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The Return of English Football: Project Restart and the Duty of Utmost Good Faith

04.06.20

Ashley Cukier and Anirudh Mathur explore the duty of ‘utmost good faith’ in the context of the PL and EFL Rules.

Introduction

On 28 May 2020, Premier League clubs unanimously decided to return to contact training, in accordance with the Government’s recently published ‘Elite Sport Returning to Training Guidance: Stage Two.’ The following day, it was provisionally agreed that Premier League fixtures would resume on 17 June. Other decisions are proving harder. Clubs are reportedly yet to decide on issues such as whether neutral venues should be used for some matches, whether the number of permitted substitutes should be increased, or whether to pay an estimated £330m rebate to broadcasters.

Divisions in the English Football League are starker. QPR’s chief executive, Lee Hoos, is quoted as saying the club is “appalled by” and “vehemently opposed to” the EFL’s plans to return on 20 June.[1] Reports suggest that at least six promotion-chasing League One clubs are determined to complete the season, whereas other clubs would prefer to terminate the season altogether.[2] Peterborough United, currently in a playoff position, have already threatened legal action should the final table be decided by points-per-game; which – if applied – would push the club out of the playoffs. Relegation-threatened Tranmere Rovers have similarly threatened legal action.

The Premier League and English Football League (“EFL”) rules provide that clubs and the relevant league shall “behave towards each other with ‘utmost good faith”.[3] How, if at all, might such a duty bear upon issues such as those identified above?

The Corporate Framework

The Premier League is a private limited company owned by its 20 member clubs (the shareholders). It is governed by its latest Articles of Association (“the PL Articles”).[4] The Premier League Rules (“PL Rules”) set out the framework for the Premier League season. As things stand the PL Rules would formally require amendment in order to facilitate play at neutral venues, or for league standings to be determined on a points-per-game basis.[5]

Under article 16.1 of the PL Articles, the League can “by Resolution make and adopt and from time to time amend the Rules for the purpose of regulating all matters affecting the organisation and management of the League”. In real terms, any of the proposed changes would thus require a meeting of the clubs to be convened, the agreement of 14 of the 20 clubs to the Resolution seeking to amend the rules, and the FA’s written consent (where the proposed change would amend a rule common to the Premier League and EFL).[6] A similar procedure is required under the EFL Articles of Association.[7]

In the case of both the Premier League and the EFL, minorities comprised of a small group of teams can be decisive: under the PL Rules, a two-thirds majority would be required for such amendments; under the EFL Rules, the relevant resolution would require the assent of the majority of members entitled to vote.[8]

The Duty of utmost good faith

Clubs are parties to a contractual agreement with each other and with the Premier League or EFL (as applicable), by virtue of their membership of the league in question. This agreement includes a rule providing,

“in all matters and transactions relating to the League each Club shall behave towards each other Club and the League with the utmost good faith.”[9]

The English Courts have traditionally been reluctant to imply a general duty of good faith, preferring the strict application of the terms of a contract rather than tempering their effect on the grounds of fairness.[10] But in this situation, where the duty is express, what does the duty require in real terms from stakeholders? How might clubs (and their respective leagues) approach the duty when grappling with the issues currently being debated by the Premier League and the EFL?

Cases that have considered an express good faith obligation emphasise the trite point that such a clause falls to be construed – as with any contractual provision – in accordance with the ordinary principles of contractual construction, in order to ascertain its ‘natural and ordinary meaning’. But where an ‘utmost good faith’ obligation is included in an agreement without further stipulation or gloss, its meaning can prove elusive; and may necessarily require a consideration of context as part of the process of contractual construction.

In Berkeley Community Villages Ltd v Pullen,[11] a case involving a contract for the development of land, the parties’ agreement contained an express term that: “… [i]n all matters relating to this Agreement the parties will act with the utmost good faith towards one another and will act reasonably and prudently at all times.” The Court (in granting an injunction to the applicant developer against the landowner) held that this express term – in its context – imposed upon the owners “… a contractual obligation to observe reasonable commercial standards of fair dealing in accordance with their actions which related to the Agreement and also [required] faithfulness to the agreed common purpose and consistency with the justified expectations of the [developer].”

