and Macclesfield, it is clear that stakeholders who currently administer and run professional football clubs in England have made a poor job of doing so.

The Review offered a unique opportunity to understand the views and concerns of stakeholders across football and beyond. However, the White Paper and its contents will be viewed with hostility by many stakeholders within the game given the scale and scope of the proposed reforms. These same stakeholders will be required to implement the proposed changes. Ultimately, the Regulator has been designed to deliver a shift in culture that puts fans back at the heart of the game. Only time will tell whether this shift can be achieved.  

The Government’s White Paper can be viewed here.

UEFA’s sustainability rules

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Here’s everything you need to know about UEFA’s new financial sustainability rules, including their objectives, key pillars, and implementation timeline. The regulations represent a major reform of UEFA’s finance regulations since they were first introduced in 2010, previously knowns as UEFA’s Financial Fair Play (FFP).

As the name suggests, the key objective of the new regulations is to achieve financial sustainability, through three key pillars:

  1. Solvency
  2. Stability; and
  3. Cost control.

The new rules include the following:  

  • No overdue payment rule; and
  • Football earnings rule; and
  • Squad cost rule.

The regulations came into force in June 2022, with gradual implementation over three years to allow clubs time to adapt.

UEFA’s club licensing and financial regulations project, which has been ongoing since 2010, has successfully improved the financial stability of European clubs at all levels. However, the COVID-19 pandemic has negatively impacted club finances, necessitating new regulations to promote financial sustainability in the evolving global football industry.

The new regulations aim to ensure that clubs maintain stability and solvency with a focus on strengthening balance sheets and promoting better cost control. The regulations were developed through consultation with various stakeholders, including national associations, the European Club Association, FIFPro, supporters, the European Commission, the European Parliament, and the Council of Europe.

The no overdue payables rule

The no overdue payables rule promotes solvency and protects the integrity of competitions by requiring clubs to settle payables to football clubs, employees, social/tax authorities, and UEFA by specific deadlines. Clubs with overdue payments may face sanctions.

The football earnings rule

The football earnings rule encourages clubs to build equity and invest in infrastructure and youth development by requiring them to cover the costs of relevant investments with existing equity or contributions. The acceptable deviation has been increased from €30 million (under the, now, old FFP) to €60 million over three years, with the potential for further increases for financially healthy clubs.

The squad cost rule

The squad cost rule restricts spending on player and coach wages, transfers, and agent fees to 70% of club revenues, with gradual implementation of up to 90% in 2023/2024, 80% in 2024/2025, and 70% in 2025/2026. Breaches to the regulations may result in sanctions, with strengthened overdue payable sanctions and progressive squad cost rule sanctions based on severity and the number of breaches.

Welsh Rugby Union in pay related dispute

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Many commentators have been surprised by the relatively poor performance of the Welsh national rugby team in the 2023 Six nations tournament so far. It would seem that the players have been distracted by off-field matters.  The continuing row between the Welsh Rugby Union (“WRU”) and the Welsh Rugby Players Association (“WRPA”) would appear to have spilled onto the pitch itself.

Brief background

In December 2022, the WRU announced a verbal agreement between the Professional Rugby Board (“PRB”) and the WRPA. This agreement outlines the financial plan for the four regions within Welsh Rugby (Cardiff, Dragons, Ospreys, and Scarlets).

These four regions have been supported by the WRU in a bid to promote Welsh rugby and ultimately create a successful structure that will maintain the development of Welsh players.

In 2014, the WRU introduced the Rugby Services Agreement (“RSA”) which distributed £8.7 million per region, guaranteed to be used towards Welsh qualifying players amongst access to loans to develop facilities and a £500k signing fee. [1]

National Dual Contract,

The WRU announced the new national dual contract where the union would commit to paying 60% of a player’s salary, and the region contributing 40% in return for the player providing his services to the national team at a minimum of 13 times per season (subject to selection).

The RSA was superseded by the professional rugby agreement, which increased the annual fee received by the regions to circa £20 million in 2019. This was then renewed in 2021, meaning it is due to expire at the end of the 2022/23 season.

