Lady Justice Arden:
- The term "image rights" is used to describe rights that individuals have in their personality, which enables them to control the exploitation of their name or picture. Celebrities often obtain significant income by exploiting their image rights. Wayne Rooney ("WR"), an extremely successful footballer, sought to exploit his image rights, as did his wife, Mrs Coleen Rooney. WR set up a company, Stoneygate 48 Ltd ("Stoneygate"), the first respondent to this appeal, and he assigned his image rights to it. Stoneygate then appointed the appellant sports agency, which I shall call "Proactive", to act as its agent by what is known as an image rights representation agreement. Proactive thereby became responsible for, among other things, negotiating contracts with third parties for exploiting those rights, which I shall call generically "endorsement contracts", such as by allowing WR's picture to be used for advertising sportswear. All went very well until WR fell out with Proactive. Stoneygate terminated the agreement and appointed Triple S Ltd ("Triple S") in its place. Stoneygate and Proactive are in dispute about the financial implications of that termination. No written agreement was ever signed between Proactive and Mrs Rooney although for a time Proactive performed a similar role for Mrs Rooney to that for WR. There is also a dispute as to whether there was any contract between Proactive and Mrs Rooney, and, if so, on what terms as to commission.
Background
- The careful judgment of HHJ Hegarty QC, handed down on 15 July 2010, from which Proactive appeals, is 821 paragraphs in length. This judgment will be much shorter than that as there are now many fewer matters in issue between the parties. So far as possible it will refer only to the issues which remain live at this stage.
- At the date of termination, the image rights representation agreement in force between Stoneygate and Proactive was an agreement dated 16 January 2003 (though probably not executed until February 2003). I shall refer to this as "the IRRA". There were a number of other agreements before and since, but they are not relevant. A crucial point is that WR was only 17 years old when this agreement was signed and relatively new to the world of professional football.
- The IRRA provided in material part:
"THIS REPRESENTATION AGREEMENT is made on 16 January 2003
BETWEEN
(1) STONEYGATE 48 LIMITED … (the "Client");
(2) PROACTIVE SPORTS MANAGEMENT LIMITED … (the "Company").
(3) WAYNE ROONEY … (the "Player")
1 INTERPRETATION
1.1. In this Agreement, unless the context requires otherwise:
"Services" means the services that the Company shall perform for the Client, as more particularly listed in clause 3.
2 APPOINTMENT
The Client appoints the Company, and the Company agrees to act, as the sole and exclusive representative of the Client, and to perform the Services during the continuance of and on the terms and conditions set out in this Agreement.
3 OBLIGATIONS OF THE COMPANY
The Company undertakes and agrees with the Client that it shall at all times during the continuance of this Agreement, diligently and faithfully serve the Client and, in particular, that it shall:
3.1 use its best endeavours and work diligently to represent the Client in all areas of image rights exploitation, licensing and personality management including (but not limited to):
3.1.1. media (including television, radio, press and internet) and publicity relations and negotiations;
3.1.2. product endorsement and merchandising negotiations;
3.1.3. personal appearance, image exploitation and other promotional opportunities;
3.1.4. opportunities involving the Client's Intellectual Property;
3.1.5. contract negotiations in relation to the foregoing.
and such other tasks as the Client may from time to time request, and as the Company shall consider prudent and in the interests of the Client from time to time;
3.2. keep full accounts and records showing clearly all transactions relating to the Client;
3.3. when engaged in the negotiations listed in clause 3.1 above, make proper efforts to negotiate contracts strictly and only in accordance with any instructions or directions given to it by the Client (whether generally or specifically in any instance or circumstance) and, in particular (but not by way of limitation), not negotiate or enter into contracts at prices or on payment terms other than those agreed by the Client;
4 OBLIGATIONS OF THE CLIENT
The Client agrees with the Company that it shall, during the continuance of this Agreement:
…
4.4. not during the term of this Agreement negotiate or enter into contracts (nor permit the Player to enter into contracts) with any other firms of agents or representatives or any other business or persons who may reasonably be regarded as competitors of the Company, except with the prior written consent of the Company;
5 REMUNERATION
6.1 In consideration of the Company's appointment the Company shall pay to the Client (upon the Player's confirmation of these terms and conditions having attained 18 years of age pursuant to Clause 5.3) the sum of £25,000.
6.2 In consideration for the performance of the Services, the Client shall pay to the Company the sum of £1 (receipt of which the Company hereby acknowledges) and a commission calculated on a percentage of all sums payable to the Client as follows:
20% of the gross sum payable under any contract or arrangements for the promotion, endorsement or advertisement of the Client and/or the exploitation of the Intellectual Property and/or products, goods or services to which the Client is a party.
6.3 The Company shall be responsible for its normal and reasonable expenses incurred in performing the Services. If the Client requests that the Company perform services that are beyond the scope of the Services that the Company would provide in normal circumstances and where the Company incurs extra or unforeseeable expenses in providing such Services, the Client shall reimburse the Company in respect of those expenses provided the need to incur such expenses is agreed in advance by the Company. Non-exhaustive illustrations of such expenses would include company administration and company secretarial services provided on behalf of the Company, and legal, financial, accounting and management services performed on behalf o the Company.
7 DURATION AND TERMINATION
7.1 Subject to Clause 7.2, this Agreement shall commence on the date hereof and, subject to the provisions of this clause, shall continue for eight years, unless terminated earlier in accordance with the provisions of this clause 7.
7.2 Either the Company or the Client may terminate this Agreement immediately by giving notice in writing upon the occurrence of a material breach of this Agreement by the other party which is not remedied with 28 days of a written request, or upon the bankruptcy or insolvency (as appropriate) of the other party.
8 CONSEQUENCES OF TERMINATION
8.1 In the event that the Client terminates this Agreement prior to the expiry of the term set out in clause 7.1, other than in accordance with clause 7.2, the Client and/or the Player shall forthwith pay to the Company
8.1.1 £25,000.
8.1.2 a further sum payable to the Company as liquidated damages calculated as follows:
a sum equal to £37,000 multiplied by the number of complete years of the unexpired term of this Agreement (with years to commence from the date of this Agreement and anniversaries thereof).
8.1.3 a sum equivalent to the Company's total costs and expenses properly incurred in relation to its performance in the Services from the date hereof until the date of termination notice ...
21 SURVIVORSHIP
This Agreement shall, as to any of its provisions remaining to be performed in whole or in part or capable of having following termination, remain in full force and effect despite termination."
- The arrangements made pursuant to the IRRA were highly successful. Proactive employed a special group of employees to look after WR and Mrs Rooney. They were known as "Team Rooney". A number of lucrative sponsorship contracts and other financial opportunities were secured for WR. Both Stoneygate and Proactive derived a substantial income from the exploitation of his image rights.
- The break between Stoneygate and Proactive came in about October 2008. In about December 2009, Stoneygate and WR purported to terminate the IRRA and Proactive elected to treat this as a repudiatory breach of contract. Stoneygate made no further payments to Proactive for its commission.
- Prior to the breakdown in relations, Proactive had also acted on behalf of Mrs Rooney and her own image rights company, Speed 9849 Ltd ("Speed"). Though there was no written contract between these parties, Proactive had, in practice, levied a commission of 20% on all sums received by Speed in just the same way as in the case of Stoneygate. But Mrs Rooney and Speed also took their business to Triple S from about the end of October 2008 and refused to pay any further commission to Proactive.
- Before the judge, Proactive contended that it had a contractual right to commission at the rate of 20% on all sums payable to Stoneygate under any contracts with third parties which Proactive had procured for WR during the subsistence of the IRRA, whenever they might fall due, whether before or after the expiration of the eight-year term of the IRRA.
- Stoneygate resisted the claims made against it and, in particular, it contended that Proactive was not entitled to commission on payments falling due after it had ceased to provide any services under the IRRA. It also contended that the IRRA was unenforceable on the grounds of restraint of trade.
- This led Proactive to contend that Stoneygate had affirmed the IRRA and was therefore precluded from challenging its validity. In any event, Proactive contended that, even if the IRRA was unenforceable, it was still entitled (a) to recover any sums which had already fallen due prior to any challenge to the enforceability of the IRRA and (b) had a restitutionary remedy in respect of the services which it had provided. As to (b), it contended that the amount of any restitutionary compensation should be assessed on essentially the same basis as the remuneration which would have been payable under the IRRA itself.
- On behalf of Stoneygate, however, it was argued that this was inappropriate, that the Court did not have sufficient material to assess any such remuneration and that any assessment would have to take place on another occasion.
- Proactive advanced a claim for unpaid commission against Speed on the same basis that it had advanced its claim against Stoneygate. The principal issue between Proactive and Speed was as to the nature and terms of any contractual relationship between the parties. Proactive contended that there was, or must have been, an express image rights representation agreement on substantially the same terms as in the case of Stoneygate, save as to duration, or, alternatively, that a contract on those terms had been concluded by conduct. Speed, on the other hand, contended that, at best, there was no more than a series of ad hoc agreements limited to individual transactions, but that the better analysis was that Proactive was entitled to no more than a restitutionary remedy in respect of services rendered.
Judgment of HHJ Hegarty QC
- The judge held that the IRRA was unenforceable on the grounds of restraint of trade and had not been affirmed. The principal argument advanced on behalf of Proactive was that the IRRA was not a contract of a kind to which the doctrine applied since it simply imposed restrictions upon Stoneygate and WR during the currency of the IRRA and that, in any event, it did not prevent him from pursuing his primary occupation as a professional footballer.
- The judge held that the IRRA imposed very substantial restraints upon WR's freedom to exploit his earning capacity over a very lengthy period which was well in excess of anything which was to be found elsewhere in the market for agency services of this kind.
