Now that the dust has settled, the wider implications of the Saracens salary cap scandal fall to be considered. Part I of this series explained the decision to sanction the club (the “Decision”) for breaching the Premiership Rugby Salary Cap Regulations (the “Regulations”), while Part II considered how Saracens might have been able to appeal. This showed that the chances of doing so successfully were very slim and, as such, it was no surprise to see the club subsequently decline a review. But what does this mean for the Premiership, and what might the broader legal consequences be?

The Decision reinforces the very purpose of the salary cap: to ensure that the league is contested on a level playing field and that money alone cannot buy success. Placing a limit on the amount that can be spent by each club in each season forces talent to be distributed across the league, allowing all teams to be more competitive and thus making the Premiership product more attractive. Of course, not all sides are able to spend all the way up to the cap, but it prevents the richest clubs from obtaining what would effectively be a monopoly (or oligopoly) over the tournament.

Therefore, one significant effect of the Decision and the clear message it sends out – that Regulation breaches shall not be tolerated – is that the top players may become more evenly distributed between clubs. This should make teams more competitive, enhancing the value of the competition and, in turn, drawing in more top players from around the world; further enhancing the competition as a whole. Whether this re-distribution will occur immediately, or over a number of seasons, remains to be seen but, for the Premiership as a whole, the Decision must be a good thing.

The rest of this article will focus on the broader legal implications of the Decision, asking five core questions:

1. Are Saracens Compliant with the 2019/20 Regulations?
2. How might players’ contracts be affected?
3. Could other Premiership Clubs sue Saracens?
4. Could Nigel Wray’s position be at risk?
5. Could Saracens sue?

1) Are Saracens Compliant with the 2019/20 Salary Cap?

Perhaps the most pressing question, and one which is being asked frequently by the media, is whether Saracens are compliant with the 2019/20 Regulations. For all intents and purposes, the Regulations are the same as last season. Of course, there is no way of knowing unless the club publicly releases an independently verified mid-season audit, but reports suggest that Premiership Rugby Limited (“PRL”) are in “active dialogue” with Saracens to ensure its compliance.

The nature of the Regulations is that they are concerned with the season as a whole. The “Salary Ceiling” is a limit on the total amount that clubs can pay players in a “Salary Cap Year” – from 1 July 2019 to 30 June 2020 (Regulation 1.1). Players’ salaries are, presumably, paid in monthly instalments. Similarly, International Player Credits cannot be worked out until players are called up to international duty. Thus, it will not be possible to definitively determine Saracens’ compliance with the Regulations until after 30 June 2020, as they will not necessarily have completed their spending until that time.

However, PRL may be keen to find out whether the co-investments that appear to be at the heart of the scandal to date, continue to exist, or whether any alternative arrangements have been entered into. A key question will be whether the companies co-owned by Nigel Wray and the Saracens’ players must be wound up, or whether Nigel Wray will be able to remove himself by selling his share to a third party not connected to the club. This will likely depend on the precise manner in which the Independent Panel construed these co-investments in the Decision.

2) How might players’ contracts be affected?

Connected to the first question, is that of the players’ contracts. If Saracens would be in breach of the Regulations by the end of this season by paying the players what they are owed under contract, the club might seek to either terminate certain players’ contracts or vary what they are paid. However, both options carry the risk of incurring liability for wrongful and unfair dismissal, as well as creating a disgruntled playing group. (Of course, there is – as of yet – no evidence to suggest that Saracens would be in breach of the Regulations in this way.)

Bringing a player’s contract to an end prior to the expiry of its fixed term will self-evidently be a dismissal, but there may also be a dismissal where an employer seeks to unilaterally vary an employee’s contract. A significant reduction in pay will breach not only the express terms of the player’s contract but also the “implied term of mutual trust and confidence” such that the player would be entitled to resign and claim “constructive dismissal” (Mostyn v S and P Casuals Ltd). Indeed, the case of Industrial Rubber Products v Gillon [1977] UKEAT IRLR 389 suggests that a pay reduction need not even be significant for constructive dismissal to arise.

