It’s the taking part that counts: participating in the rules of sports governing bodies

Mercato Sports (UK) Limited; Mark McKay v the Everton Football Club Company Limited [2018] EWHC 1567 (Ch)

The football transfer window is big business, with the world record transfer fee standing at €220 million for Neymar Jr’s transfer to Paris Saint-Germain in 2017. Aside from the headline-grabbing fees, player transfers are also big business for various intermediaries and advisors. A recent case highlights the importance of arbitration to such dealings, and may have wider implications for those involved in sports.

Facts

Player AB signed for Everton Football Club (Everton) in 2017. Mercato Sports and Mark McKay (the Claimants) brought litigation proceedings against Everton for fees that they claimed were owed to them for bringing the player to Everton’s attention.

The governing body of football in England, the Football Association (FA) has rules in place to govern transfers, and the relationships between the parties involved (the Rules). Under Rule K, any dispute between “two or more Participants” is to be referred to arbitration. “Participant” includes, amongst others, “Intermediaries”, being any natural or legal person performing an “Intermediary Activity”, which itself includes acting directly or indirectly for any club or player during the course of a transfer, or otherwise participating in any activity sanctioned either directly or indirectly by the FA.

Accordingly, in response to the litigation, Everton brought an application to stay proceedings pursuant to section 9 of the UK Arbitration Act 1996, allowing a party to apply to the court for a stay of proceedings that were to be referred to arbitration under an agreement between the parties.

Analysis

The Court characterised the test to be applied in determining whether Rule K amounted to a binding arbitration agreement between the Claimants and Everton as a question of whether there was an implied agreement (between the Claimants and Everton) to adopt the arbitration agreement contained in Rule K.

The judge’s analysis of whether such a “horizontal” contract could be implied focused on the existence of two express “vertical” contracts that each party had separately agreed with the FA as governing body (and each of which involved an agreement to be bound by the Rules). The Court determined that a “horizontal” contract can be implied between two parties where “each of those persons has a separate contract… with the same third party committing them to abide by particular rules laid down by or stipulated for by that third party”.

Bound to arbitrate

On the facts, the Court found that there was a horizontal contract between the Claimants and Everton. The Claimants had stated on their invoices their FA Intermediary number, and issued an invoice for “work on behalf of the club relating to AB”. This was “compelling” as a strong indication that the Claimants provided services in their capacity as Participants in the Rules. As a result, the judge was satisfied that the arbitration agreement in Rule K applied and that the proceedings should be stayed in favour of arbitration.

Mr Justice Eyre found that even if the Claimants were not “Intermediaries”, they would nevertheless have been “Participants”, as they were undertaking a sanctioned activity. This would in his view anyway have meant that they were bound by the Rules, as “a person who is bound by the Rules does not take him or herself outside the scope of the Rules by acting in breach of the Rules”.

The judge considered that when an implied horizontal contract would arise would be a question of degree in each case. He articulated several considerations that courts should take into account, including that those engaging in a sporting event organised by a governing body will likely have entered into horizontal contracts with the other participants but that “such a conclusion will be less readily reached the further removed the activity in question is from the actual playing of the sport”.

Businesses undertaking dealings in the sports sector should therefore be wary of unwittingly impliedly consenting to arbitration provisions by way of engaging in an activity that potentially falls within the scope of the rules of a governing body and even, more broadly, of inadvertently entering into other “horizontal contracts” and other unintended horizontal liabilities to other participants active under the rules of that governing body.