- Furthermore, WR was only 17 years of age at the time when the IRRA was entered into; and he and his parents were wholly unsophisticated in legal and commercial matters. His parents were not advised to take independent legal advice and they did not take such advice. The judge concluded that the IRRA was not a standard form of contract which had been moulded by normal market forces and that it was not the outcome of a process of negotiation between equals. In those circumstances, he held that the doctrine of restraint of trade applied to the IRRA. He rejected an argument to the effect that Stoneygate was bound by a provision in the IRRA reciting, contrary to the facts, that WR, his parents and Stoneygate had sought, taken and understood independent legal advice.
- In those circumstances, as a matter of law, it was incumbent upon Proactive, as the party seeking to enforce the IRRA, to demonstrate that the restrictions were reasonable having regard to the legitimate interests of the parties. In order to do so, Proactive sought to rely on a number of factors, such as the alleged commercial risk it had undertaken in agreeing to act as agent for such a young player, its contractual obligation to use its best endeavours to promote his commercial interests and the need to adopt a long-term strategy in order to develop the value of the player's brand.
- The judge concluded that most of these factors were of little weight. He recognised, however, that a strategic approach was desirable in the interests of all parties. But he did not consider that Proactive had made out its case that this required an eight-year contractual tie.
- In the circumstances, the judge concluded that Proactive had failed to justify the restraints imposed on Stoneygate and WR under the IRRA, and that it was therefore unenforceable. He further held that Proactive could not pursue any contractual claim under the IRRA and could not, therefore, recover any commission which would otherwise have fallen due from Stoneygate or would have become due in the future. Nor could it pursue a claim for damages for breach of the IRRA.
- The judge further held that, even if the IRRA had been valid and enforceable, on the true interpretation of the contract Proactive would not have been entitled to recover commission on monies receivable by Stoneygate after the expiration of the eight-year term.
- However, the judge held that, for the period between the breakdown of relations in October 2008 and the acceptance of Stoneygate's repudiatory breach of contract in December 2009, Proactive would have been entitled to damages or a restitutionary remedy, which would have taken into account the loss of commission and any savings accruing to it as a result of not having to provide any further services under the IRRA. In respect of the period from December 2009 to the end of the eight-year term, it would likewise have been entitled to damages for the premature determination of the agreement.
- Even though the IRRA was unenforceable, the judge held that Proactive was entitled to a restitutionary remedy to reflect the reasonable value of the services which it had provided under the IRRA insofar as it had not already received remuneration for such services in accordance with the terms of the IRRA. But he rejected Proactive's contention that the quantum of any such compensation should be measured by reference to the commission which would have been payable under the IRRA. Instead, the judge directed that the assessment of the restitutionary claim should take place at a later hearing.
- The judge also rejected the argument that Proactive could sue for monies which had fallen due under the IRRA whilst the parties remained content to operate in accordance with its terms and before any restraint of trade argument was raised on behalf of Stoneygate. He considered that, in accordance with orthodox legal principle, the court would not provide any contractual remedy to a party who had to rely for that purpose on a contract which was unenforceable on grounds of restraint of trade.
- As for Speed, the judge held that there was no sufficient evidence of an express agreement between the parties but that an agreement could be inferred from conduct, under which Proactive was to provide services similar to those which it provided for Stoneygate, on essentially the same terms, and that, in return, Speed would pay commission on sums receivable from third parties at the same rate of 20%. That agreement, unlike the IRRA, was non-exclusive and without any fixed term. But, as in the case of Stoneygate, the judge was not persuaded that Proactive was entitled to commission on sums falling due after it ceased to provide these services.
- Accordingly, Proactive was entitled to commission falling due so long as the contractual relationship subsisted, but not thereafter. He concluded that Proactive was entitled to judgment against Speed in the total sum of £78,725.25.
Issues on this appeal
- The five issues on this appeal are:
(1) whether, on the true construction of clause 6.2 of the IRRA, Proactive is entitled to commission on payments made by third parties after termination of the IRRA in respect of contracts negotiated by Proactive prior to termination;
(2) whether the judge's conclusion that the IRRA was unenforceable on the grounds that it was in unreasonable restraint of trade was wrong in law for any of the three grounds advanced on this appeal by Proactive;
(3) whether, if Proactive fails on Issue (2), Proactive is nonetheless contractually entitled under the IRRA to commission on sums which were actually received by or after the date of termination in respect of contracts negotiated by Proactive at the rate of 20% as set out in clause 6.2;
(4) whether, if the IRRA is held to be unenforceable under Issue (2), and Proactive fails on Issue (3), the judge should simply have applied the rate at which commission would have been payable under clause 6.2; and
(5) whether the judge was wrong to conclude that there was no implied contract between Speed and Proactive having the terms as to commission contained in the IRRA.
Issue (1): whether on the true construction of clause 6.2 of the IRRA, Proactive is entitled to commission on payments made by third parties after termination of the IRRA in respect of contracts negotiated by Proactive prior to termination
The judge's reasoning
- Clause 6.2 of the IRRA is set out in paragraph 4 above. The judge discussed post-termination commission in paragraphs 521 to 565 of his judgment. The judge held that, on the true interpretation of that clause, Proactive was not entitled to commission on sums payable by third parties to Stoneygate under endorsement contracts secured by Proactive, which had not then been paid by the time the IRRA was terminated. In other words, Proactive had no right to commission on post-termination receivables from endorsement contracts which it had negotiated for WR.
- The judge's principal reasons for his conclusion were as follows:
"544 For my part, I do not consider that the word "payable" in clause 6.2 of the Image Rights Representation Agreement can bear the weight which [Mr Ian Mill QC, for Proactive,] seeks to place upon it. The obvious purpose and effect of adopting this particular expression is to ensure that Proactive's right to commission crystallises at the time when any sum due from a third party under any relevant contract or arrangement falls due for payment rather than when it is actually paid. Furthermore, I cannot accept Mr Mill's submission that, somehow or other, the wording of clause 6.2 means that Proactive was entitled to payment as soon as any third party sponsorship contract was entered into, with the result that it would have been entitled to the entirety of its commission as at that date, no matter how far in the future any relevant payments might actually become due. The practice of the parties was to the contrary; and I consider that this practice reflected the terms of the contract rather than being a matter of concession or grace on the part of Proactive."
- The judge also relied on clause 8. He held that this was the natural place for a clause on termination to sit. The judge considered that clause 6.2 was perfectly workable if commission was limited to commission on sums received during the currency of the agreement:
"550. …it seems to me that the Image Rights Representation Agreement would be perfectly workable in the particular circumstances of this case, even without the implication of some such term or proviso. I can see no reason in principle why an agent such as Proactive could not agree to provide a range of services for its client in return for a percentage of the income receivable by the client during the subsistence of the agreement. After all, it was suggested on a number of occasions, both in evidence and in argument, that a new agent, taking over from Proactive, would or might itself wish to take a percentage of the income generated by contracts procured by Proactive, whatever rights or claims Proactive itself might have had or asserted."
- The judge was concerned that, if commission was payable out of post-termination receipts, Stoneygate might find itself paying commission in return for no services and, indeed, might find itself paying one tranche of commission to the former agent, Proactive, and one tranche of commission to the new agent on the same funds:
"532 Mr Chaisty, of course, relied primarily on the absence of any clear, express provision conferring any rights to post-termination commission on Proactive. He also sought to support his argument by counter-examples of the commercial consequences of construing the contract in the way contended for on behalf of Proactive. Thus, he pointed out that, if Proactive were entitled to commission on long-term sponsorship contracts entered into near the end of the contract period, it would mean that Stoneygate would have to carry on paying commission at the substantial rate of 20% over a period of many years without Proactive having to provide any further services under the Image Rights Representation Agreement. This would represent a continuing drain or charge upon Stoneygate's income, even though it would have to find another agent to provide the services which were no longer being provided by Proactive. There would, therefore, he submitted, be a real risk that Stoneygate would find itself in a position in which it had to pay double commission, once to Stoneygate and once to a new agent. "
Submissions
- Mr Christopher Jeans QC, for Proactive, submits that the entitlement to commission crystallises on the procuring of a "contract or arrangement", not on the provision of Services (as defined in clause 1.1 of the IRRA). On the true construction of the IRRA, if the crystallising event occurs before termination of the contract of agency, commission continues to be payable to Proactive even after the termination of the contract.
- Thus, on Mr Jeans' submission, where Proactive procured a contract for the promotion of WR, the relevant event occurred and the entitlement to commission arose. The commission of 20% of the fruits of that which has been arranged is payable even if received later. If the IRRA had intended to restrict commission to that paid before termination, it would not have used the word "payable". Clause 21 (above) supports this interpretation.
- On Mr Jeans' submission, the essence of the service is the procuring of the contract and so he submits that the result is not odd. This service requires skill. (There is no limit to the number of endorsement contracts which a player can undertake which was clearly agreed between WR and his Club, but there is such a limit as a matter of practical reality.) The commercially important part of the IRRA is, therefore, the sourcing of the contract. The remuneration structure would have been different if the meaning was that held by the judge. The IRRA was really a contract to source contracts. It is wholly uncommercial to suggest that the remuneration is not payable on contracts negotiated before termination.
- Mr Jeans further submits that contracts can go on after the termination of the IRRA. (The agent would be obliged to seek a renewal or replacement of an endorsement contract.) Mr Jeans submits that, if the judge is right, Stoneygate can just give a direction to Proactive under clause 3.3 of the IRRA to ensure that all payments under contracts of endorsement become payable after the date of the expiration of the IRRA and await the termination of the IRRA. In that situation, Stoneygate could retain all sums paid by the third party after the date of termination and not pay any commission to Proactive.
- Mr Jeans submits that it is always necessary to focus on the precise wording of the clause to identify the triggering event. Mr Jeans further submits that clause 8 is concerned with damages and not with the entitlement to commission. Mr Jeans referred to the evidence of Proactive's expert witness, Mr Melvyn Stein, a solicitor who has long experience in advising on matters connected with football, but I do not consider it appropriate to go into this evidence as it is not admissible on a point of construction of the IRRA.
