Proactive Sports Management v Wayne Rooney - Case Study Example

The Decision of the Manchester Mercantile Court in the case of Proactive Sports Management v Wayne Rooney and others is clearly in line with the existing law regarding restrictive covenants and contracts made by minors and or inexperienced people. 1. Introduction On 15 July 2010, the Manchester Mercantile Court delivered the judgment in Proactive Sports Management Limited v Rooney & others1. The dispute arose out of a contract entered into between Proactive Sports Management and Wayne Rooney when he was 16 and related to the ability to enforce commission provisions in relation to endorsement deals. The agreement was held to be unenforceable on grounds of being in restraint of trade and commentary on the case has reiterated that the decision is in line with the existing law regarding applicability of restrictive covenants and contracts made by minors2. This paper critically evaluates the law regarding restrictive covenants and contracts made by minors with specific reference to the decision in the Rooney decision and its implications for negotiation of player contracts and player negotiation. 2. Law on Restrictive Covenants & Contracts With Minors The issue as to whether clauses in restraint of trade are enforceable in commercial agreements and as against former employees has remained contentious in practice3. The general presumption of the law has been that any contractual attempt to limit an individual’s right to earn a living will be void on grounds of not being in the public interest4 and was established in Nordenfelt v Maxim Nordenfelt Guns and Ammunition5, which asserted that a restrictive covenant on a former employee will prima facie be void. Nevertheless, in the Nordenfelt case, the House of Lords did state that there would be a limited exception to this in the following circumstances: 1) If the clause was reasonable as between the parties; or 2) The clause is reasonable having regard to the public interest. This principle has been developed further by judicial determinations and notwithstanding the general principles, ultimately whether or not a restraint of trade clause is valid will be a question of fact6. However, there is a presumption in the employment context that employees are in a weaker bargaining position7. As such, in the case of Herbert Morris v Saxelby8, the House of Lords determined that a restraint of trade clause would be void unless it was protecting some genuine proprietary right on the part of the employer.9 Furthermore, it would be void if merely aimed at avoiding competition or prevented an employee using personal skill and knowledge acquired during employment. Accordingly, the general presumption under the law clearly operates against the enforceability of restrictive covenants and if we consider this contextually within the sporting industry, the intrinsic unequal bargaining power between sports professionals particularly at the beginning of their careers, coupled with the monopolistic structure of the sports industry is arguably protected by the restraint of trade doctrine10. For example, Gardiner comments that the unequal bargaining power is “mitigated somewhat when one considers the application of the restraint of trade doctrine, which servers to outlaw agreements in which powerful bargaining positions are abused”11. Similarly, whilst the freedom of contract principle lends itself to a judicial presumption against interference in contractual intention (particularly in commercial contracts); the law nevertheless operates to protect parties where there has been unequal bargaining power12. This is highlighted by the dictum in the Rooney case and the law on contracts with minors. With regard to minors, Stone highlights that “English law adopts a paternalistic approach to the question of minors’ contracts13”. The general presumption is that individuals under the age of 18 are thought to require protection from exploitation by unequal bargaining power due to lack of experience and therefore the legal presumption is that contracts entered into by minors are unenforceable14. There are exceptions and the Minor’s Contracts Act 1987 (MCA) changed the rules applicable to minor’s contracts. The first exception to unenforceability is contracts for necessaries, which was explained in Chapple v Cooper15 as things required as necessary for survival. The necessaries exception was also addressed in Nash v Inman16where it was held that whilst the general rule was that minors were incapable of entering contracts, if it could be established that the contract was for the supply of necessaries, then “the law will imply an obligation to repay him for the services so rendered”17. Another exception is “that of beneficial contractual service”, such as employment contracts and in section 2 of the MCA, where a party entering into a contract is aware that the individual is a minor, the contract may still be enforceable. Indeed, it was held in the case of Mercantile Union Guarantee Corp Ltd v Ball18that benefit to the minor was key in determining validity. Nevertheless, under the MCA the position is in favour of the minor to protect against abuse due to inexperience and unequal bargaining power. Furthermore, the test for validity of minor’s contracts is dependent on the nature of the transaction and whether the minor is capable of understanding the transaction. Additionally, notwithstanding the provisions of the MCA in attempting to implement a rational approach to contracts with minors19, the position regarding commercial agreements remains the same; and these are voidable at the option of the minor20. Therefore, with regard to minors in addition to the rules regulating validity of contract with individuals under the age of 18, Stone comments that a potentially valid restraint of trade clause will be unenforceable in a commercial agreement with a minor21. This legal position was clearly applied in the Rooney case and whilst the Rooney decision didn’t break new legal ground, it has important implications for agents when entering into agreements with new talent. 