The approach of the Court in Berkeley has been cited approvingly in the subsequent cases. In Gold Group Properties Ltd v BDW Trading Ltd[12], the Court was similarly tasked – in the context of a property development agreement – with the proper construction of an express term to act in good faith. The term required each of the parties “at all times to act in good faith towards the other and use all reasonable endeavours to ensure the observance by themselves of the terms of this Agreement”. Having cited Berkeley, the Court then adopted the observations of the Supreme Court of New South Wales in Overlook v Foxtel on the obligation of good faith (noting its variance with the obligation of a fiduciary):

“… the party subject to the obligation [of good faith] is not required to subordinate the party’s own interests, so long as pursuit of those interests does not entail unreasonable interference with the enjoyment of a benefit conferred by the express contractual terms so that the enjoyment becomes (or could become) … ‘nugatory, worthless or, perhaps, seriously undermined’ … the implied obligation of good faith underwrites the spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter. But no party is fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary … The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and to have due regard to the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms.”

 The Court’s conclusion, on the facts before it, was that“… good faith, whilst requiring the parties to act in a way that will allow both parties to enjoy the anticipated benefits of the contract, does not require either party to give up a freely negotiated financial advantage clearly embedded in the contract.”

In CPC Group Ltd v Qatari Diar Real Estate Investment Co.,[13] the Court similarly cited the approach in Berkeley. Qatari Diar concerned a series of issues arising from a joint venture contract for the development of a large plot in London, including alleged breaches of an express term which required the relevant parties to: “… act in the utmost good faith towards each other in relation to the matters set out [in the contract]”. In the Court’s view the obligation of utmost good faith – in its context –  meant “to adhere to the spirit of the contract […] and to observe reasonable commercial standards of fair dealing, and to be faithful to the agreed common purpose, and to act consistently with the justified expectations of the parties.”

In F&C v Barthelemy,[14] the case perhaps most obviously analogous to the context of the Premier League and EFL (shareholders in a company), the Court was tasked inter alia with construing an agreement establishing an LLP containing an express term that “[e]ach Member shall at all times show the utmost good faith to the LLP”. It held that the duty of utmost good faith in this context required the parties subject thereto to “have regard to the legitimate interests of the other parties to the agreement”, but did not “require a party to act in the interests of the other party or to subordinate its own legitimate interests to the interests of the other party.”[15]

Utmost Good Faith and ‘Project Restart’

In circumstances where the utmost good faith obligation in both the PL Rules and the EFL Regulations is stated in little more than a singular sentence, how might a Court or Tribunal ascertain meaning? Principles of ‘commercial fair dealing’, ‘faithfulness to the purpose of the contract’, and ‘due regard to the interests of the parties in the enjoyment of the fruits of the contract’ find expression in the cases mentioned above, but these do not map easily onto the issues raised by Project Restart when compared to, say, a bilateral contract between a landowner and a developer (per Berkeley or Gold Group). For instance, what might ‘Commercial fair dealing’ mean when relegation is at stake, and each commercial party potentially facing the drop has different views on the ‘fairness’ of a given proposal? Can the ‘purpose’ of the contracts in question really be distilled to a sufficient extent that it would reveal any useful guiding principle by which a good faith obligation in this context might operate? And whereas each club might well wish to ‘enjoy the fruits of the contract’ by which the league operates in ordinary times, does that extend to requiring support for a proposal that might actually work against a club’s interests purely for the sake of enabling the relevant league to complete the season with a minimum of rancour?

In the recent case of The EFL v Stevenage Football Club[16], published on 29 April 2020, the EFL Disciplinary Commission arguably missed an opportunity to provide valuable guidance on how a football tribunal might approach the obligation of utmost good faith. The case involved two charges brought by the EFL against Stevenage, in respect of the postponement of its fixture with Oldham Athletic that had been scheduled for 16 November 2019. The fixture was postponed following a request from Stevenage on 9 November 2019, citing the absence of three players on international duty. In fact, the international call up of one of Stevenage’s players – by the Antigua and Barbuda FA – had been withdrawn by 8 November 2019 at the latest. The EFL charged the club under Regulation 31.1 (misconduct) and, also, under Regulation 3.4 (utmost good faith).