- Mr Paul Chaisty QC, for Stoneygate, seeks to uphold the judge's interpretation of clause 6.2 of the IRRA. He relies on the fact that from 2003 image rights representation agreements were issued by Proactive with wording providing for post-termination payments to rank for commission purposes. In my judgment, that matter clearly cannot affect the interpretation of the IRRA; nor, on well-established authority, can the practice of the parties after the signing of the IRRA affect its interpretation as suggested by the judge.
- Mr Chaisty submits that the agent is continually bound to provide Services during the currency of the IRRA. He points out that there is no express clause entitling the agent to commission on sums received post-termination. There can, he submits, be no presumption that Proactive is entitled to that commission. If that is what the parties had intended, they would have said so. Proactive should not receive post-termination commission because it does not bear the cost of servicing contracts which run after the date of termination.
Discussion and conclusions on issue (1)
- This is a question of construing clause 6.2, and in particular the words "20% of the gross sum payable under any contracts or arrangements…". The starting point, in my judgment, is to determine the contracts or arrangements which are being referred to. In the context of this exclusive agency arrangement, they are clearly contracts which Proactive has procured for WR as his representative pursuant to clause 3 of the IRRA. This was conceded below by Mr Mill QC who then appeared for Proactive and, in my judgment, rightly conceded. Commission would not, for example, be payable on endorsement contracts already in place at the date of the IRRA, perhaps having been procured by some other sports agent.
- The analysis must then turn to the consideration stated in clause 6.2. The words are "In consideration for the performance of the Services". Clause 6.2 does not attach any particular quality to the Services. It is sufficient if they fall within the definition of Services in clause 1.1. The test for their ability to create a right to commission is their success in procuring endorsement contracts. There is no other criterion, such as the range of Services to be provided or the amount of time expended on the negotiations or other work for WR. So, if on day one of the IRRA, Proactive procures a ten-year endorsement contract with the world's most popular sportswear producer, the right to commission arises at once. On the other hand, if Proactive fails to obtain an endorsement contract for six or nine months, it has to bear its own normal running costs: see clause 6.3. The provisions for remuneration, therefore, involved risks for Proactive, and in addition "swings and roundabouts" for both parties.
- Likewise, there is nothing in the consideration clause to require the Services to be ongoing, in particular to require them to continue after the termination of the IRRA. On the contrary, Stoneygate has the right to terminate the contract under clause 8.2. Clause 8.2, as the judge observed, makes no provision for compensation for the loss of the potentially highly lucrative right to commission. It does not, in my judgment, follow that there is no right to the payment of commission post-termination. If commission is payable on any endorsement contract which Proactive procures, there is no reason why post-termination commission should not be dealt with in clause 6.2 dealing with commission, rather than clause 8 dealing with damages on termination.
- All the points in the preceding paragraphs of this discussion underscore, and to my mind validate, Mr Jeans' main point that it is the procuring of endorsement contracts that gives rise to the right to commission and not the ongoing provision of Services.
- That brings me to the significance of the word "payable". I agree with the judge that this word has the effect that the right to commission arises when sums become payable under endorsement contracts and not when they are actually received. However, I do not consider that this is the totality of the effect of the word "payable". What is conspicuous by its absence is any restriction on the word "payable". Clause 6.2 does not say "payable during the currency of the IRRA" or "payable upon the negotiation of the endorsement contract", or contain any other limitation on the word "payable". So, on the face of it at least, it is a matter of no significance to the parties' rights and obligations precisely when they become payable. There is no need to have any limitation on the word "payable" for the clause to work. In those circumstances I do not consider that there is scope for implying any limitation that they must become payable during the currency of the IRRA.
- The judge was concerned about the need for the agent to provide "Services" in the broadest sense of the term after the date of the negotiation of the contract or arrangement. Suppose that there is a ten-year endorsement contract and sums become payable as and when WR endorses products, or attends photo shoots wearing the product, on agreed dates during that ten-year period. Proactive will have to set up those sessions, and ensure that WR's schedule enables him to attend and so on, in order to earn those sums. The negotiation of contracts formed only a part of the services which Proactive was expected to provide, and Proactive would be likely to have to provide other services and advice.
- If it was intended to be the effect of the IRRA that Proactive should continue to provide Services in order to obtain its commission, the parties could certainly have put it beyond doubt by providing in the IRRA that the Services which enabled the agent to claim commission under a particular endorsement contract were the Services required to be provided to enable a particular tranche of money due under an endorsement contract to be earned. But such a provision might also restrict the hands of Stoneygate since Proactive would no doubt have expected to have a right to provide Services in those circumstances. That would be inconsistent with the personal nature of the Services and make it difficult for Stoneygate to engage a new agent in place of Proactive. It can, therefore, be seen that there would be commercial reasons for having a clause entitling Proactive to post-termination commission without its being under a concomitant obligation to provide Services in respect of the endorsement contract yielding the sums on which commission was exigible.
- At the end of the day, this issue is a question of construction of the IRRA in the light of the circumstances surrounding its execution. It all depends what the parties agreed. This case is perhaps less complex than those in which the commission is payable not simply on contracts arranged by the agent but also on further "repeat" contracts which come about in consequence between the same parties. Here Proactive was entitled to commission only on contracts or arrangements which it made. I am satisfied that Mr Jeans' submission that the triggering event for Proactive's commission was the making of a contract or arrangement of the kind described in clause 6.2 and not the provision of Services either generally or through the life of that contract.
- In those circumstances, the law to be applied is that summarised by Bowstead and Reynolds on Agency (19th ed) in the following italicised passages in paragraph 7-041:
"Remuneration after termination…. If a fact which renders the commission earned occurs before the termination of the contract, whether the contract is terminated for breach or otherwise, and no matter by which party, the commission has become due and is still payable. …So if the contract on its true construction so provides, commission may be earned by a mere introduction infected before termination. This is so even though the contract provides that the agent is actually to be paid on receipt, acceptance or execution of the order, and this occurs after termination." (emphasis added and footnotes omitted)
- This passage derives support from Roberts v Elwells Engineers Ltd [1972] 2 QB 586. In that case, Lord Denning MR, with whom Edmund Davies LJ agreed, held:
"It does sometimes happen that an agent is entitled to commission even after the agency has determined. For instance, when an agent is entitled to commission on orders and repeat orders received from customers introduced by him, the principal cannot deprive him of his right to commission by terminating his agency: see Bilbee v. Hasse & Co., 5 T.L.R. 677; Levy v. Goldhill [1917] 2 Ch 297. This has led the judges in some cases to grant a declaration that he is entitled to commission in the future and to order an account…"
- I agree with Mr Jeans that the nature of the relationship between Proactive and Stoneygate is important. Proactive had to expend time and skill on securing a contract. One can well understand that parties may agree that commission under a contract should continue to be earned notwithstanding the termination of the contract. Thus, for example, a landlord might ask an agent to collect the rent for a property for which it is difficult to find a tenant. The agent may be remunerated by commission of the rent. The parties may well agree that if he finds a tenant he should have commission on each of the instalments of rent paid by the tenant even after the contract of agency has come to an end. On the other hand, if a landlord has a property for which he already has a tenant and simply wishes an agent to handle the management of the property, there would be much less reason for the parties to agree that commission should be earned on rent paid after the termination of the agency agreement.
- Moreover, Proactive was likely to have substantial expenses in providing the Services for which it was not reimbursed: see clause 6.3. That is another factor which provides a reason why the agent would want its commission to run down to the termination of the contracts which he had negotiated and not down to the termination of its own contract of agency.
- The judge gives as one of his reasons for preferring his interpretation that it would lead to a commercial divorce with a clean break when the agency contract was terminated. However desirable a clean break might be in principle, it is difficult to see that Proactive, which was much the stronger party in the negotiation of the IRRA, would have been agreeable to an agreement which put it at risk that Stoneygate might terminate the contract so as to put an end to its right to commission.
- In all the circumstances, I do not consider that the word "payable" in clause 6.2 should be interpreted as meaning "payable in the period prior to the termination of" the IRRA.
- I would accordingly allow the appeal on this issue.
Issue (2): was the judge's conclusion that the IRRA was unenforceable on the grounds that it was in unreasonable restraint of trade wrong in law for any of the three grounds advanced on this appeal by Proactive?
Introduction
- I approach this Issue on the basis of the interpretation of clause 6.2 which I have concluded is the correct one under Issue (1). I will give only a brief introduction to the relevant law on restraint of trade since Proactive's challenge to the judge's application of the law is only on three limited grounds, summarised at the start of Mr Jeans' submissions under this Issue, below.
- Public policy has been described as an unruly horse. It is an important but amorphous concept which the courts must keep within its proper limits. However, the courts have repeatedly held that it is against the public interest and the policy of the common law for there to be restraints on trade unless there are special circumstances.
- There are numerous examples in the decided cases of contracts which have been held to be contrary to public policy as being in restraint of trade. The most common situation is where an employment contract seeks to impose an unreasonable restriction on an employee's activities after he has ceased to be an employee. The present case does not fall into that precise category because the alleged restraint affects activities both during and after the termination of the contract.
- The boundary between contracts that are contrary to public policy as being in restraint of trade and that will not be enforced, and contracts that contain acceptable restrictions is an uncertain and porous one. As the leading case of Esso Petroleum Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 demonstrates, opinions can differ to whether and if so on what basis a particular kind of restriction is within the doctrine but can be justified, or whether it is to be regarded as outside the doctrine altogether (see, for example, per Lord Morris at page 306G, per Lord Pearce at page 327F and per Lord Wilberforce at 333F). Some contracts are treated as moulded by normal commercial experience and thus outside the doctrine even though they contain restrictions on trade (see per Lord Wilberforce at pages 332-3). These include restrictive covenants in commercial leases against user save for particular trading purposes.