Nevertheless, that expiry is creating significant issues for the regions as they are unable to budget for next season, despite the verbal agreement previously announced. With no budget in place among the regions, they are unable to offer new contracts to players whose contracts are set to expiry at the end of this season. Not surprisingly, this is prompting some Welsh players to look at playing options abroad.

Issue – 60 Cap Rule

However, the issue with players opting to play abroad means they risk not being eligible to play for the national team due to the 60-cap rule. This rule kicks in when a player moves abroad and, as a consequence, a player will only be eligible for selection by the Welsh national team if he has 60 caps or more.

The new framework is being disputed by the WRPA due to its focus on rectifying the governing body’s collective aim of financial sustainability. This means that the regions are set to receive a significantly reduced annual fee as well as introducing a salary cap similar to that seen in England and across Europe. Thus, creating potential reduced salaries for players of the regions who are coming to the end of their current contract which could lead to players being enticed to explore options further afield from Welsh Rugby.

Player walkout

This uncertainty has created disruption within the Welsh Six Nations camp, as players walked out of a planned WRU sponsors dinner and, as of writing, a deadline of 22 February 2023 has been set by the Welsh players as to whether they will play against England at the Principality Stadium on Saturday 25 February 2023.

The WRU is at a crossroads whereby the success of Welsh rugby is being assessed against that of sustainability. While sustainability is at the forefront of rugby amongst the other home nations, due to the financial difficulties experienced by Worcester Warriors and Wasps, the new framework seems to be at the expense of success.

[1] Dragon News : NEW RUGBY SERVICES AGREEMENT ANNOUNCED (dragonsrugby.wales)

Good Faith: Update on the Interpretation of a Contractual Duty of Good Faith

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In the recent case of Re Compound Photonics Group Ltd; Faulkner v Vollin Holdings Ltd [2022] EWCA Civ 1371, the Court of Appeal has provided clarification on the meaning of a contractual duty of good faith, in the context of an unfair prejudice petition.

The Issue for Determination
The issue before the Court of Appeal was whether the High Court had been correct to find that two minority shareholders had been unfairly prejudiced when their appointed directors had been removed from office in breach of an express good faith provision in the shareholders’ agreement.

At first instance, the High Court had found that a contractual obligation to act in good faith, was based upon the principles set out in Unwin v Bond [2020] EWHC 1768, which the High Court considered to offer a settled definition of what constituted good faith.

Court of Appeal Decision
The Court of Appeal unanimously allowed the appeal.

Snowden LJ confirmed that a duty of good faith, in general, encompassed a duty to act honestly and a duty to not act in bad faith. However, any further interpretation of ‘good faith’ should be determined by the specific context and facts of each case. Snowden LJ cast doubt on whether it was appropriate to apply concepts from other cases, including Unwin in a formulaic way.

On these facts, the Court found that the duty of good faith did not amount to an obligation prohibiting the shareholders to vote in favour of removing the directors.

Comment
Re Compound presents a significant departure from Unwin. Following Re Compound the position appears to be that the scope of a good faith obligation is really a question of touch and feel. That said, Re Compound does make clear that to show ‘good faith’ will always require (i) honesty and (ii) an absence of bad faith. It appears clear that the Court will favour a narrower definition of good faith.

When entering into any agreement which includes a good faith obligation, parties need to be aware that the scope of this obligation is far from clear and could be subject to change depending on the factual context. Practitioners should take care to consider the scope of a good faith provision in the context of each case, and whether it provides adequate protection in light of the narrow interpretation favoured by the Court in this case. In our view, the Court is likely to continue to adopt narrow definition of good faith and parties should take care not to view good faith provisions as ‘catch-all’ provisions which function as a sort of ‘get out of jail free card’. Any such approach is unlikely to be treated favourably by a Court.

If you require any further information or advice please get in touch with Nick Scott on nxs@blasermills.co.uk.

The cost of living crisis – how to support your employees

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The increased cost of living has had various effects on the labour market which employers should be mindful of. Older employees are now delaying their retirement plans meaning employers can benefit from more experienced individuals for longer. As a result of this employers will need to make sure they are adequately supporting their older employees.

