This is the second part of a series of articles on Saracens’ breaches of the Premiership Rugby Salary Cap Regulations. Part I, which explained the breaches and the applicable Regulations can be found here. Part III shall follow in due course and will consider the broader legal and commercial implications of the scandal.

This article will consider the various ways in which Saracens Rugby Club (“Saracens”) might seek to legally challenge the decision of the independent disciplinary panel (the “Panel”) to sanction them for breaching the Premiership Rugby Salary Cap Regulations (the “Regulations”), as discussed in Part I (the “Decision”).

Any such challenge must be brought within 14 days of the Club receiving the Decision (Regulation 13.8). As such, Saracens must submit their grounds of review to PRL by Tuesday 19 November, assuming that the Club received the Decision on the same day it was made public. It may be that it was received earlier.

In summary, the principal avenue for challenge is under the Regulations themselves, in arbitration. As discussed in Part I, Regulation 13.1 provides that:

Any dispute or difference arising out of these Regulations (including any challenge to a decision of the Disciplinary Panel or any other decision made pursuant to the Regulations and any question as to the validity or existence of the Regulations) shall be referred to Sports Resolutions UK for final and binding arbitration in accordance with the Arbitration Act 1996 and Sports Resolution’s UK Arbitration Rules (Emphasis added)

There might be an argument that the original disciplinary proceedings could also be considered “arbitration” for the purposes of the Arbitration Act 1996 (the “Act”), following ECB v Kaneria. If so, Saracens could, in theory, challenge the Decision in the ordinary courts, under the limited grounds in ss.67-68 of the Act. However, under s.70(2), such a challenge may not be brought until the applicant first exhausts any available arbitral process of appeal or review. Regulation 13 provides for an arbitral review process and, as such, any challenge in the ordinary courts under the Act is out of the question – for now.

The possibility of an alternative court claim will be considered in detail below, but it is suggested that its prospects of success would be negligible.

As such, the primary focus of this article will be the possible grounds of review Saracens could utilise to challenge the Decision. The analysis will suggest that Saracens’ chances of challenging the decision successfully are slim.

Grounds for Review under Regulation 13

As outlined in Part I, though Regulation 13.1 provides for challenges to the Decision to be settled by way of arbitration, Regulation 13.2 makes clear that this shall not amount to an “appeal”. Rather, the arbitration operates as a procedure for challenging the validity for the decision. It is a “review” rather than an “appeal” (a distinction explained in Part I).

Moreover, Regulation 13.2 specifically prescribes the grounds upon which a party may bring the review: “ultra vires (including error of law), irrationality or procedural unfairness”. The arbitration tribunal (the “Tribunal”) has a “supervisory jurisdiction only”.

These are legal terms which come from the realm of public law – i.e. the law of judicial review, in the administrative courts. Ultimately, these grounds allow for a challenge where the Panel had no power to decide what they did, a mistake has been made on a point of ‘law’, the decision is wholly unreasonable or where the process has been unfair. The Tribunal does not investigate the merits of the original case in detail but ensures that the Decision has been made validly, and lawfully.

It is worth briefly dwelling on the concept of “ultra vires”. This is a Latin phrase literally meaning “beyond the powers”. In the legal context, it means that a decision-maker has exceeded their lawful authority, and the decision is thus invalid. Following the seminal public law case R v Hull University Visitor ex p Page, it became clear that any unlawfulness in the decision-making process would make a decision “ultra vires” and thus invalid. An unlawful decision will be one which is outside of the powers of the decision-maker, as they do not have the power to make an unlawful decision. Thus, for example, a breach of the principles of natural justice would make a decision “ultra vires” and invalid.

This may be significant under the Regulations as by stating that a decision can be reviewed on the ground of “ultra vires”, Regulation 13.2, in fact, allows challenges to be made on an array of grounds which show the decision to be unlawful. For example, if there had been a breach of natural justice, Saracens could argue that this made the decision “ultra vires”. Similarly – and perhaps of greater relevance – if Saracens could show that the sanction imposed was “disproportionate” (i.e. it infringed the principle of proportionality), this, too, would make the Decision “ultra vires” and thus invalid. “Ultra vires” is a broad category of grounds.

The specific arguments/grounds which could be raised shall now be considered in turn. For the purposes of this article, it is assumed that a fair procedure has been followed, as there is nothing to suggest that this is not the case. Each of these grounds would have to be proved “on the balance of probabilities” (Regulation 2.4).

1. The Regulations are Invalid

The first argument relates to something raised by Saracens in front of the Panel. It was announced that Saracens had tried – and failed – to challenge the jurisdiction of the Panel by arguing that the Regulations themselves were invalid, for breaching “competition law”.

Saracens could try to run this argument again, either by arguing from scratch that the Regulations are unlawful and, thus, the Panel had no jurisdiction to sanction them – i.e. the Decision was “ultra vires” – or by arguing that the Panel made an error of law when it decided in the disciplinary hearing that the Regulations were lawful.