In such a case, the player would be well-advised to resign as soon as possible after the attempted variation, else the club may be able to argue that the player impliedly agreed to the variation (Solectron Scotland Ltd v Roper).

Alternatively, the player might decide to accept the new terms but work “under protest”. Cases such as Alcan Extrusion v Yates have established that such a scenario will be construed as a termination of their employment contract followed by re-engagement on a new one. Thus, the player will still be able to claim against the club in respect of the breach of the initial contract – there has still been a dismissal.

Whether players would agree to move on (perhaps at the end of their current deal, like Liam Williams has), agree to taking a pay cut, or decide to resign would depend upon their circumstances but, in the absence of an offer of similar value from elsewhere it is unlikely they would seek to leave Saracens.

Wrongful Dismissal

Following Reda v Flag, a claim for wrongful dismissal can be brought by an employee on a fixed-term contract when that contract is terminated prior to the expiry of its fixed term. Such a claim will be to recover damages in respect of the amount they would have been paid for the remainder of the fixed term, including any bonuses and other benefits they would have received under the contract (Alexander v Standard Telephones (No.2) [1991] IRLR 287). This could be brought in any of the situations described above: where a player’s contract is terminated (whether or not they are then re-engaged) or where the player claims constructive dismissal.

That said, it is likely that players’ contracts will have notice clauses in them, allowing the club to terminate the contract by giving the player a certain period of notice before it will come to an end. In such circumstances, claims for wrongful dismissal would only arise if these notice provisions were not complied with, and the liability would only be in respect of what was owed to the player during the notice period.

However, as this would be an action for damages, the employee will be under a duty to mitigate his loss. This means that the employee cannot simply sit at home but must instead go out and look for another job (Secretary of State v Wilson [1978] ICR 200). If a player immediately signed for another club (or should have done so) Saracens might not need to pay any compensation, but the player will not be obliged to accept a contract elsewhere for lower pay (Shove v Downs Surgical [1984] IRLR 17). If they do sign for a lower salary elsewhere, they will be able to claim the difference in damages. Of course, in the situation where the club has re-engaged the player on a new contract (with a lower salary) the player would only be able to claim for the difference in pay up to the end of the term of the original contract (Rigby v Ferodo [1988] ICR 29).

Unfair Dismissal

If players are dismissed (constructively or otherwise), they may also be able to bring a claim for unfair dismissal under the Employment Rights Act 1996 (the “ERA”). A dismissal may be unfair where the reason for it is substantively unfair, or where a fair procedure has not been followed.

Section 98(2) ERA lists the potentially fair reasons for dismissal: capability/qualification, conduct, redundancy and illegality. Section 98(1)(b) then provides a fifth residual category of “some other substantial reason”. The onus is on the employer to prove that the dismissal was for a fair reason and, thus, in our case, Saracens would likely seek to argue that players were dismissed for “some other substantial reason”.

Cases such as Ellis v Brighton Co-operative Society [1976] IRLR 419 and Johnson v Notts Combined Police Authority [1974] ICR 170 have established that business re-organisation (or so-called quasi-redundancy) may qualify as “some other substantial reason”. Saracens would likely argue that this is such a scenario: the Decision has had such an effect on the club that they have no choice but to re-organise their business, including the termination of contracts and/or the reduction of salaries.

It would then need to be shown that, in all the circumstances, the dismissal was actually fair (s.98(4) ERA), determined by the “range of reasonable responses” test (Iceland Frozen Foods v Jones). This would require Saracens to show that their decision to dismiss a player fell within the range of reasonable responses in these circumstances. This test is rather deferential to employers and it is suggested that in this case, Saracens’ response would likely be deemed fair.

However, a dismissal must also be procedurally fair (Polkey v Dayton Services). This means that in dismissing a player, or in varying a player’s contract, Saracens must follow a fair procedure. The ACAS Code contains various principles which ought to be followed but, generally, a fair procedure will involve meeting with the employee to discuss the proposed course of action, making any selection process objective and transparent, and giving the employee the chance to respond to any decision.