Additionally, the cost-of-living crisis will be mentally distressing for many, particularly those with caring responsibilities and those from lower socio-economic backgrounds. Below, we discuss some key points to be aware of and how you can support your employees during this time.

Delayed retirement

The cost-of-living crisis has caused 2.5 million pre-retirees to delay their retirement with 1.7 million of those expecting to have to keep working indefinitely, according to a recent study conducted by Opinium Research[1].  The study of 2,003 UK adults aged 55 and over found that nearly two thirds (64%) of those who are planning to push back their retirement state they are unable to afford the loss of income.

This could be beneficial to employers struggling with recruitment as there are now more experienced workers remaining longer in the job market. However, employers should also be keen to ensure that they support the physical and mental health of their older employees. This could mean reviewing health care benefits and pension plans and updating menopause policies, for example.

How to support your vulnerable employees

Many employees will find their increased cost of living very distressing. Particularly for those with childcare needs and other caring responsibilities, finances will be tight. If employees are stressed, this is likely to negatively impact their quality of work and general wellbeing in their role. From both an ethical and commercial perspective, it will be important to support your employees during this time where possible. Below are some examples of how you can do this as an employer:

  • Ensure that you are paying your workers and employees a fair living wage.
  • Review your reward strategy which could include introducing a financial hardship fund. If introduced, this fund should be accompanied by a clear policy setting out how the fund will work in practice. Employers should seek legal advice for drafting this policy.
  • Review your benefits package. Smaller measures such as help with travel costs could be introduced if not already in place.

Undoubtedly, the cost-of-living crisis will also have a financial impact on employers, not just individuals. Therefore, if you are not in a position to offer financial help, below are some examples of non-financial support to be considered:

  • Build your communication strategy to encourage a dialogue between managers and employees about finances.
  • Train your managers to ensure they provide the right support to staff through the cost-of-living crisis, particularly in relation to mental wellbeing.
  • Offer more work flexibility e.g. improved remote working options for those with caring responsibilities.

Other considerations

Certain other considerations should be borne in mind. For example, some employees may be looking to undertake second jobs to cover their increased living costs. Employers should review their staff employment contracts to see which, if any, of their employees are contractually entitled to take on a second job. If this is contractually permitted or you nonetheless allow your employee to take a second job, employers should be aware of various legal implications of doing so. For example, under the Working Time Regulations 1998, employees must not be required to work more than 48 hours per week unless they specifically opt-out of this provision. It will be important to check how any additional work may affect this and seek legal advice where appropriate.

Supporting employees from lower socio-economic backgrounds

With those from a lower socio-economic background suffering some of the worst effects of the cost-of-living crisis, now may be a good time for employers to consider how they can support these employees both in the short term and also in relation to long-term career progression.

In a recent study conducted by KPMG, the company found that socioeconomic background has the strongest effect on an individual’s career progression, compared to other diversity characteristics.[2] The study found that individuals from lower socio-economic backgrounds took on average 19% longer to progress to the next grade, when compared to those from higher socio-economic backgrounds.

To continue combatting these difficulties, KPMG has committed to pursuing the following goals:

  • Reviewing the company’s approach to work allocation.
  • Enhancing data collection relating to progression of the company’s talent.
  • Tackling the bottleneck through piloting a new promotion readiness programme.

Whilst many companies have improved their diversity and inclusion policies and initiatives in recent years, the socioeconomic backgrounds of prospective and continuing employees are often neglected. Although this is not currently a protected characteristic for the purposes of the Equality Act 2010, the UN Special Rapporteur on extreme poverty and human rights called for ‘povertyism’ to be included in anti-discrimination law in an address to the UN General Assembly in October 2022. We are unlikely to see changes to the law anytime soon however the cost-of-living crisis may encourage more discussion on the topic. Employers should take this opportunity to review their approach to socio-economic diversity.

How Blaser Mills Law can help

Our Employment team is highly experienced in handling enquiries across the spectrum of Employment Law.  In particular, our team is adept at drafting policies, reviewing and drafting employment contracts, assisting with grievances and providing general employment advice to employers.