This, of course, invites the question of whether the Regulations do breach competition law. There might be two relevant claims: (i) that the Regulations operate in restraint of trade; and/or (ii) that they are an anti-competitive agreement under competition legislation.

(i) Restraint of Trade

According to the leading case, Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co [1894] AC 535, a contractual term which places a restraint on the exercise of an individual’s trade or business will be void unless it can be justified as reasonable by reference to the interests of the parties and the interests of the public.

As such, Saracens might be able to argue that the Regulations place a restraint on their trade, which cannot be justified.

Traditionally, restraint of trade has been a doctrine for the protection of individuals’ rights to work. However, cases such as Stevenage Borough FC v The Football League and Newport AFC v Football Association of Wales [1995] 2 All ER 87 show that it can be employed by legal persons, too. Saracens would thus seek to argue that by limiting what they can pay their players – or by limiting them to such an extent – the Regulations limit their on-field performance. This in turn limits the sporting success the club can have which, in turn, limits the commercial success the club can have. In this sense, the Regulations place a restraint on their business. Alternatively, Saracens might argue that they restrain the trade of the players.

However, there is a strong case for arguing that the Regulations can be justified as reasonable by reference to the interests of the parties and the interests of the public. The Regulations seek to make the Premiership more competitive on the field. This makes the ‘product’ of the Premiership more entertaining and thus attractive to sponsors and TV companies. Thus, a competitive league is in the interests of Saracens, commercially.

It is also in the interests of the public, who benefit from more competitive sport. Not only is it more enjoyable for the public to watch, but the interest created by more competitive leagues encourages greater participation in the sport – which is in the public interest more broadly.

Therefore, it is submitted that an argument that the Regulations are in restraint of trade would be unlikely to succeed.

(ii) Competition Legislation

Under s.2 of the Competition Act 1998, an “agreement between undertakings, decision by associations of undertakings or concerted practice” which “may affect trade within the UK” and has as its “object or effect the prevention, restriction or distortion of competition within the UK” will be unlawful (subject to a possible exemption).

As such, Saracens could try to argue that the Regulations are such an agreement, such that they are unlawful.

The Regulations undoubtedly amount to an “agreement between undertakings”, as they are an agreement between the Premiership Clubs and PRL, and they do affect trade, as it impacts upon the ability of the Clubs to employ players. This impacts their ability to perform on the pitch and, thus, impacts their ability to trade in the commercial sense. However, as the Panel held, the object and effect of the Regulations is not to prevent, restrict or distort competition within the UK, but to promote it.  By imposing a salary cap, PRL encourages greater competition between the Clubs, on and off the field. After all, if the Regulations did not exist, it is more likely that a handful of Clubs – those with the wealthiest owners – would dominate the league, while the rest would be uncompetitive.

Saracens could argue, however, that there is an incidental anti-competitive “effect”: that it restricts the Clubs’ ability to compete internationally. When considering this broader market, it may be that the Regulations do have an anti-competitive effect, as they restrict the Clubs’ ability to vie with clubs from Ireland or France, who are not subject to such restrictions.

There would be several difficulties with such an argument. Firstly, this would fall under Art.101 of the Treaty on the Functioning of the European Union as opposed to the UK legislation (though the principles are substantively the same). Secondly, the Regulations do not apply to European club rugby. Any impact that they have on the European competition is indirect, so it may be harder to prove that they “may affect trade”. Thirdly, even if they were deemed anti-competitive, the Regulations may be exempted under Art.101(3).

An exemption may apply where the agreement in question contributes to promoting “economic progress while allowing consumers a fair share of the resulting benefit” and which doesn’t impose restrictions preventing the “attainment of these objectives” and doesn’t allow the “undertakings” to substantially eliminate competition. The Regulations likely satisfy these criteria, as they make the league more competitive on the field, generating greater commercial interest and making the sport better for consumers to watch, whilst not substantially eliminating competition.

Therefore, it is unlikely that an argument premised on competition law would succeed.

2. The Co-Investments are not “Salary”

The second ground would be to argue that the Panel had made an error of law when deciding that the Co-Investments discussed in Part I were “Salary” under the Regulations.

Given the analysis in Part I, it seems unlikely that this argument would stand much chance of succeeding a second time around. However, a few points are worth raising.

Nigel Wray, in an impassioned defence of his club, suggested that Co-Investments could not be “Salary” as they could go up or down. They are merely an opportunity for the players to make money, rather than being a mechanism for supplying them with cash on the side. Most of the companies set up for the players appear to have invested in property, which would suggest that these are not simply ‘shell companies’ designed to funnel money into the players’ hands.

