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James Green: High Court makes finding of serious irregularity in rule K Arbitration

The High Court last week handed down its judgment in Fleetwood Wanderers Limited v AFC Fylde Limited [2018] EWHC 3318 (Comm), holding that a Rule K Arbitration Award was marred by serious irregularity. The successful Claimant was represented by Paul Gilroy QC.

The facts
The dispute between the clubs centred on the employment of Dion Charles, a Northern Irish player now at Southport. While under a contract with Fylde, Mr Charles was engaged by Fleetwood. Fylde brought a Rule K arbitration alleging (amongst other things) a breach of Article 17 of FIFA’s Regulations on the Status and Transfer of Players (“RSTP”). Article 17 contains a principle that compensation shall be paid where a relevant contract is terminated without just cause, and further provides that the player and the new club shall be jointly and severally liable.

A major issue in the arbitral proceedings was therefore whether Article 17 had been incorporated into the FA Rules. Rule A1(b) provides that clubs and players must “play and/or administer football in conformity with…the statutes and regulations of FIFA …” However, the RSTP contains two types of provision: those that are “binding at national level and must be included without modification in the [national] association’s regulations”, and those that are “principles [that] must be considered” by national associations in producing regulations to protect contractual stability. Article 17 expressly fell into the latter category.

The Arbitrator concluded that Fylde succeeded on the RSTP issue. In the absence of any qualifying words, it was difficult to see how Rule A1 did not incorporate all of the discretionary provisions, including Article 17. The Arbitrator also noted that there was no extraneous evidence to show whether the FA had made a conscious decision about which of the discretionary provisions of RSTP it would apply. However, the reasonable inference to draw from the wholesale incorporation of FIFA regulations was that the RSTP applied in full and without derogation.

Fleetwood sought to challenge the award before the High Court, initially arguing that the Arbitrator lacked substantive jurisdiction under section 67(1)(a) or had exceeded his powers under section 68(2)(b) of the Arbitration Act 1996. However, the FA subsequently informed the parties that the Arbitrator had privately exchanged emails with them shortly before writing his Award, seeking the FA’s view as to whether Article 17 was indeed incorporated into the FA Rules. The Arbitrator did not inform the parties about this correspondence. The High Court judgment described these emails as “contentious”.

Fleetwood was given permission to amend its case to include a claim that the emails were a breach of the Arbitrator’s statutory duties to act fairly and give the parties a reasonable opportunity to put their case, and so amounted to a “serious irregularity” under section 68(2)(a) of the Arbitration Act.

The High Court judgment
HHJ Halliwell had little difficulty concluding that the Arbitrator had acted in breach of his statutory duties. The parties were entitled to assume that the Arbitrator would base his decision solely on the evidence and argument presented by them. If the Arbitrator intended to decide the dispute on some other basis, the parties needed the opportunity to respond, whether by calling further evidence or through argument. The emails exchanged between the Arbitrator and the FA, after the hearing had concluded but before the Award was produced, contravened these statutory duties.

The judge then considered whether this breach amounted to a serious irregularity: (i) had it led the Arbitrator to reach a conclusion which, but for the irregularity, he might not have reached, and (ii) would that alternative conclusion have been reasonably arguable?

The judge held that it was reasonably arguable that the Arbitrator’s conclusions on Article 17 were wrong in law and his breach was therefore a serious irregularity. The Award was remitted back to the Arbitrator.

Analysis
The most striking aspect of this case is the initially undisclosed discussions between the Arbitrator and the FA. Prospective litigants may well be left with lingering questions about the operation of the Rule K process.

However, the case also raises a number of interesting points relating to whether Article 17 forms part of the FA Rules:

• First, FA Rule K14(a) provides that Rule K arbitrations are governed by English law. FIFA Regulations such as the RSTP are not that in principle, and litigants should accordingly be wary of seeking support from international examples. Before both the Arbitrator and the High Court, Fylde relied on the CAS decision of Wigan Athletic FC v Heart of Midlothian, Cas 2007/A/1298-1300. However, this was an international arbitration on appeal from the FIFA Dispute Resolution Chamber and was determined under Swiss law. The judge found the case to be of limited assistance. Similarly, the Arbitrator made reference (in his emails to the FA) to the approach taken by the Irish FA. However, it is difficult to see how this could be relevant to the underlying question.

• Second, since the FA Rules are binding as a contract, they are to be construed according to contractual principles under English law. The Arbitrator did not appear to consider whether Article 17 of RSTP – expressed as a discretionary “principle” – was apt for incorporation. Similarly, the Arbitrator considered (and the parties subsequently made submissions to the High Court on) whether the FA had consciously addressed the question of whether to incorporate Article 17. However, this evidence was by its nature inadmissible as an aid to construction of the FA Rules – except insofar as it could have been taken to form part of the background knowledge of the parties.

Although the judgment is not authority for the proposition that Article 17 is not incorporated by the FA rules, the court’s clear analysis will no doubt be relied upon by defendants in future Rule K arbitrations – particularly clubs seeking to evade joint and several liability.

Article written by James Green.