[1] 2.5 million plan to delay retirement due to cost-of-living crisis | Legal & General (legalandgeneral.com)

[2] Social class is the biggest barrier – KPMG United Kingdom

Catch Me If You Can: Service of Proceedings by NFT – An Update

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A New Standard for Crypto Asset Disputes?

In D’Aloia v Person Unknown & Others [2022] EWHC 1723 (Ch), the High Court, for the first time, granted permission for proceedings to be served by non-fungible token (“NFT”) and email. In our article

Catch Me If You Can: Service of Proceedings by NFT – Blaser Mills Law we noted that it remained unsettled law whether service by NFT alone would be permissible.

In the recent case of Osbourne v Persons Unknown and another [2023] EWHC 39 (KB), the High Court has now clarified the position and, for the first time, permitted service of proceedings by NFT alone. 

The Decision in Osbourne

Osbourne concerned a claim brought in relation to the hacking of a digital wallet containing two NFTS, representing unique digital works of art, which were transferred out of the claimant’s wallet. The claimant instructed a digital forensic investigator to trace the NFTs, each of which had been transferred multiple times through various intermediary wallets.

One NFT had ultimately been transferred to an identifiable individual in South Africa, for whom an email address had been obtained (“the Identified Defendant”). However, the second NFT had been transferred to a wallet of a person unknown (“the Unidentified Defendant”).

The Court granted the claimant permission to serve proceedings on the Unidentified Defendant exclusively by NFT, on the basis that there was no other method available to the claimant. In line with the principles established D’Aloia the claimant was given permission to serve proceedings by both NFT and email on the Identified Defendant.

The Court further granted permission for the documents which were to be served via NFT, to be redacted, to protect private data, on the basis that they would be publicly accessible on the blockchain, on the proviso that the Defendants would be given unredacted versions.

Jurisdictional Gateways

In considering the jurisdictional gateways of Practice Direction 6B (as contained in the Civil Procedure Rules) in determining the application for service out, the Court noted the difficulties in applying gateways 11 and 15 to cases involving crypto-asset hacking and made the following observations:-

  1. Gateway 11 (claim relating to property within the jurisdiction) and gateway 15(b) (constructive trust, where the claim relates to assets within the jurisdiction): the Court raised two queries (i) whether England and Wales remained the situs of the NFTs in circumstances where they had been transferred to the wallet of person(s) unknown, who may have been domiciled outside the jurisdiction and (ii) when the NFT has to be located in the jurisdiction of England and Wales for these gateways to apply? It was suggested that the NFT, would need to have been within the jurisdiction when the application for permission to serve out is made, rather than when the cause of action arose. However, ultimately, the Court found that these were issues to be determined in due course in a  contested and fully argued case.
  • Gateway 15(a) (constructive trust where the claim arises out of acts committed or events occurring within the jurisdiction): there is a question of construction of gateway 15(a) and specifically, which acts or events need to occur or be committed in England and Wales for the gateway to apply. This was again not determined and will, no doubt, be the subject of further litigation.
  • Gateway 15 (claim against the defendant as constructive trustee where the claim is governed by English law): this was the gateway that was applied in these circumstances. It was strongly arguable that the constructive trust that was created when NFTs were transferred from the claimant’s wallet was governed by English law and consequently, that the question of whether the Identified Defendant and Unidentified Defendant in turn became constructive trustees when they received the NFTS, was also governed by English law.

Comment

The High Court continues to show a willingness to modernise legal mechanisms established long before the development of crypto assets, to ensure that England remains a key legal centre for disputes of this nature. The Court’s approach to the jurisdictional gateways considered in this case, demonstrates that this framework may also be ripe for modernisation in the face of an ever-changing technological landscape.

Whilst it has now been established that exclusive service by NFT is permissible in circumstances where there is no other method available to a claimant, it is yet to be seen whether the Court would permit exclusive service by NFT where other means of service are available to a claimant. Indeed, in this case, the Identified Claimant was served by NFT and email.