- The House of Lords sought to identify circumstances in which a contract would be held to be in restraint of trade, but eschewed the impossible task of defining those circumstances comprehensively. Thus, for example (and without trying to summarise the lengthy speeches in Esso), Lord Reid took the view that the doctrine could apply to any contract that restricted a person's capacity to trade that was out of the norm. Lord Pearce considered that the doctrine was directed to any contract which in substance sterilised a person's capacity to trade. Lord Wilberforce acknowledged in terms that there was no precise test for when the doctrine of restraint of trade applied. The categories were not closed. Ordinary commercial contracts, however, would be outside the doctrine.
- I propose pragmatically to start with the approach of Jonathan Parker J in Panayiocou v Sony Music Entertainment Ltd [1994] EMLR 229 at 321, under which there are two stages involved in reaching the conclusion that a contract is in restraint of trade. At the first stage, the court has to address the question of whether the doctrine of restraint of trade is engaged, i.e. whether the contract is one to which the doctrine of restraint of trade applies at all, and, at the second stage of the process, if the party seeking to rely on the covenant raises this as a defence, the court will have to determine whether the restraint on trade is reasonable.
- This is the way in which the judge approached the matter, and the way in which we are invited by Mr Jeans to approach the matter. Mr Jeans' first argument is that the doctrine was not engaged in this case, and that accordingly the court need not venture into the question of justification.
- However, in practice, I find that the line between the two stages identified by Jonathan Parker J is not clear cut, and that the analysis has to be an iterative one between them. In particular, the matters that might be raised under the second stage might also be relevant to the question whether the doctrine of restraint of trade is engaged at all.
- In the present case, the contract was one for the appointment of Proactive as Stoneygate's sole and exclusive agent, and thus it restricted the whole activity of exploiting WR's image rights. The leading case on covenants for exclusivity and restraint of trade is Esso. In that case, the owners of two garages entered into "solus agreements" with Esso to buy only Esso's fuel and to sell it at Esso's retail prices. The doctrine of restraint of trade was held to apply as the contract restricted the garage owners from buying petrol from other persons. In the case of one agreement, the restraint was for five years and this was held on the facts (which I need not go into) to be reasonable and enforceable. But Esso failed to discharge the onus on it of showing a restraint for twenty-one years contained in another solus agreement was justified.
- The doctrine is clearly engaged by contracts that restrict the whole of a person's services and which are oppressive. Thus, in A. Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308 a young song writer agreed to assign the copyright in all his compositions for five years and, if the royalties in that period exceeded £5,000, for a further five years. There was no obligation on the publisher to publish any of his work. There was no provision for termination of the agreement by the song writer. However, the publisher could determine the agreement at any time. The House of Lords held that the agreement was in restraint of trade and unenforceable because it was unreasonable. The leading speeches were given by Lord Reid and Lord Diplock.
- Lord Reid principally analysed the doctrine as one based on oppression. He held:
"Any contract by which a person engages to give his exclusive services to another for a period necessarily involves extensive restriction during that period of the common law right to exercise any lawful activity he chooses in such manner as he thinks best. Normally the doctrine of restraint of trade has no application to such restrictions: they require no justification. But if contractual restrictions appear to be unnecessary or to be reasonably capable of enforcement in an oppressive manner, then they must be justified before they can be enforced." (page 1314, emphasis added)
- Lord Diplock expressed the matter differently. He concluded that the right question to be asked was whether the contract was unfair:
"So I would hold that the question to be answered as respects a contract in restraint of trade of the kind with which this appeal is concerned is: "Was the bargain fair?" The test of fairness is, no doubt, whether the restrictions are both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured to the promisor under the contract. For the purpose of this test all the provisions of the contract must be taken into consideration." (page 1315-6)
- The other members of the House of Lords, other than Viscount Dilhorne who agreed only with Lord Reid, agreed with both speeches. In those circumstances I proceed, again as Mr Jeans invited us to do, on the basis that there is no real difference in approaches of Lord Reid and Lord Diplock.
- Lord Reid did not seek to define the term "oppressive". According to its ordinary dictionary meaning, it means "unreasonably harsh". Astbury J at first instance in the Hepworth case (page 13 of the report), referred to below, used the words "tyrannous and oppressive" to describe the agreement in that case, which emphasises the one-sided nature of oppressive restrictions. However, once the conclusion is reached that the agreement in question is oppressive, there is no need to find that it is egregiously oppressive. Moreover, under the second stage it is always open to the other contracting party to seek to justify the restriction as no more than reasonable if he wishes to enforce the agreement. That party should have nothing to fear if the agreement is one that ought to be enforced.
The judge's reasoning
- The judge dealt with the application of the law on this issue to the facts as found by him at paragraphs 620 to 663 of his judgment. In the course of this part of his judgment, the judge held:
"643 The particular features of the Image Rights Representation Agreement which, in Stoneygate's contention, render it unenforceable as being in unreasonable restraint of trade are set out at paragraph 37 of its Re-Re-Amended Defence. Leaving aside the initial imbalance arising out of the commercial inexperience of WR and his family and the lack of any independent advice, the particular matters picked out in the pleading relate primarily to the length of the exclusive tie, having regard to the absence of any effective right on Stoneygate's part to terminate the Agreement prior to the end of the eight-year term. Reference is also made to the fact that commission was payable at the rate of 20% during the term of the Agreement, and to the right asserted by Proactive to receive post-termination commission at the same rate notwithstanding the cessation of any obligation on its part to provide the contracted services. The latter point, of course, no longer arises, in view of my interpretation of the relevant contractual provisions.
…
649 The terms of the Agreement were effectively dictated by Proactive. There was no meaningful negotiation whatever, save perhaps in relation to the signing-on fee. WR and his family had no commercial experience and were utterly unsophisticated in financial and contractual matters. I am quite satisfied that they 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 parties; and I think it is unlikely that it was ever seriously suggested to them that they should take such independent legal advice. It is quite clear that, having decided that Proactive and, in particular, Mr Stretford were the people they wished to act for WR, they were willing to accept whatever terms Proactive put before them. It may well be the case that there were many other agents who were interested in signing up this young and exciting talent; but, in reality, there was no serious competition to Proactive. In my judgment, there was a very substantial imbalance in bargaining power between the parties. "
Submissions
- Mr Jeans submits that this case should never have got past the first stage in this two-stage test. He makes three points, as he puts it, separately and inter-connectedly:
a) WR's trade is as a footballer. The IRRA is a means of obtaining extra income but it is not his trade.
b) The IRRA does not restrict his earning potential. The IRRA capitalises that potential in a particular respect.
c) There is no feature that renders the IRRA unfair or oppressive in the sense of Schroeder. On that basis, there is nothing to bring the doctrine into play.
- As to the first point, Mr Jeans submits that there is a difference between WR's trade and his property, that is, his intellectual property rights. One can in principle distinguish between a trade and intellectual property rights. Mr Jeans accepts there is an activity involved in turning up for promotions, but he submits that WR would be bound to say, if asked, that his trade is that of playing football. The endorsement contracts do not impinge on his ability to play football.
- WR accepted in his evidence that he could only engage in image rights exploitation as an ancillary activity. The judge accepted that that was the position: he found that there were inevitable limitations on his devoting time to image rights exploitation. All that, submits Mr Jeans, underscores his point that all the IRRA was concerned with was an ancillary activity. WR was simply using the opportunity to exploit an add-on or ancillary activity. Mr David Gill, Chief Executive Officer of Manchester United Football Club, also made the point in evidence that in practice the sponsoring activity would never get out of control because of the terms of the Club contract. Indeed as Sullivan LJ pointed out in argument, he had to concentrate on his football playing activity in order to have image rights of value to exploit. So, submits Mr Jeans, this contract was not oppressive.
- The judge found that the terms were not reasonable. Mr Jeans submits that the doctrine does not apply because there is no oppression, but he fairly accepts that if there is oppression he could not contend that it was also reasonable. On this appeal, therefore, I am not concerned with the second stage described in paragraph 56 above.
- As to the second part of his submission, the IRRA simply enables additional potential to be exploited: Mr Jeans submits that this is not a contract in restraint of trade because it simply deals with an "add-on". It does not sterilise WR's ability to play football. It is the absorption of an activity. Mr Jeans relies on Esso, in which the House held that a contract of exclusive agency did not normally attract the doctrine. Merely devoting oneself to a single employer likewise did not involve a restraint of trade.
- He took us to a number of product endorsement agreements, including a contract with NIKE which was for 10 years from 1 August 2007. The contract provided for payments to be made to Stoneygate half-yearly. The work of the agent includes organising the diary of the player, which with an international player can be complex and demanding.
- Mr Jeans distinguishes the present case from Schroeder, which I have summarised above. Exceptionally a contract of agency could be struck down because of its sterilising nature even though ordinarily an exclusive agency is an absorption, not a sterilising of activity. He took the court through the various speeches in Esso and invited the court to follow the approach of Lord Pearce. However, he submits that "the different expressions of opinion are waters flowing into the same stream".
- On Mr Jeans' submission, the doctrine of restraint of trade is not engaged unless there are provisions which are liable to be oppressive. That, he submits, is far from the case here as WR "got the best agent in the business", who proceeded to make him a fortune. WR was in complete control under clause 3 of the IRRA and thus he could not be exploited under that contract and there is no retainer. There is payment by results, which were, in fact, spectacular. WR was delighted with them. So it is misconceived to describe this contract as oppressive.
- The judge found that WR's parents were prepared to accept the terms put forward by Proactive (judgment, paragraph 649). Mr Rooney senior gave evidence and it appeared that WR had many suitors vying to be his agent.
- The duration of the IRRA was longer than image rights representation agreements worked out with others but these matters have to be judged at the date on which contract is entered into. The advantages, according to Mr Stein, were that it enabled continuity and better planning. The obligation to use best endeavours was more onerous than the normal contractual obligation to use reasonable endeavours. There was no exploitation in fact. The contract was longer than usual but mere length of the contract cannot attract the doctrine. He was a young man. There were extensive obligations in his favour.