If a dismissal is found to have been unfair, an employment tribunal may award compensation (ss.112-3 ERA). This will comprise the basic award – calculated by reference to an employee’s weekly pay, length of service and age (s.119 ERA) – and may also include a compensatory award which the tribunal considers just and equitable with regard to any loss suffered by the dismissed employee (s.123 ERA).

However, claims for unfair dismissal are subject to a requirement that the complainant must have been employed by the employer continuously for at least two years by the effective date of termination (s.108(1) ERA). Therefore, though there does not appear to be a high risk of Saracens incurring liability for unfair dismissal in the circumstances, the prospect could be avoided entirely by dismissing players with less than two years’ service.

Settlement Agreements

Lastly, it is important to point out that any payments made by Saracens to any of its players in settlement of a claim brought in respect of their dismissal, or to pre-empt such a claim, will be caught by the Regulations. Paragraph 1(q) of Schedule 1 of the Regulations states that “Salary” includes:

any payment…in respect of a Player in connection with…the termination of his playing contract with the Club including all…termination payments…(whether paid or payable provided or to be provided voluntarily, contractually, pursuant to statute or otherwise). Any such payment…shall count as Salary in the Salary Cap Year in which the player contract terminates, irrespective of whether it is paid…before, during or after the Salary Cap Year concerned;

Therefore, dismissals and/or variations would not necessarily give Saracens an advantage, albeit that they should be able to negotiate with players so that any “termination payment” would be less than the amount they would otherwise have been paid under contract – particularly due to the duty to mitigate (i.e. find a contract elsewhere). Indeed, assuming that the contract include notice periods which are shorter than the remainder of the current season, any compensation owing in that regard would also be less than what otherwise would have been owed under contract.

It is also worth noting that, aside from dismissal implications, unilateral pay deductions to fall within the Senior Ceiling could result in liability under ss.13-27 ERA.

3) Could other Premiership Clubs sue Saracens?

The third issue is whether other Premiership clubs might be able to sue Saracens for their breaches of the Regulations. As I discussed in an article for The Telegraph back in November, the clubs would likely be able to establish a cause of action but would struggle to prove that Saracens caused them any loss.

The primary cause of action would be breach of contract. This could be brought if a Premiership club could establish that a contract existed between them and Saracens, and that Saracens had breached one of its terms.

Sports regulations are readily construed as contracts by the courts (Korda v ITF; Jones v WRFU The Times, 6 March 1997) and, though the Regulations primarily form a contract between each club and PRL, there is judicial authority to suggest that such arrangements can also be construed as a contract between the participant clubs themselves.

The Satanita [1897] AC 59 was a case involving a yacht race where the Court of Appeal held that by entering a competition, each participant had undertaken to every other participant that they would abide by the competition rules.

Three recent cases have considered this scenario and have each given varying formulations of the test to be applied. Davies v Nottingham Forest FC [2017] EWHC 2095 applied the Satanita principle in its original form, while Bony v Kacou [2017] confined it to cases where it was “necessary” to imply a contract between the participants.

The subsequent decision in Mercato Sports (UK) Limited & McKay v Everton FC [2018] found a middle way, holding that a horizontal contract could be implied in the appropriate circumstances, depending on the “nature of their dealings with the other parties” on a “careful and fact sensitive analysis”. The court in Mercato also suggested that it is less likely for there to be a contract “the further removed the activity in question is from the actual playing of sport”.

However, as Shane Sibbel has pointed out in an insightful article on this issue, the Mercato middle ground is far from satisfactory. Indeed, the distinction between on-field and off-field activities seems flawed as a matter of principle. The Satanita is not based upon implication but rests on the multilateral nature of the contract in question. As such, the factual inquiry premised in Bony and Mercato is misplaced: wherever a party agrees to a set of rules which are expressed to be multilateral, in the knowledge that other parties are agreeing to be so bound, a contract will exist between each of the participant parties.