However, the Disciplinary Commission’s decision does not contain a detailed consideration of the utmost good faith obligation, noting simply (at §13(b)) that:

“there is no universal definition [of utmost good faith] and, whilst we were provided with a substantial body of authority, we found greatest clarity in the Court of Appeal’s analysis in Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200 which provides that the meaning is ‘heavily conditioned by its context’ (see per Jackson LJ at ¶109), but that at the least there was an imposition of an obligation (on the facts of that health provision case) that ‘The parties will work together honestly endeavouring to achieve the .. stated purposes [of their contractual arrangements] ‘(ibid ¶112).”

Such analysis could perhaps have been enhanced by a more detailed consideration of the decided cases involving an express term of utmost good faith, and/or, by a more comprehensive statement of what the Disciplinary Commission understood to be the “stated purposes” of the EFL’s “contractual arrangements” (having cited this as the principle in which the Commission had found “greatest clarity”).

More notable, still, is §14 of the Commission’s decision, whereby the Commission – with the agreement of counsel for both the Club and the EFL – determined that in this context,

“utmost good faith is disproved if it is established that (a) a party has acted dishonestly, and/or (b) that a party has deliberately concealed information which it knew to be likely to be material to a decision under the Regulations”.

The authors respectfully suggest that this formulation is mistaken, recasting as it does the language of the obligation so as seemingly to require the EFL to ‘disprove’ the club’s utmost good faith by establishing “dishonesty” or “deliberate concealment”. This is not how the obligation appears in the Regulations. Nor do either of these heavily-laden phrases, both of which connote deceit, appear in any of the authorities considered above. It is not immediately clear why, hypothetically-speaking, the actions of a club in this context which did not “adhere to the spirit of the contract”, or which were “inconsistent with the reasonable expectations” of the parties (c.f. Qatari Diar) could not equally – if consistent with the facts – constitute a breach of the utmost good faith obligation, still less why only dishonesty or deceit would be sufficient to make out the charge. On the Commission’s construction of the provision in EFL v Stevenage, the already-high bar to proving breach appears to have been lifted higher still, in a way which – in the view of the authors – does not necessarily accord with the authorities doubtless shown to the Commission in the case. Nor is it clear whether such a construction represents the EFL’s settled view on the obligation; but if it is, the ramifications of this for the enforcement of charges brought by the EFL under Regulation §3.4 are considerable.

What Premier League and EFL clubs can perhaps be more sure of (per F&C v Barthelemy) is that their obligation of utmost good faith will not require them to subordinate their own legitimate interest to that of other clubs or stakeholders.

Thus (taking an example with which this article began) when it comes to a proposal for neutral venues, a relegation-imperilled club with an excellent home record might justifiably oppose such a proposal, with limited concern that this might constitute a breach its obligation of utmost good faith. Similarly, a club with a smaller and less well-resourced playing squad might justifiably oppose a proposal for additional substitutes (likely to favour the larger and better-resourced squads), even if the proposal was mooted out of concern for player fitness due to the truncated ‘pre-season’ prior to restart.

Opposition to restart – by contrast – is potentially more problematic. Clubs opposing might be characterised as being unfaithful to the parties’ common purpose, acting contrary to the legitimate interests of the other parties and/or acting inconsistently with the justified expectations of the parties that once a viable restart is possible, it ought to be pursued. But even here, the scope for imputing bad faith appears to be relatively narrow, particularly where opposition is motivated by public health concerns or by the reluctance of players to resume.

For the time being, clubs and fans await the conclusion of Project Restart discussions. Based on current reports, the outcome of those discussions is unlikely to assuage the concerns of all stakeholders. It will be of interest to sports lawyers whether the fallout from those decisions breathes life into the doctrine of utmost good faith in a footballing context, in a way scarcely foreseeable at the start of the season.