- Mr Jeans submits that there was no problem on paper. WR had a veto on contracts and Proactive had to use its best endeavours. There are also practical limits on the operation of the contract.
- Mr Chaisty seeks to uphold the judge's conclusion on restraint of trade. He seeks to meet the attack by Proactive by demonstrating the principal steps in the judge's reasoning that the IRRA engaged the doctrine of restraint and was not capable of justification. The judge did not use the term "oppressive" but he clearly considered that the IRRA imposed restrictions which would affect WR's ability to carry on his trade in a way which was highly unusual. Mr Chiasty's submissions in answer to those of Mr Jeans on this issue were directed more widely to the facts of the case and the extent of the judge's findings.
- The judge accepted that the agent under an image rights representation agreement had a substantial role. Mr Stein had expressed the view that the work of an agent was not exactly "brain surgery" (judgment, paragraph 442). Mr Stein had also disagreed with Mr Page, called on behalf of Stoneygate, whose evidence was that the role of an agent went beyond arranging the diary of the player and extended to the personal development of the player. Mr Stein also gave evidence that a long contract was needed to create stability. But the judge had rejected this evidence (judgment, paragraphs 445, 446, 496 and 498), and at one stage referred to him as a "voice crying in the wilderness" (judgment, paragraph 444). The judge held:
"Whatever the arguments might be at the level of principle, I simply cannot accept that, in this particular case, the length of the term was intended to reflect the amount of any initial investment, the uncertainty of any returns or the risk that his undoubted talent might not be realised. Whilst I accept that there are always uncertainties, most notably the risk of injury, those risks seem to me to have been very modest compared with the potential returns. I am afraid that I think it is much more likely that the reason why Proactive was so anxious to sign up WR and his image rights company for a term of eight years was precisely because of the high probability of success and not because of any perceived risks of the kind referred to by Mr Stein." (judgment, paragraph 496)
- The success of a player, as Mr Chaisty submits and the judge found, depends on his success in his chosen sport. It is not possible to distinguish the ability to exploit image rights from ability on the football pitch. Mr Chaisty informed us that the ratio of a footballer's activities on and off field is about 50:50. Mr Stein made the suggestion that a contract of eight years was "a little bit unusual". His evidence on both points was rejected. The judge held that a contract of eight years like the IRRA was "unique" (judgment, paragraph 476).
- The judge noted that the career of a footballer is about eight years. In the case of WR, whose prowess on the field was not in doubt, the period would be longer though still time-limited. Mr Chaisty submits that for a sportsman eight years was a long period of time, although Mr Chaisty noted that Mr Ryan Giggs, another highly successful footballer, had been playing for some 15 to 16 years. The period of eight years was on any analysis a very substantial one in this context. The judge thought that four or five years would be usual (judgment, paragraph 476).
- On Mr Chaisty's submission, there are other reasons that make the contract oppressive. It had occurred to lawyers instructed by Proactive in 2002 and 2003, including a Mr Harrington, and previously DLA, solicitors, had also put out warning signals that the IRRA might be in restraint of trade. To the knowledge of Proactive, WR and his parents did not have legal advice at the time of the transaction. There is no attempt before this court to justify this contract as reasonable.
- Mr Chaisty submits that this court should apply the test put forward by Lord Wilberforce in Esso. If the contract looked restrictive, then the court should consider whether the contract has been moulded by negotiation or whether it falls within certain categories which are accepted as creating legitimate restraint on trade. Mr Chaisty submits that there has to be something outside the norm. He said that this is something that the court ought to look at, and it would then be for the party seeking to enforce the contract against the restrained party to demonstrate why the contract should be enforced. That latter stage is not challenged on this appeal.
- Mr Chaisty also relies on the judge's findings about the absence of tapering or sunset provisions for Proactive's commission. While this was not a pleaded issue, there was clearly evidence and submissions on it at trial. The judge, accepting on this point the evidence of Mr Stein, considered that 20% was the ordinary default rate. He thought, however, that the actual rate would depend on negotiations. The judge held:
"It would, no doubt, as Mr Stein opined, all be a matter of negotiation. But, if a young player was an exciting prospect and was well advised, I would have thought that some sort of sliding scale of this kind could easily be agreed. So, whilst 20% may well be the norm, as asserted by Mr Stein, the actual rate of commission in any particular case would depend upon the outcome of negotiations between the player, or his representatives, and the agent, and would be influenced by factors such as the reputation and prospects of the player and the length of the proposed contract." (judgment, paragraph 434)
- The judge noted that a new contract with Triple S had been made at a rate of 20% . The judge considered that if WR had had separate advice he might well have been able to negotiate a better rate with Proactive:
"...if Stoneygate and WR had received proper, informed legal advice before they entered into the Image Rights Representation Agreement, I would have thought there would have been a strong case for inferring that they would have negotiated a reduction in the level of remuneration once certain income thresholds had been reached, even if they had still been willing to enter into a long-term arrangement. Furthermore, whatever his relationship with Mr Stretford, it seems to me that, if he had been free to re-negotiate the terms of any agency contract in the latter part of 2008, his bargaining power would have allowed him to drive down the level of any remuneration payable by Stoneygate to a new agent." (judgment, paragraph 760)
- Mr Chaisty relied on the judge's finding that WR was "hot property" even at the start of his career (judgment, paragraph 21). Later in his judgment, the judge described WR as "the most talented youngster in Britain" (judgment, paragraph 91). He had hit a "wonder goal" against Arsenal in 2002 (judgment, paragraph 494). These findings are, on Mr Chaisty's submissions, highly material to the judge's conclusion about the type of commission that could have been negotiated in 2002.
- In summary, Mr Chaisty relies on WR's age at the date of the signing of the IRRA, the lack of independent legal advice, the fact that the terms of the IRRA were dictated by Proactive, the imbalance between the parties at the time of signing, the length of the contract as against the length of a footballer's career, the rate of commission and the fact that there was no tapering or sunsetting of the commission. Mr Chaisty submits that the phrase "best endeavours" gave little added protection to WR, although the judge had accepted that it was "somewhat more onerous" than an obligation to use reasonable endeavours. However, the judge had rightly held that the obligation was likely to be of little significance to either a successful or an unsuccessful player for the reasons given in paragraph 503 of the judge's judgment.
- On Mr Chaisty's submission, the judge's overall assessment provided strong reasons for saying that the IRRA was oppressive:
"The Agreement itself was not in any sense a standard form which had been tried and tested in this particular field of commerce. On the contrary, it was unusual in many respects and unique in its duration. If there had been free and equal negotiations, with proper independent legal advice on each side and, it may be, real competition from other prospective agents, I very much doubt if an eight-year contract at a flat rate of commission of 20% would have been the outcome. It is true that, in contrast to the Schroeder case, there were quite extensive obligations on the part of Proactive which, as I have found, went beyond merely obtaining and negotiating income-producing opportunities. Particular emphasis was placed on the "best endeavours" provision by Mr Stein, in the course of his evidence, and by Mr Mill in his opening and closing submissions. But a breach of such an obligation might well prove difficult to establish and, as Lord Reid observed in the Schroeder case, it might, in truth, have been "of little use" to WR." (judgment, paragraph 650)
- The judge therefore concluded that the doctrine of restraint of trade was engaged. The burden then turned to Proactive to show that the terms were justified. The judge considered all the grounds of justification raised, such as the need for Proactive to recoup its investment. The judge observed that it would in practice be very difficult to terminate the IRRA and appoint another agent in the place of Proactive because of the terms of the IRRA, including (if the judge were to be wrong on Issue (1)) the provision as to post-termination commission.
- On the question whether it was a good answer for Proactive to say that the restrictions on WR related to an ancillary activity, Mr Chaisty relies on Hepworth Manufacturing Co v Ryott [1920] Ch 1. In that case, the question arose whether a "kinema" (sic) actor could be validly restricted by a contract with film producers from using his professional pseudonym, on which his reputation was based. This was a partial restraint of trade but Astbury J and the Court of Appeal had no difficulty in saying that the doctrine applied. Atkin LJ thought that there were few things more precious or personal than one's name and reputation (see pages 29-30). I would add that there are obvious parallels between a person's stage name and his or her image.
Discussion and conclusions on Issue (2):
- I turn to the three challenges made by Mr Jeans (paragraph 62 above).
- The first challenge focuses on the ancillary nature of image rights exploitation to Stoneygate and WR. WR's primary occupation is that of a footballer: I proceed on the basis that his salary as such is paid to Stoneygate, but even if it is not Stoneygate would be equally concerned to see that WR preserves and develops his footballing skills as any image rights are dependent on his doing so. The business of image rights exploitation is, therefore, merely ancillary to the primary occupation of being a footballer. Mr Jeans submits that in these circumstances the doctrine of restraint of trade does not apply.
- In my judgment, a person's ancillary activity of exploiting his image rights is just as capable of protection under the doctrine of restraint of trade as any other occupation. Public policy is concerned with the manner in which a person may properly realise his potential, not only for the good of that individual but for the economic benefit of society generally. It cannot logically matter whether the realisation is a person's primary activity or not. The protection for the other party to the contract is that the restriction is not a bar to enforcement of a contract if it is capable of justification as being reasonable. Moreover, the endorsement of goods encourages the purchase and consumption of goods, and the court is entitled to assume that it is in the interests of the public that image rights should be fully realisable for this economic purpose.
- In addition, the exploitation of image rights is almost always going to be an activity which is ancillary to another occupation (saving and excepting cases such as the display of Katisha's miraculous shoulder-blade in The Mikado). The fact that the activity is ancillary may be such as to make the restriction on trading insubstantial and thus justifiable under the doctrine of restraint of trade. But the fact that the activity is an ancillary one is not a reason for disapplying the doctrine altogether, any more than it would be right to say that Harper's Garage would have had no claim at all in the Esso case if the contract had merely restricted the sort of motor accessory they could sell in the garage shop.