3. Restraint of Trade, Minor Contracts and the Rooney Decision As highlighted in the previous section, the law on restraint of trade generally operates against enforceability of restrictive covenants, unless it falls within the legitimate interest and reasonableness exception. Additionally, with contracts entered into with minors the general principle is that commercial agreements will be voidable and potentially valid restrictive covenants will not be enforceable22. The application of these principles is clearly evident in the case of Proactive Sports Management v Wayne Rooney and arguably the most significant element of the decision was the judicial approach to the restraint of trade doctrine. If we consider the facts of the case, footballer Wayne Rooney entered into an agreement with Proactive Sports Management Limited (Proactive) to appoint Proactive as Rooney’s agent for a period of eight years. The agreement covered representation for both on and off field activities and the time of entering into the contract, Rooney was 16 years old. Paul Stretford was a registered agent and director of Proactive and was central to Rooney’s decision to join Proactive. Subsequent to entering into the contract, Rooney entered into numerous agreements with Proactive including an image rights representation agreement in 2003. This agreement was for a period of eight years and gave Proactive the right to 20% of the gross sum payable on any endorsement, promotion or sponsorship deals entered into by Wayne Rooney and Coleen Rooney. Wayne Rooney subsequently secured many high profile endorsement deals and in 2008 Paul Stretford left Proactive and continued to represent Wayne Rooney under his arrangement with Stoneygate (which was a company set up on Wayne Rooney’s behalf). Stoneygate refused to pay Proactive under the agreement and tried to terminate the agreement. In response, Proactive instituted proceedings against Stoneygate, Wayne and Coleen Rooney claiming unpaid commission on grounds of repudiatory breach. The Judge held that the agreement was unenforceable for restraint of trade and with regard to the restraint of trade doctrine, it was asserted in refute of Proactive’s “legitimate interest” argument that “the fundamental reason why the Image Rights Representation Agreement is....in restraint of trade is the duration of the exclusivity arrangements which it creates23”. Additionally, it was held that the restraints imposed in the agreement significantly hindered Wayne Rooney’s freedom to exploit his earnings and the term of the agreement was far too long to justify being necessary to protect a legitimate interest in comparable contracts. Proactive’s arguments that commission on Rooney’s earnings would also help offset losses made on other players under similar agreements was also rejected on the basis that “it was far from obvious that it is reasonable to expect a player such as WR to subsidise marketing efforts on behalf of other, less successful players”24. Furthermore, the judge doubted whether the agreement was a standard form of agreement utilised in the industry and felt that Wayne Rooney’s position as a minor coupled with his lack of bargaining power and inexperience at the time of contractual negotiation operated towards the agreement being voidable. On this basis, the judge asserted that “there was a very substantial imbalance”. Furthermore, with regard to Wayne Rooney’s age and inexperience, it was asserted that: “WR and his family had no commercial experience and were utterly unsophisticated in financial and contractual matters. I am quite satisfied that the never, in fact took independent legal advice as to the terms of the Image Rights Representation Agreement itself, or for that matter, any other Agreement between the parties25”. Accordingly, it is submitted that the decision in Rooney is clearly in line with the legal principles on restraint of trade and contracts with minors as the Dairy Crest Ltd v Pigott decision demonstrates that each case considering restrictive covenants will be determined on the individual factors of the case. Additionally, with regard to the minor’s issue, the fact that the agreement was a commercial arrangement and Wayne Rooney was a minor with little experience of contractual negotiation, the decision is also in line with the general principles regarding enforceability of contracts with minors. Furthermore, it is submitted that from a sporting industry perspective, the restraint of trade route has been particularly fruitful for addressing the intrinsic imbalance in bargaining power between new talent, agencies and sporting governing bodies. In supporting this proposition, Gardner comments that “the source of the restraint is not seen as being of particular significance; it is the effect that brings the doctrine into play”26. From an industry perspective, the Rooney decision highlights the implications for agents seeking to sign new talent at the beginning of their careers. In particular, consideration should be given to the length of terms as in interestingly notwithstanding Rooney’s position as a minor when entering into the contract, the judge indicated that had the agreement been for four or five years, he may have been persuaded to have found the agreement reasonable. Accordingly, the Rooney decision highlights that the fundamental factor influencing the enforceability of restraint of trade clauses is the nature of the interest, length of restraint and degree of unequal bargaining power of the party against which restraint is seeking to be enforced. BIBLIOGRAPHY Beloff. M. J, Kerr, T. and Demetriou, M (2003).Sports Law. Hart Publishing. Carter, H. (2010) Wayne Rooney nets £4.3m savings as he wins fees case. The Guardian, 15 July 2010 retrieved from www.guardian.co.uk accessed December 2010. Gardner, S. (2006) Sports Law. 3rd Edition. Routledge Cavendish. Painter and Holmes., (2006). Cases and Materials on Employment Law. 6th Edition Oxford University Press. Pitt, Gwyneth., (2007). Employment Law. 6th Edition Sweet & Maxwell Poole, J (2010) Textbook on Contract Law. 10th Edition, Oxford University Press Stone, R. (2009). The Modern Law of Contract. 8th Edition Routledge-Cavendish Legislation Minor’s Contracts Act 1987 available at www.opsi.gov.uk accessed November 2010. Read More