Addendum 

Since publishing this article Leading Counsel, Nick De Marco QC, who acted successfully for Stevenage in The EFL v Stevenage Football Club, has tweeted in response to the authors’ analysis of that decision. In full: 

“I respectfully disagree. The DC had “a substantial body of authority” before them as they say – from both parties – including the leading HL decision in Manifest Shipping [2001] UKHL 1 (unless a party acts in bad faith no breach of duty of good faith, utmost or otherwise); 1/3

“2/3 both parties essentially agreed that, in the context of these regulatory proceedings ‘good faith’ had a core meaning of honesty. The DC was correct in its finding, and enlarging the concept in the way the authors of this article suggest would place a heavy burden on football

“3/3 clubs & place the leagues (who do not owe such obligations back) at an unfair advantage against their member clubs, as well as encourage a plethora of opportunistic litigation between clubs. The duty is indeed “heavily conditioned by context”.”

The authors are grateful for this engagement and contribution to the legal debate.  We have since considered those comments – but respectfully maintain our view, per the original article, for two core reasons. 

First, the authorities on ‘utmost good faith’ repeatedly underscore the importance of ‘context’ to an understanding of the obligation. The fact that the context of ‘utmost good faith’ in the EFL Regulations is one of shareholders is crucial (and the decision in F&C v Barthelemy thus particularly significant).  It is understood that F&C v Barthelemy was not considered by the Disciplinary Commission in the Stevenage case, and the parties were agreed as to the test to be applied. Be that as it may, the case of Manifest Shipping was not about shareholders. It concerned the application of the Marine Insurance Act 1907 (including the statutory duty of utmost good faith at s.17 of the Act) following the total loss of a vessel at sea. It cannot, in the respectful view of the authors, be considered the leading authority on utmost good faith in a shareholder context.

Second, the authors would respectfully disagree with the suggestion that the article above seeks to enlarge the concept of utmost good faith. The article seeks only to analyse what the relevant authorities state. Indeed, it might fairly be suggested that the decision of the Disciplinary Commission in the Stevenage case appears to narrow the scope of the obligation to an extent not seen in F&C, or in the other cases considered above. 

It will be interesting to see if, and how, the obligation of utmost good faith is invoked as the footballing season restarts. For the time being, we repeat our thanks to Nick De Marco QC for his engagement with this article. We look forward to continuing the discussion on this under-remarked aspect of the Premier League and EFL Rules over the coming months. 

[1] https://www.bbc.co.uk/sport/football/52875186

[2] https://www.theguardian.com/football/2020/may/28/lower-division-clubs-rescue-package-mp-damian-collins-letter

[3] See PL Handbook, §B.16; EFL Regulations, §3.4.

[4] The latest version of which was passed by special resolution on 5 June 2019.

[5] See Rule C.1 and A.1.169 respectively.

[6] See Articles 17, 18 and 27 of the PL Articles, and the FA’s special rights under Article 7.

[7] See Articles 7.2 and 7.3, 8.1 and 8.2, and 13.3

[8] Article 13.3

[9] See PL Rules, §B.16; EFL Regulations, §3.4.

[10] See, for example Bingham L.J. in InterFoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 QB 433, 439, and Lord Ackner in Walford v Miles [1992] 2 AC 128, 138. More recently, see the judgment of Moore-Bick L.J. in MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2016] EWCA Civ 789, at [45]. The elevation to the Supreme Court in April of this year of Lord Leggatt (whose judgments and extrajudicial writings on the duty of good faith have been instrumental in the development of this area of the law) might yet signal a further evolution of the English Courts’ position.

[11] [2007] EWHC 1330 (Ch) [33], [97]

[12] [2010] EWHC 1632 (TCC) [27], [89], [90-91]

[13] [2010] EWHC 1535 (Ch) [18], [246]

[14] F&C Alternative Investment (Holdings) Limited v Barthelemy & Anr [2011] EWHC 1731 (Ch) [46], [255]

[15] F&C at 247.

[16] SR/041/2019

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Ashley Cukier Anirudh Mathur
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