As football fans will know, Crystal Palace FC fell out with Iain Dowie after he left as manager of the club in May 2006. After a disappointing end to the 2005-06 season, in which Palace failed to achieve promotion to the Premiership, Dowie entered into discussions with the club’s chairman and major shareholder, mobile phone magnate Simon Jordan. They reached a compromise agreement under which Palace terminated his employment and agreed irrevocably to waive its right under his employment contract to £1m compensation if he left before the end of its term and went to work for a Premiership club.
Just over a week later, Dowie was appointed manager of Premiership club and arch-rival Charlton Athletic. Palace sued immediately, attempting to serve proceedings at the televised press announcement of his new position. The claim said Palace had entered into the compromise agreement on the basis of fraudulent misrepresentations by Dowie, including that he had had no contact with Charlton and had no intention to join that club.
A trial on preliminary issues in June last year held that Dowie had made those fraudulent misrepresentations. He knew the statements to be untrue when he made them and intended them to induce Palace Ñ as they did Ñ to enter into the compromise agreement on the relevant terms. Palace asked the Court to rescind their compromise deal with Dowie but the Court refused. Mr Justice Tugendhat considered that the effect of rescission would be to retrospectively revive the employment contract.
This would not be just because Dowie was now under contract to a new club, Coventry City FC, and Palace itself had a new manager. A manager could not perform two employment contracts at the same time and, even if Palace suggested it would not call on him to perform any obligations except as regards the compensation payment, then that would not amount to rescission in any real sense. Nor would it be just to revive the compensation provision on its own.
It was held that practical justice in this case meant appropriate orders for damages or other financial relief. The full judgment is Crystal Palace FC (2000) v Dowie [2007].
Cambridge’s troubled waters
Cambridge City FC, on the other hand, did achieve rescission of a contract on the basis of fraud - albeit not to the full extent it was seeking.
The club sold its ground to a developer called Ross River in 2004 for £1.3m plus a 50% share of the ‘overage’ - the increase in value of the site if it were redeveloped. Due to financial difficulties, it then negotiated with Ross River to sell its share of the overage. During these discussions Ross River’s development manager, Paul Harney, made various representations to the club and arranged for £10,000 to be paid to the club’s managing director. The club’s share of the overage was ultimately sold for £900,000.
Litigation ensued under which the club claimed rescission of the overage agreement and also the original sale agreement on the basis of fraudulent misrepresentation and bribery. Ross River countered that Harney’s representations had not induced the club to enter the overage agreement and the £10,000 payment was not a bribe.
The court held that Harney had made material fraudulent representations regarding the plans for the redevelopment of the site. Mr Justice Briggs commented that in cross-examination Harney “wriggled and evaded with imagination but without candour”. Briggs said that when such representations were deliberately made, as here, with the objective of improperly influencing the outcome of contractual negotiations and by an experienced player in the relevant market, there was the most powerful inference that this objective had been achieved, which it had been here.
The payment to the managing director also amounted to bribery, it was held, as it was not adequately disclosed to the club. The managing director should have told the board, although less stringent rules may apply where disclosure was made by the payer or the payment was not to the managing director. Ross River had put itself at risk by not making the disclosure itself.
Cambridge City could therefore rescind the overage agreement and get back its share of the ground’s redevelopment value. It was not, however, entitled to regain the ground itself: the Court would not order rescission of the sale agreement because it was made prior to these events. For the full judgment see Ross River v Cambridge City Football Club [2007] .
Ross River and Cambridge City are seeking leave to appeal and Dowie’s appeal of the judgment against him is due to be heard in early April 2008. This may, therefore, be half-time rather than the final whistle. However, it seems clear that those who contract with football clubs need to ensure that they play fair, otherwise the clubs will be prepared to fight as hard in court as their players do on the pitch.
Andrew Horrocks is a partner and Sarah Crowther an associate in the commercial litigation team at Barlow Lyde & Gilbert.