This view is also supported on authority – The Satanita was a Court of Appeal decision affirmed by the House of Lords – and has also been applied to the modern sporting context in Australia (Raguz v Sullivan (2000) 50 NSWLR 236). It was also accepted by the arbitration panel in Sheffield United FC Ltd v West Ham United FC plc [2009] ISLR SLR 25.

The Salary Cap Regulations are expressed as multilateral. Regulation 2.1 states that:

All Clubs shall be subject to the Regulations and each Club agrees to be bound by and comply with the Regulations

Regulation 2.2 sets out the Regulations’ objectives which include “ensuring the financial viability of all Clubs”, “ensuring a competitive Gallagher Premiership competition”, and “enabling Clubs to compete in European Competitions”. The way in which they purport to bind each club for the mutual benefit of all other clubs reflects its multilateral nature.

Therefore, it is my view that a contract does exist between Saracens and each of the Premiership clubs (i.e. the Regulations). The Decision means that this contract has been breached. As such, if a Premiership club could prove that this breach has caused it to suffer loss, it would have a cause of action to recover damages.

The losses would be claimed as lost earnings (prize money, sponsorship money, and perhaps TV money if they missed out on the European Champions Cup): earnings they could have made had Saracens not breached the cap. Quantifying such losses, and proving their causation, would be incredibly difficult and would be based on the ‘loss of a chance’ doctrine – after all, even without breaching the salary cap, Saracens might still have won the Premiership.

Thus, a claimant club would have to prove that there was a real and substantial chance that they would have made the earnings referred to above and that Saracens’ breach caused them to lose that chance (Allied Maples Group Limited v Simmons & Simmons; McGill v The Sports and Entertainment Media Group). The damages claimed would then be reduced by the percentage chance that the earnings would not have been made.

Yet, how could one say with any certainty what would have happened if Saracens had not breached the Regulations? It would be incredibly complex – if not impossible – to try to establish a percentage chance that another club would have (for example) won the league and would require a thorough examination of the circumstances surrounding Saracens’ breaches. They will have impacted fixtures throughout the seasons and could have had all sorts of effects on the clubs’ final league positions.

However, there is precedent for this type of claim. In Sheffield United FC Ltd v West Ham United FC plc, Sheffield claimed damages against West Ham for breaching Premier League rules which, Sheffield argued, had caused them to be relegated. The case centred on West Ham’s signing of striker Carlos Tevez, in breach of the league’s rules on third party ownership. Sheffield argued that this unlawful signing of Tevez caused them to be relegated – particularly because it was Tevez’s goal against Manchester United that saved the Hammers and condemned Sheffield to relegation. The arbitration panel held that Tevez’s contribution had been an “effective cause” of Sheffield’s relegation, and the clubs subsequently settled the claim for a reported £20m.

This suggests that it might be possible to establish causation of loss. However, the Saracens case is far more complex. It would be far more difficult to show that the Regulation breaches allowed them to retain key players who played vital roles in victories throughout the relevant seasons. Firstly, players may well have stayed at the club even without the now-infamous co-investments. Being part of a serial title-winning club, or staying loyal to the club which brought them through their academy may well have been sufficient reasons for the likes of Owen Farrell and Maro Itoje to stay at Saracens for a salary below their market value. Moreover, rugby, as compared to football, depends far less on individuals and far more on the collective. It would thus be far more difficult to prove that certain players had caused Saracens’ success, to the detriment of other clubs. Indeed, there would not only be the on-field impact to consider, but also their off-field contribution. Given that the Regulations affect the make-up of the whole squad, identifying a causal link across a full season of 22 games (plus play-offs) would be far more complex than in the Sheffield case.

Therefore, the prospect of a legal claim against Saracens is – though possible – unlikely.

4) Could Nigel Wray’s position be at risk?