In the short term, at least,  it seems unlikely that the Court would look to expand the scope of exclusive service by NFT further, to permit exclusive service of NFT in any circumstances.

However, if crypto assets become more mainstream because, for example, stable coins gain widespread acceptance, then we would anticipate the use of service by NFT becoming widespread or even the norm for claims involving that type of asset.

If you require any further information or advice please get in touch with Nick Scott on nxs@blasermills.co.uk.

Manchester City accused of breaching over 100 Premier League rules

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The Premier League has announced that it has referred a number of alleged breaches of Premier League rules by Manchester City Football Club (“City or Club”) spanning over a period of 14 years, since 2009, to an independent commission (“Commission”). Specifically, the Premier League (“PL”) has charged the Club with alleged breaches (“Charges”) of 115 of its financial rules (the “Rules”) following a four-year investigation.

Background

The PL announced on its website on 6 February 2023, (without warning), that it, “has referred a number of alleged breaches of [our] rules [by City] to a commission”.  The charges relate to nine seasons from 2009/10 to 2017/18. The alleged breaches are a result of a 4-year investigation by the PL into the financial affairs of City.

This article looks at the Charges facing City and the possible sanctions facing the Club should the Commission find that the Rules have been breached.     

The Charges

As mentioned, the PL has charged City with alleged breaches of the Rules on no less than 115 occasions over 14 seasons from 2009-10 to the present campaign in 2022-23. This can be further broken down into 5 distinct groups:

Group 1 (50 breaches) – Acting in Good Faith  

The alleged breaches in this group relate to the requirement to provide “in the utmost good faith”, accurate financial information that gives a true and fair view of City’s financial position. There is particular emphasis on the reporting of revenue (including sponsorship revenue) which the Club received, as well as its operating costs and related parties.

Group 2 (24 breaches) – Player and Manager Remuneration  

This group relates to providing details of manager and player remuneration. The PL allege that breaches of the Rules took place requiring a member club to include full details of manager and player remuneration in its relevant contracts.

Specifically, the Rules require clubs to have any employment contract with a manager or player to be evidenced in writing and ensure that the said contract is registered with the league secretary. It must also include the standard clauses set out in the Premier League Handbook. It is alleged that City has breached both Rules in some form or another.

Group 3 (5 breaches) – UEFA Financial Fair Regulations

The PL must ensure that its members (the clubs) comply with all regulations set out by UEFA, specifically, the regulations concerning Financial Fair Play (“FFP”). In 2020, UEFA imposed a ban on City (a 2-year competition ban) after having found them (the Club) guilty of breaching club Licensing and Financial Fair Play Regulations, instead, they were only on the receiving end of a £10 million fine.

However, it was later overturned by CAS on appeal, which ruled that some of the alleged offences were timed barred.

Unfortunately, the PL has no such rules that would allow breaches to be time barred and, as such, this would not be a defence that City can rely on during this investigation. The alleged breaches are said to have taken place during the seasons 2013/14 – 2017/18.

Group 4 (6 breaches) – Profitability and Sustainability

The PL has alleged that City has breached rules related to its Profitability and Sustainability regulations throughout 2015 to 2018. The PL requires clubs to submit annual accounts to the league secretary before 1st March each season along with copies of its director’s report and auditor’s report.

Group 5 (30 breaches) – Cooperation with the Premier League

The breaches in this group are alleged to have taken place from 2018/19 season to the present season (2022/23). Further, it is alleged that City breached the Rules requiring member clubs to cooperate with and assist the PL with its investigations”, including, “by providing documents and information to the PL in the utmost good faith”. In short, it is alleged that City have been engaging in conduct with the intention of circumnavigating the Rules.

Potential Sanctions

Unlimited Fine

Rule W.51 of the PL handbook states that the Commission may impose a fine, unlimited in amount. This is a similar sanction to those that have been utilised by UEFA in its policing of FFP throughout Europe.

Suspension

Moreover, where the respondent is a club, as is the case here, the PL can suspend it from playing any league matches. However, this is unlikely to happen given the logistics of such suspension, nevertheless, it is an option open to the Commission.

