Legal Update

Commercial Law – Arbitration Available in Unfair Prejudice Petitions – Sports Law - The Football Association Premier League Ltd

The case of Fulham Football Club (1987) Ltd v Richards and another [2011], concerned an unfair prejudice petition by Fulham Football Club (1987) Ltd (“Fulham”) against Sir David Richards (“Richards”), the chairman of The Football Association Premier League Ltd (“the Association”), and against the Association, under s 994 of the Companies Act 2006 (“the Act”).  The petition related to the allegation by Fulham that Richards had interfered with the negotiations for the transfer of Peter Crouch from Portsmouth City Football Club to Tottenham Hotspur Football Club, when Fulham had put in a higher offer for the player.

Fulham was a member of the Association, and under the memorandum of association of the Association, it has specific powers to take responsibility for the premier league and its management under the Football Association’s (“the FA”) jurisdiction.  The articles of the Association dictated that it must comply with the rules of the FA which provide that as a member of the Association a football club was deemed to agree to the provisions of s5 of the Arbitration Act 1996 (“the 1996 Act”) vis-à-vis other members of the Association, namely that all disputes arising between members would be submitted to final and binding arbitration in accordance with the provisions of the 1996 Act.

Fulham contended that Richards had breached his fiduciary duties under Part 10 of the Companies Act 2006, that his interference in the transaction mentioned was contrary to the FA football agents regulations (by acting as an unauthorised agent in the transaction) which were made pursuant to the rules of the FA rules which were, consequently, binding on the Association.  Fulham went on to assert that the Association acted in breach of (i) its articles of association, and (ii) its governing rules in that it had not acted in such a way as to rectify the breach of duty by Richards, which it was obliged to do, to ensure that the Association could show that it had not acted in a way that would be unfairly prejudicial to Fulham’s interests as one of the members of the Association.

Richards and the Association sought a stay of the petition pursuant to s9 of the 1996 Act, which relates to staying proceedings where an arbitration agreement exists. Conflicting decisions existed in relation to whether a stay in proceedings could be granted in such circumstances and, deciding to follow the decision of the High Court in Re: Vocam Europe Ltd [1998], the court granted a stay of the petition pursuant to the said provision of the 1996 Act.

Fulham appealed against the decision.  It submitted that the conflicting case of Exeter City Association Football Club Ltd v Football Conference Ltd [2004] had been correctly decided and the judge had erred in not following it.  As an alternative, Fulham contended that the arbitration clauses contained in the Association's rules, and in the FA’s rules, should have been interpreted so as to have excluded an unfair prejudice petition.

The Court of Appeal dismissed Fulham’s appeal.

Arbitration as a means of deciding an unfair prejudice petition was not excluded by the Act or the 1996 Act.  There was no real public interest issue involved in such action that would dictate that the parties’ freedom to agree how such a dispute would be resolved should be interfered with.  The 1996 Act did in actual fact give priority to an arbitration agreement which addresses the subject matter of a dispute.

The Court of Appeal also concluded that, by virtue of s994 of the Act, an alternative remedy in such actions should be sought, so that a winding up order was really a last resort where disputes between shareholders arose.  As such, arbitration would be such an alternative means by which a suitable remedy may be sought and obtained.  It would only be in circumstances where the arbitrator concluded that winding-up proceedings would be justified that a shareholder would then be entitled to present a petition for winding-up. In those circumstances, the court would be invited to lift any stay imposed on proceedings pursuant to s 9(4) of the 1996 Act.

In this case, the Court of Appeal did not view winding up as a possible remedy that could be sought, and also did not see any public interest reasons to interfere with the parties’ right to decide how their dispute would be settled.  Nothing in the arbitration provisions involved in this case indicated that unfair prejudice petitions were to be dealt with only by the court.

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© RT COOPERS, 2011. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.