- Mr Jeans' first challenge seems to me to confuse two types of (to coin a phrase) "ancillacrity", or ancillary-ness. The first sort of ancillary feature in contracts, which fall within the doctrine is the one that appears in this case, namely an ancillary occupation. The second sort of ancillary feature in the context of restraint of trade is that of an ancillary restraint exacted on, say, the sale of business from the vendor not to compete with the business being sold. But these restraints are generally outside the doctrine of restraint of trade, or its application, because they are ancillary to the real business of the contract. The object of the covenant is to protect the value of the property being sold. That is an entirely different situation from one of exclusive agency.
- Mr Jeans' second challenge to the judge's conclusion that the IRRA engaged the restraint of trade doctrine is that the IRRA is not about sterilising WR's ability to carry on any trade; it is a means of realising it. In his speech in Esso, Lord Pearce speaks of the objectionable feature of a covenant in restraint of trade being the sterilisation of the ability of the person sought to be restrained to provide services (page 328D). In other words, the doctrine of restraint of trade is about contracts which lead to the sterilisation of trade on their face or in substance.
- The short answer to Mr Jeans' second challenge is that, as the Schroeder case demonstrates, it is possible for a single activity on appropriate facts to be both creative and yet "sterilised", indeed that is perhaps the reason why the doctrine is invoked in such a situation. It was no answer to the respondent song-writer in Schroeder to say that the publishing contract might have been a means of bringing his creative talent to the attention of the world. The provisions of the contract allowed insufficient scope for the song-writer to ensure that this was done. So the court is inevitably driven back to the contract in a case, such as this, where it is said that its real effect is to sterilise trading activity.
- The third challenge made by Mr Jeans is linked to his second submission. However, for my part, I do not see how, on the findings of the judge to which the court was taken by Mr Chaisty, and against which there is no appeal, Proactive can come anywhere near to showing that the judge's conclusion that the restraint of trade doctrine was engaged was wrong.
- The judge combed through the facts with meticulous care and explained in detail the steps in his reasoning. The very unusual length of the contract term of the IRRA, the circumstances surrounding its execution, the practical difficulties of termination, and the other factors referred to by the judge have to be seen in combination. They take the IRRA out of the range of a normal commercial contract imposing restrictions on a contracting party's ability to carry on a business activity.
- It will be recalled that the Rooneys had no legal advice at the time of execution. This is all the more important in the light of the judge's finding that, on Proactive's side, a longer term than usual was demanded for the IRRA because it was known that WR was "hot property". The absence of independent legal advice in my judgment deprives the fact that the Rooneys were content with the terms of the IRRA of probative weight on the restraint of trade issue. It underscores the inequality of bargaining power between the parties. Moreover, it predisposes the agreement to a finding that it was one-sided, unfair or oppressive.
- Furthermore, Proactive had itself had warning from different sources of the fact that the Rooneys should have independent legal advice and that the contract might be unforceable as being in restraint of trade. It appears to have brushed that advice to one side. It is a relevant part of the picture that Proactive entered into the IRRA knowing that there was a risk it could be held to be enforceable on the grounds of the doctrine of restraint of trade.
- The term of the IRRA was much longer than the norm, and its length has to be contrasted with the likely length of a normal career in professional football. The judge found that Proactive wished to have a long contract because of the stellar potential of WR. This desire constituted a wish to restrict him from going elsewhere, not a desire justifiably to protect some legitimate interest of its own, to create stability and facilitate continuity and better planning.
- Mr Jeans placed no reliance in his submissions on clause 8 of the IRRA, set out in paragraph 4 above. In the usual case, the fact that the party said to be oppressed can terminate the contract ought to be a good answer to a claim that the contract was oppressive and in restraint of trade. But in this case it was common ground at trial that as a matter of law and construction clause 8 did not confer a right of early termination but was an ineffective attempt to stipulate the damages payable in the event of breach.
- It is no answer to say that there have been substantial financial rewards on all sides from the exploitation of WR's image rights. The question of restraint of trade has to be considered by reference to the terms of the IRRA. The IRRA had, moreover, two years to run at the date of its termination. Lord Diplock made this point in Schroeder:
"In order to determine whether this case is one in which [the power to relieve the promisor of his legal duty to fulfil his contractual promises] or exercise, what your Lordships have in fact been doing has been to assess the relative bargaining power of publisher and the song writer at the time the contract was made to decide whether the publisher had used his superior bargaining power to exact from the song writer promises that were unfairly onerous to him. Your Lordships have not been concerned to enquire whether the public have been deprived of the fruit of the song writer's talents by reason of the restrictions, nor to assess the likelihood that they would be so deprived in the future if the contract were permitted to run its full course." (page 1315)
- The question whether a contract is oppressive involves an evaluation of all the factors on which evidence was given at the trial in the light of the judge's findings, and an exercise of judgment by the trial judge. In such cases, an appellate court does not interfere unless it is satisfied that the trial judge is clearly wrong. In my judgment, the judge was not clearly wrong. On the contrary, on the evidence before him, he was in my judgment entitled to come to the conclusion to which he came.
- For these reasons I would dismiss the appeal on this issue.
Issue (3): If Proactive fails on Issue (2), is Proactive nonetheless contractually entitled under the IRRA to commission on sums which were actually received by or after the date of termination in respect of contracts negotiated by Proactive at the rate of 20% as set out in clause 6.2?
- The judge dealt with this matter at paragraphs 732 to 742 of his judgment. Effectively the contention of Proactive, which the judge rejected, was that it could enforce its contractual right to commission due under the IRRA before or after the date that Stoneygate refused to abide by it.
- Mr Jeans submits that the contract is still enforceable in respect of entitlements that had accrued even if the IRRA is in restraint of trade. The court would be enforcing an obligation that had already arisen under the unenforceable contract. Mr Jeans relies on the dictum of Lord Reid in Esso at page 297 that a contract in restraint of trade is not generally unlawful if parties choose to abide by it. I should say straightaway that for my own part I do not consider that this dictum supports Mr Jeans' case on this issue since Lord Reid added:
"…[a contract in restraint of trade] is only unenforceable if a party chooses not to abide by it."
- That is the position in this case. Mr Jeans, however, also relies on the final sentence of Lord Reid's speech in Schroeder, in which Lord Reid held:
"It must therefore follow that the agreement so far as unperformed is unenforceable."
- Mr Jeans submits that the same would apply to the benefit of services provided under an unenforceable contract for which no payment had been made. He gives the example of an employer who imposes a restrictive covenant on a former employee and then pays him £100,000 salary to do a two-day a week consultancy. If the restraint is too wide, it is on his submission an unlikely result that the employer should not be bound to pay the consultancy fee. On his submission, a quantum meruit was not appropriate. The employee should be able to sue for the accrued amounts. Public policy did not require the court in this case to strike down and hold unenforceable the right to commission which had been earned but not paid for.
- Mr Jeans refers to other situations where the law will enforce accrued rights. For example, where a minor enters into a contract to acquire a permanent interest with continuing obligations, and avoids the contract with a reasonable time of reaching maturity, he has to "meet obligations which have already accrued" (Chitty on Contract 30 ed para 8-040). None of the situations, however, which Mr Jeans cites is an example of a contract in restraint of trade.
- A key plank in Mr Jeans' argument on this point is the decision of this court in Schroeder, which is reported as Instone v Schroeder [1974] 1 All ER 171. This court came to the same conclusion as the House of Lords but it also dealt with a further point not considered by the House of Lords, namely the effect of the decision on assignments of copyright which the song writer had already executed in favour of the publisher pursuant to the terms of the contract. At page 181, Russell LJ , delivering the judgement of the court with which Cairns LJ and Goulding J agreed, held:
"Insofar as the plaintiff has actually executed assignments of copyright in his compositions to the defendant, that remains effective, and the defendant was entitled to the copyright on the agreed terms as to the plaintiff's share of royalties etc. Insofar as the contract would otherwise have operated as an assignment of copyright in future compositions only under section 37 (1) of the Copyright Act 1956, the contract being unenforceable the section does not operate."
- Mr Jeans also relies on observations of Denning LJ in Bennett v Bennett [1951] 1 KB 249 at pages 260-1. In those dicta Denning LJ held that a party entitled to the benefit of an agreement held to be in restraint of trade could sue on covenants in his favour even though void. In my judgment, however, when the passage is read as a whole, the dicta have to be read as limited to the enforceability of the parts of a void covenant which can, under established principles, be severed from the rest of the agreement. This is also the interpretation placed on these observations by Cheshire, Fifoot and Furmston, Law of Contract (15th ed) at page 537, to which Mr Jeans also referred. The commission arrangements in this case constitute the remuneration for the Services, and cannot be severed from the rest of the IRRA.
- Mr Chaisty describes Mr Jeans' submissions under this Issue as an ambitious suggestion for the reasons given in his skeleton argument. He distinguishes the case of Instone because in that case there was a separate assignment of copyright. The relationship in the present case broke down in October 2008, and the contract was determined in 2009. The judge held that the claim for outstanding commission lay in restitution and not in debt (judgment, paragraph 597).
- In my judgment, the concluding sentence of Lord Reid in Schroeder does not bear the meaning Mr Jeans sought to place on it. The sentence is not expressed to refer to any particular point in time. In those circumstances, in my judgment, it should be read as consistent with Lord Reid's holding at page 297 of Esso, to which I have already referred. For the reasons already given this passage does not support Mr Jeans' submission under this head. Moreover, it is important to identify the unperformed obligation is issue in this case. While Proactive has performed its obligation to provide the Services, Stoneygate has not performed its obligation to pay commission. It has repudiated the contract. The obligation to pay commission is the obligation which cannot now be enforced against it.