However, Wray’s argument is unconvincing. Firstly, the companies are generating wealth, such that the players will be deriving a benefit from them which can be calculated and considered under the salary cap. Secondly, the terms of the Regulations are broad enough to cover “any payment or benefit in kind which the Player would not have received if it were not for his involvement with a club”. Investment monies received by the player – directly or indirectly via the company – must surely fall under such a definition.

There is, of course, a distinction with companies such as Tiki Tonga coffee which appears to have been set up by a player (Brad Barritt) independently of the Club, albeit with the Club’s support and perhaps even the advice of Wray.

Wray has also insisted that these co-investments are in the interests of player welfare. This is irrelevant and is simply an attempt to drum up sympathy. The intentions behind the Co-Investments do not matter for the purposes of the Regulations: breaches of them carry strict liability. Intention is only relevant for sanctioning (Regulation 14). Furthermore, the suggestion that they are for the welfare of the players is undermined by the fact that the Co-Investments only exist between Wray and some of the best players in the squad. This makes them look particularly like “Salary”.

In mounting their challenge, though, Saracens will focus on the discretionary limb of the “Salary” test in paragraph 2 of Schedule 1 of the Regulations (see Part I). Saracens may seek to argue that the arrangements were “at arm’s length” from the Club (para 2(a)(ii)) and emphasise that most of the companies were not set up at the time the players signed new contracts. There is thus scope for a challenge on “error of law” but the fact that these Co-Investments were with the Club’s owner, that multiple players have them, and that those who do have them are some of the Club’s best players weigh very much in favour of PRL, and strongly against Saracens.

In any event, there can surely be no room for arguing that the residential property arrangements reported by the Daily Mail (in relation to Schalk Brits and Jim Hamilton) were not “Salary”, as they fall squarely under “accommodation” in the list of those things to be considered in paragraph 1 of Schedule 1.

Saracens’ chances of succeeding are slim.

3. The Sanction is Disproportionate

Lastly, Saracens could try to argue that the Sanction imposed is disproportionate. Given that the Regulations prescribe quite closely the sanctions that are to be applied (see Part I), this might be difficult to argue. However, Saracens could argue that there is an overarching requirement of proportionality applicable to the sanction, which curbs the powers of the Panel and that any breach of this requirement makes the Decision “ultra vires”. In any event, it is not known exactly how the final sanction was arrived at, and whether the Panel’s discretion under Regulation 14.3(e) was exercised.

The argument would ultimately be premised on the idea that, given the non-intentional nature of their breaches, the size of the punishment is disproportionate. Given the lack of detail known about the breaches, it is difficult to speculate further as to how such an argument might be run, but it could be possible for Saracens to reduce the scale of the sanction.

Alternatively, Saracens could argue that the Decision was “irrational” – i.e. so unreasonable that no panel acting reasonably could have reached it (Associated Provincial Picture Houses Ltd. v Wednesbury Corporation) – but to do so requires a high threshold to be reached. There is no evidence that the Decision was irrational.

A Claim in the Courts?

An alternative means of challenge might be found in the ordinary courts. Saracens might consider bringing claims against Premiership Rugby Limited (“PRL”), either for breach of contract, or in the so-called ‘private law supervisory jurisdiction’, following Bradley v Jockey Club. However, to do so, they would have to successfully argue that the arbitration clause in Regulation 13.1 does not bind them, as PRL could otherwise seek a stay of proceedings under s.9 of the Arbitration Act.

To succeed, they would try to argue that they did not genuinely consent to the clause, such that it does not bind them. This is an argument I have advanced before in respect of athletes challenging sports governing bodies (“SGBs”) given that they, in reality, have no choice but to be bound by the relevant regulations – they are, ultimately, imposed rather than agreed to. This argument was rejected by the English courts in Stretford v FA, though the decision of the European Court of Human Rights in Mutu and Pechstein v Switzerland may re-open this debate.

Nevertheless, whilst arguments might be possible by athletes against many SGBs, Saracens’ position as against PRL different. Though PRL has a regulatory role, a director/officer of each Premiership Club sits on the board of directors of PRL as a representative. As such, Saracens are directly represented in the decision-making process of PRL by Mitesh Velani, their CEO. These representatives will likely have consented explicitly to the Regulations (including Regulation 13), thus binding the clubs. Therefore, a claim in the courts appears to be out of the question, at this stage.

For what it’s worth, if a claim in the ordinary courts did get off the ground, it is suggested that, in light of the Bradley decision, the grounds of review would be the same as in the Regulation 13 arbitration procedure considered above.

Conclusion

The chances of Saracens successfully challenging the Decision of the Panel seem slim, on the basis of the information that is publicly available. Their best chance would likely be to attack the amount of the fine and the points deduction, by arguing that this is disproportionate. Of course, it may be that there have been other errors in the calculation of the fine, which would provide grounds for reviewing that element of the decision as “ultra vires”.

Only time will tell.

Look out for Part III which will consider the broader legal and commercial implications of this story.