Under the Regulations, there is provision for “Individual responsibility for a false Certification”. Regulation 14.7 provides that:

In the event of an overspend of the Senior Ceiling, where the Disciplinary Panel is of the opinion that, on a balance of probabilities:

(a) the Club Recklessly, or Deliberately breached the Senior Ceiling; and

(b) any Chairman, CEO or Finance Director of a Club has signed a false Certification

then the Salary Cap Manager shall notify the [PRL] Board accordingly and the other Clubs may resolve by special resolution that the director be removed from office, whereupon the relevant Club will procure that the director immediately ceases to be a director of that Club and no Club shall thereafter appoint that person as a director.

As explained in Part I, Saracens were found to have breached the Regulations in two ways: by exceeding the Senior Ceiling, and by failing to disclose payments. The necessary corollary of this is that a “false Certification” was signed, as the Certification given by Saracens did not disclose all payments of Salary to its players, as it should have done in accordance with Regulation 4.3. Moreover, it has been reported that the Panel found the club to have committed the breach “recklessly”.

Therefore, the director who signed Saracens’ Certification (be it Nigel Wray or otherwise) could be removed from office by the other clubs under the power in Regulation 14.7. This would require at least 75% of PRL’s shareholders (the other clubs plus CVC) to vote to remove him. Whether the clubs would be so bold remains to be seen – particularly given the inevitable tension that such a decision would create.

5) Could Saracens Sue?

Lastly, could Saracens recover any of their losses and, if so, from whom?

Saracens have repeatedly said in their press releases that they were advised that their arrangements with players complied with the Regulations. In light of the Decision, that advice has proved wrong. Of course, this may simply have been PR spin by the club, but they may well have taken legal advice. If so, Saracens might be able to sue their advisers and claim damages.

In the law of professional negligence, solicitors owe a duty (both in tort and contract) to their clients to provide their services with reasonable care and skill, to the standard of a reasonably competent solicitor (Hedley Byrne v Heller; Midland Bank v Hett, Stubbs & Kemp [1979] Ch 384; s.13 Supply of Goods and Services Act 1982). It could be argued that advising Saracens that the arrangements would not infringe the Regulations did not meet such a standard and, thus, that the duty was breached, causing Saracens to suffer loss.

The Regulations are drafted so broadly that these arrangements inevitably fell within their scope and, therefore, to advise otherwise may well have been unreasonable. This is particularly likely because the Panel held that the Regulation breaches were “reckless” – i.e. Saracens must have perceived there was a real risk of a breach but carried on regardless.

Of course, whether such a claim could succeed would depend upon the precise advice given. For example, if the advice was given subject to a caveat it is more likely that a court would find it to have been given reasonably (Barker v Baxendale Walker Solicitors).

However, even if the duty had been breached, there would be other hurdles for Saracens to overcome. To prove causation of their loss, the club would need to prove that it entered into the arrangements in reliance on the advice given, and that it otherwise would not have acted as it did.

With regard to loss, Saracens might seek to claim in respect of the £5.31m fine itself, as well as for any consequential losses they might have suffered as a result of the Regulation breach such as legal expenses and other consequential losses related to the inevitable damage to the club’s reputation.

There would then likely be a reduction in any damages award for “contributory negligence” under the Law Reform (Contributory Negligence) Act 1945 (Forsikringsakieselskapet Vesta v Butcher). This would mean that the club’s own fault would be taken into account, and the extent of the advisers’ liability would be reduced accordingly. For example, a court might find that the breach of the Regulations was 50% caused by the negligent advice and 50% by Saracens’ own recklessness. Any damages awarded to the club would thus be reduced by 50%. This would be particularly likely if the advice was given subject to a caveat.

The prospect of Saracens recovering all of their losses, therefore, are very slim. Moreover, it may well be that the club would have no desire to instigate proceedings. Litigation is always costly, even if the claim never reaches court, and is likely incompatible with a continued commercial relationship. Saracens may well have a long-standing relationship with their advisers and, as such, may not even consider bringing a claim.

 

Whether or not any further legal action arises, one thing is for sure: the effects of the Decision will be felt for a long time to come.