- Likewise, in my judgment, the final paragraph of Instone v Schroeder does not assist because, as Mr Chaisty points out, it does not on analysis contemplate that the court will enforce a contractual obligation under the agreement which was in restraint of trade. The right to royalties would depend on the terms of the assignments of copyright which were independent of that agreement. It is those assignments which would be the subject of any proceedings for enforcement.
- In my judgment, Proactive's case under this Issue must be rejected. The well-established effect of a finding that a contract is in restraint of trade is that, once a party withdraws from the contract, the contract is unenforceable: see, for example, the dictum of Lord Reid in Esso, quoted above. The only remedy is in restitution for a quantum meruit. That would also be the remedy for the consultant in the example given by Mr Jeans. The next issue raises the question whether, in awarding a quantum meruit, the court would be bound to follow the scale specified in the parties' contract.
- I would accordingly dismiss Proactive's appeal on this issue.
Issue (4): If the IRRA is held to be unenforceable under Issue (2) and Proactive fails on Issue (3), should the judge, in determining the amount payable on a quantum meruit, simply have applied the rate at which commission would have been payable under clause 6.2?
- The judge dealt with this matter in paragraphs 743 to 762 of his judgment. The judge set out the authorities on the relevance, on a claim for a quantum meruit, of the terms as to remuneration contained in any ineffective contract for the same services. He noted that it was Proactive's case that it should receive the same rate of commission on a quantum meruit as it would have done if the IRRA had not been unenforceable. He recorded that Stoneygate submitted that the contractual rate was inappropriate and that it wished to put in evidence on the appropriate rate. The judge concluded that it was not necessarily fair to assume in the present case that the parties would have used the contractual rate. As I have previously indicated, the judge found that there was a strong case for inferring that, if at the time of the execution of the IRRA the parties had been in an arms' length negotiation, Proactive would have to have conceded a reduction in the usual rate of 20% (judgment, paragraphs 434 and 760). The evidence relevant to a quantum meruit claim had not been investigated. In those circumstances the right course was to defer the question of the quantification of the amount to be awarded on a quantum meruit to a later hearing (judgment, paragraph 762). Proactive appeals against this ruling.
- The judge found that 20% was the normal commission rate in this field (judgment, paragraph 430). In any event, the new agreement between WR and Triple S provides for the same rate. Mr Jeans submits that there has been no complaint about the rate agreed with Triple S. He submits that, in the absence of any evidence as to the proper rate, the court should have taken 20% as the rate. There needs to be some compelling evidence to displace the normal rate. The court is not concerned with what the parties would have negotiated.
- In response to these submissions, Mr Chaisty submits that the contract may be a yardstick. It may be a reliable yardstick if there has been independent legal advice but in this case there was no proper negotiation. There was for instance no tapering of the 20% rate. The new contract is not the best evidence. Furthermore, as the judge noted, there was no expert evidence on quantum meruit (paragraph 427). Stoneygate proposed to provide evidence as to what competition existed between agents. There had been no evidence as to the amount which Stoneygate had actually received post-termination of the IRRA on Proactive-negotiated contracts. There would need to be projections of the receipts and reasons for, and effects of, tapering. There has to be evidence as to the cost of the provider getting another agent to do the services which Proactive are no longer able to do. For all those reasons, the judge was not in a position to fix the amount to be paid to Proactive for the services which it had provided.
- I have set out in paragraph 84 above the judge's findings as to the normal market rate for commission. He did not consider that the evidence established that 20% was a uniform market rate. The judge was clearly right to conclude that the contractual rate was not binding in this situation. This court subsequently held that to be the case on the authority of the House of Lords in Way v Latilla [1937] 3 All ER 759: see Benedetti v Sawiris [2010] EWCA Civ 1427 at paragraphs 51 to 54 and 63 (appeal to the Supreme Court pending). Moreover, the judge found that there was no applicable market rate.
- In those circumstances, in my judgment, the ruling of the judge has to be seen as essentially concerned with a matter of case management. He did not consider that he could fairly resolve the question of the amount to be awarded to Proactive for its services at the trial. There were evidently gaps in the evidence on this issue. The parties had, we were told by Mr Chaisty, agreed that, if the judge accepted that the rate need not be the contractual rate, they would have time to file evidence.
- In that situation, the decision whether to defer the quantification exercise to a further hearing with additional evidence was one for the judge's discretion. It is not shown that there was an error of principle by the judge and accordingly the challenge to his ruling must fail. In the interests of saving costs, however, I would direct that Proactive should within 28 days issue an application for a case conference before the judge so that he can give directions as to what matters should be covered in any further evidence and establish a timetable for the further hearing.
Issue (5): Was the judge wrong to conclude that there was no implied contract between Speed and Proactive on the terms as to commission contained in the IRRA?
- On this issue turns the question whether Proactive can claim post-termination commission from Speed. The judge dealt with this issue in paragraphs 254 to 265 and 763 to 787 of his judgment. He set out the background in paragraphs 254 and 255 of his judgment:
"Mrs Rooney and Speed
254. Mrs Coleen Rooney is, of course, WR's wife and the mother of his child. They met when they were still at school and she was his regular girlfriend when he became a professional footballer. As Mr Stretford pointed out — and as is well known — the wives and girlfriends of professional footballers attract a good deal of media attention and some, such as Mrs Rooney, achieve celebrity status in their own right. It was not particularly surprising, therefore, that she turned to Proactive and Mr Stretford to provide assistance in developing the commercial opportunities which began to come her way. It seems that Mr Stretford initially helped her to arrange some sort of contract for television; and Proactive charged commission at the same rate as was applicable under the contract between Proactive and Stoneygate, namely 20% of the fees payable to Mrs Rooney. Thereafter, early in 2004, Speed was set up, apparently at the suggestion of Proactive and Mr Stretford, to act as a vehicle for exploiting her image in much the same way as Stoneygate was used for that purpose by her husband. But, so far as I am aware, there was no formal assignment of any rights by Mrs Rooney to Speed. More importantly, perhaps, there was no written agreement between Proactive on the one hand and Mrs Rooney or Speed on the other hand under which Proactive was appointed to act as agent for the exploitation of her image rights or was entitled to any commission or other remuneration for any services which it provided in that regard.
255. Nonetheless, though Proactive was primarily interested and engaged in the representation of sportsmen and sportswomen, it acted on behalf of Speed and Mrs Rooney for the purposes of negotiating and securing various contracts. In each case, it seems that the arrangements for raising invoices for fees payable to Speed and for the approval and payment of commission at the rate of 20% by Speed to Proactive precisely mirrored the arrangements between Stoneygate and Proactive. The commercial relationship between Proactive, Speed and Mrs Rooney (whatever its precise legal basis) appears to have been highly successful and lucrative…."
- Speed's case was that Proactive had just acted "on a day to day or job to job basis". Ms Jane Aspinall, now an employee of Triple S but who at the relevant time was employed by Proactive as Mrs Rooney's "Brand Manager", gave evidence that there was no "written or oral contract" between Proactive and Mrs Rooney or Speed. She said that Mr Stretford, acting on behalf of Proactive, would organise contracts on a project by project basis and that Mrs Rooney or Speed would pay a commission of 20% on the contracts arranged. She said this was because WR paid Proactive the same amount of commission on his contracts. In cross-examination, Miss Aspinall confirmed that she expected this commission to be paid on all contracts arranged for Mrs Rooney and Speed. Mrs Rooney did not give evidence, and there was no explanation for her not doing so.
- The judge held that there was no express oral contract between the parties although he found that Proactive had held itself out as Mrs Rooney's exclusive agent at the end of 2008. Proactive sought to meet that conclusion by arguing that the proper inference was that there was at least an implied agreement arising from the dealing between the parties.
- The judge was prepared to find that the relationship between the parties was certainly contractual, and that the terms between the parties followed the "same pattern" as the IRRA: see paragraph 778 of his judgment, set out below. The judge did not consider that the agreement went so far as to be one for the appointment of Proactive as an exclusive agent nor that the appointment was to last for a period of 8 years but those provisions had no bearing on the relief claimed by Proactive. Proactive's case was limited to saying that the term as to commission was the same as it had agreed with Stoneygate. The judge, however, rejected this argument in the course of paragraph 782 of his judgment:
"Proactive has failed to satisfy me that it is necessary or appropriate to imply any term which would entitle it to commission on income recoverable by Speed after the relationship between the parties had come to an end, even if that income was derived from contracts negotiated or procured by Proactive during the subsistence of the relationship."
- The judge accordingly held that Proactive was entitled to recover from Speed commission at the rate of 20% in respect of sums paid to it as a result of Proactive's services in the period prior to the date of the breakdown of relations between the parties. He went on to order Speed to pay to Proactive the sum of £94,394.64 (inclusive of VAT and interest) in respect of this commission. However, as regards receipts by Speed after that date, the judge held that Proactive was not entitled to commission. The judge recorded that Proactive claimed in its pleading that the commission due to it on these receipts amounted to £124,791.90 (inclusive of VAT).
Submissions
- Mr Jeans submits that there is even less reason as regards Speed to deny Proactive recovery for post-termination commission as Proactive did not contend that there was a covenant capable of being held to be in restraint of trade in its case. There is approximately £120,000 turning on this point, and the judge should, on Mr Jeans's submission, have awarded this sum to Proactive.
- For this purpose, Mr Jeans accepts that he must show that the arrangement between Speed and Proactive for commission reflected the IRRA with WR. In fact the judge found that that pattern was the same as the IRRA. In those circumstances it was absurd to suppose any basis other than 20% on contracts secured. If the judge had intended to say there was a different figure he would have said that. If insofar as the contract with Mrs Rooney was to the same effect as the IRRA, there was no exclusivity, no fixed term and, therefore, no restraint of trade. Those matters could not be relied upon. If there was a very simple agreement to pay a 20% commission, it must have been 20% commission on all receipts from contracts secured.