Points Deduction

The Commission could deduct points from the Club. However, it is not difficult to foresee the issues and problems arising from such a move, particularly, when looking at which campaign this could and would be applied to.

There is guidance to an extent in this area in that Juventus, previous league champions in Italy, were recently handed a 15-point deduction as a result of breaching Italian regulations.

Expulsion

The PL could also expel the Club from the league. It can only be assumed that this style of punishment is only reserved for exceptional circumstances however, it is not unimaginable in the event that it is found proven that City breached all or most of the rules it stands accused of.  

Any order it thinks fit

The Rules permit the Commission to impose any such sanction that it sees fit in the circumstances. This could come in various combinations and forms, for example, automatic relegation could be a possibility, a transfer ban, or a combination of both.

It is also open to the Commission to take retrospective action whereby it decides to strip the Club of its success throughout seasons where the breaches occurred.

Conclusion

Although the hearing is to be conducted in private, there will be much speculation over the coming months and throughout the hearing as to the potential outcomes. Nevertheless, should the Commission find that City have breached the Rules there will, no doubt, be moves from other PL clubs to have the record books updated and trophies reallocated.

Moreover, some clubs may seek financial recompense for missing out on European competition. In addition, UEFA may look to come calling on City’s door again and furthermore, there may be a clamour for the PL to make an example of City, thereby discouraging other clubs to adopt the same tactics.

It’s no coincidence that the PL’s announcement has come just before the Government’s long awaited white paper for a football regulator is due to be made public. The PL must be seen to be keeping its house in order.   

The Tricks of Termination

Posted on by fluroltd

The recent case of Peregrine Aviation Bravo v Laudamotion GmbH [2023] EWHC 48 (Comm) (“Peregrine”) provides a salient reminder of the importance of a properly drafted termination notice.

It is pretty well settled law that a party terminating a contract can rely on any ground of termination available to them, even if not specified in its notice of termination. A very common example of this is where a party terminates on the express basis of a material breach of the relevant contract, but then subsequently seeks to assert that the contract was also terminated for repudiatory breach. The case of Peregrine suggests that this may no longer be an effective option for a party seeking to terminate a contract, because it may find itself precluded from claiming losses flowing from the originally unspecified ground of termination.

During the Covid-19 pandemic, a dispute arose as to whether Laudamotion, a subsidiary of Ryanair, was obliged to accept delivery of four Airbus A320 aircraft leased by the Claimants. The Claimants sought to terminate the aircraft leases for ‘Events of Default’ under the leases, and brought proceedings against Laudamotion to recover their losses. The Claimants’ termination notice referred to a right to terminate for non-acceptance of delivery and “certain additional Events of Default and breaches”.

The High Court provided obiter commentary on the impact of failing to expressly state the basis of a specific termination right in a termination notice. As a matter of interpretation of the leases, damages for termination were only due if the leases were terminated for a valid Event of Default, the relevant Event of Default here being a suspension of payment. However, the Court found that there was no evidence that it was a suspension of payment that prompted the Claimants to terminate the leases. The suspension of payments had been retrospectively identified as a ground for termination and it had not been expressly relied upon in the termination notice. Therefore, irrespective of whether it was a valid ground for termination, it could not be said that a suspension of payment, caused the losses that the Claimants sought to recover under the contract and as a result, compensation was not payable.

This case does not impact upon a party’s entitlement to defend a claim for wrongful termination of contract on the  basis of a valid ground, not specified in a termination notice. However, it does cast doubt upon a party’s ability to recover losses ‘caused’ by that unspecified ground. As the comments are obiter, it is yet to be seen what impact this could have, but it seems to us an area that is ripe for further judicial input and will be, no doubt, the subject of future litigation. 

In our experience, too often, termination notices are not given sufficient consideration and can be perceived to be nothing more than a simple administrative step. This case serves as a stark reminder of the importance of a properly drafted termination notice and the need to consider and, where appropriate, specify all possible avenues for termination.

If you require any further information or advice please get in touch with Nick Scott on nxs@blasermills.co.uk.