- Mr Chaisty accepts that clause 8 could not be part of the agreement. He seeks to uphold the judge's conclusion in paragraph 782 of his judgment that in the light of his answer under Issue (1) above Proactive had no right to commission on sums received after termination of the IRRA pursuant to contracts negotiated by Proactive on behalf of Stoneygate and WR. Mr Chaisty further submits that, even if the agreement with Speed mirrored the provision to the IRRA, that there was no right to commission on sums received on contracts secured by Proactive. There was, for instance, no evidence that Mrs Rooney had ever read the IRRA. In so far as Ms Aspinall's evidence was unfavourable to his contentions, the court should bear in mind that she was not a party to any negotiations between Proactive and Speed. The judge reached his conclusion on the facts and these findings should not be overturned on appeal.
Discussion and conclusions on Issue (5):
- I make no assumption that, just because WR was happy with the commission terms in the IRRA, Mrs Rooney was to be taken to be happy also. The way in which Proactive puts its case on this part of its appeal is that it shows that the conclusion that Speed accepted the same terms as Stoneygate necessarily follows from the judge's other findings and the judge's reservation about any contractual agreement to post-termination commission is inconsistent with his earlier findings.
- In my judgment, Proactive can show this by reference to two further findings of the judge. The judge made two findings in quick succession:
i) First, that the contractual relationship between Speed and Proactive followed the same pattern as that agreed between Stoneygate and Speed:
"778. I have come to the conclusion, not without some hesitation, that, in this particular case, the correct analysis is that the arrangement was contractual. Even on the basis of the fairly exiguous evidence available to me, it seems fairly obvious that the parties conducted themselves on the footing that their commercial relationship, at least with regard to certain essential features, followed the same pattern as the Agreement between Proactive, Stoneygate and WR."
ii) Secondly, that Speed and Proactive had agreed that Proactive should provide the same services to Mrs Rooney as it did to WR (via Stoneygate) in return for a commission of 20%: see paragraph 780 of his judgment where he holds:
"…it seems to me that an implied agreement by which Proactive was to provide Speed and Mrs Rooney with services similar to those it provided to Stoneygate and WR in return for commission at the rate of 20% is a perfectly workable commercial arrangement, even if it is not possible to determine the precise scope of those services on the evidence presently available. From an objective standpoint, it seems to me that they must be regarded as having agreed at least these essential terms."
- The commission arrangements were, therefore, one of the essential features which the judge had found Speed and Proactive had agreed on terms that mirrored those of the IRRA. It must inexorably follow from this that the terms giving rise to the right to commission, and in particular the trigger for the 20% commission, were the same. I have dealt with that under Issue (1) above. It follows that Speed must be taken to have agreed to the commission being exigible on all receipts from contracts procured by Proactive.
Overall summary of conclusions:
- I would answer the issues listed in paragraph 27 of this judgment as follows:
Issue (1): On the true construction of clause 6.2 of the IRRA, is Proactive entitled to commission on payments made by third parties to Stoneygate after termination of the IRRA in respect of contracts negotiated by Proactive prior to termination?
Answer: Yes.
Issue (2): was the judge's conclusion that the IRRA was unenforceable as being in unreasonable restraint of trade wrong in law for any of the three grounds advanced on this appeal by Proactive ?
Answer: No.
Issue (3): If Proactive fails on Issue (2), is Proactive nonetheless contractually entitled under the IRRA to commission on sums which were actually received by or after the date of termination in respect of contracts negotiated by Proactive at the rate of 20% as set out in clause 6.2?
Answer: No.
Issue (4): If the IRRA is held to be unenforceable under Issue (2) and Proactive fails on Issue (3), should the judge, in determining the amount payable on a quantum meruit, have simply applied the rate at which commission would have been payable under clause 6.2?
Answer: No.
Issue (5): Was the judge wrong to conclude that there was no implied contract between Speed and Proactive on the terms as to commission contained in the IRRA?
Answer: Yes.
Proposed Order
- For the reasons given above I would allow the appeal in part.
Lord Justice Sullivan:
- I agree.
Lord Justice Gross:
- I also agree. For the reasons given by Arden LJ, I would allow the appeal in part. I further agree with the answers Arden LJ has given at [136] above to each of the issues listed at [27] of her judgment. With regard to issues (1), (3), (4) and (5), I have nothing to add.
- With regard to issue (2) (restraint of trade), as already indicated, I have come to the same conclusion as Arden LJ and for essentially the same reasons but wish to add some observations of my own.
- (I) Introduction: After a careful review of the authorities, the Judge concluded, first, that the IRRA was an agreement which could properly be regarded as in restraint of trade: see, so far as relevant to this appeal, judgment at [620] – [654]. Secondly, that Proactive failed to discharge the burden resting upon it of showing that the restraints embodied in the IRRA, in particular its duration, were reasonable: judgment, at [714] – [731]. Accordingly, the Judge held that the IRRA was in unreasonable restraint of trade.
- Before proceeding further, it is important to underline the parameters of the debate on this appeal. Proactive did not seek to challenge the Judge's second conclusion, namely, that the restraints embodied in the IRRA had not been shown to be reasonable. It followed that the appeal was solely concerned with the Judge's first conclusion, namely, that the IRRA was in restraint of trade; if that conclusion is upheld, as no attempt was made before us to justify the restraints, the appeal on this issue must fail. In his oral submissions, Mr. Jeans, for Proactive, sought to explain this stance; as he put it, either the restraint of trade doctrine was inapplicable to the IRRA in that there was nothing oppressive about the agreement – but if the agreement was oppressive, it could not be defended as reasonable. So be it. For completeness, it may be noted that no question of severance arose below (judgment, at [623]) or was raised on appeal.
- (II) The legal framework: For the purposes of this appeal, the relevant legal principles, distilled from the authorities, may be summarised as follows.
- First, the doctrine of restraint of trade is one of public policy, the underlying consideration being that of freedom of trade: see the helpful discussion in Panayiotou v Sony Music Entertainment [1994] EMLR 229, at pp. 317 et seq, per Jonathan Parker J (as he then was).
- Secondly, however, the doctrine of restraint of trade and the protection of freedom of trade do not stand alone; there is also the public interest in freedom of contract to be considered – parties are, in general, free to enter into any lawful contract they wish and it is not for the Court to rewrite their bargains. The classic expression of these two public interests is found in the speech of Lord Shaw in Morris v Saxelby [1916] 1 AC 688, at p.716, quoted by Lord Morris of Borth-y-Gest, in Esso Petroleum Co. Ltd. v Harper's Garage (Stourport) Ltd. [1968] AC 269,, at p.306 C-D:
"The delicacy of the operation of law in settling the bounds of either freedom has been long familiar. In these cases ….there are two freedoms to be considered – one the freedom of trade and the other the freedom of contract; and to that I will now again venture to add that it is a mistake to think that public interest is only concerned with one; it is concerned with both."
Self evidently, the doctrine of restraint of trade itself serves to limit the individual's freedom of contract. There is, accordingly, obvious scope for tension between these two public interests, involving the need for compromise. The Court should be slow to substitute its (objective) view as to the interests of the parties for the (subjective) views of the parties themselves in deciding to enter into the contract: Panayiotou, at pp. 330 et seq. But in some circumstances the doctrine of restraint of trade will prevail – where it is held that a contract is in restraint of trade and that to be enforceable it must pass a test of reasonableness: Lord Morris, in Esso, at p.305 B-D.
- Thirdly, although all contracts in restraint of trade involve a derogation from an individual's right to trade freely, not all contracts involving such derogations are contracts in restraint of trade: Lord Reid, in Esso, at pp. 293-294; Panayiotou, at pp. 321-322.
- Fourthly, the doctrine of restraint of trade is best understood as involving two separate questions, or a "two-stage approach" (Panayiotou, at pp. 321 et seq):
i) Whether the contract in question is in restraint of trade (or, which amounts to the same thing, whether the contract attracts the doctrine of restraint of trade)?
ii) Whether, if so, it is reasonable?
See: Lord Wilberforce, in Esso, at p. 331 D-E. As already underlined, this appeal is solely concerned with question i). If, of course, question i) is answered in the negative, question ii) is not reached. It should, however, be appreciated (see below) that these questions, though analytically separate, cannot be viewed as existing in wholly watertight compartments.
- Fifthly, the question of which contracts attract the doctrine of restraint of trade (question i) above) cannot be answered in a mechanistic or formalistic way: Panayiotou, at p.327. There is no single, exhaustive or precise test: Lord Wilberforce, in Esso, at p.332. A practical and flexible approach is instead to be adopted. In Esso, Lord Reid said this (at p.298 A-B):
"As the whole doctrine of restraint of trade is based on public policy its application ought to depend less on legal niceties or theoretical possibilities than on the practical effect of a restraint in hampering that freedom which it is the policy of the law to protect. "
In his speech in Esso (at p.331), Lord Wilberforce observed that the doctrine has been expressed "with considerable generality, if not ambiguity"; this was not a reason for regret, Lord Wilberforce continued (at p.331 F-G):
" The common law has often (if sometimes unconsciously) thrived on ambiguity and it would be mistaken, even if it were possible to try to crystallise the rules of this, or any, aspect of public policy into neat propositions. "
The doctrine of restraint of trade was to be applied to factual situations with a "broad and flexible rule of reason" (ibid). Thus it is important to distinguish between contracts which promote or absorb economic activity and those which restrain or sterilise it; likewise, it is or may be important to distinguish between restrictions which tie parties during the currency of the contract and those which purport to bind a party after its determination: Lord Pearce, in Esso, at p.328.
- Sixthly, when addressing the question of whether a contract attracts the doctrine of restraint of trade, the contract must be considered when it is made: Macaulay v Schroeder Publishing [1974] 1 WLR 1308, at p. 1309, per Lord Reid. As it seems to me, how the contract has subsequently turned out is only relevant for these purposes insofar as it furnishes evidence of the nature of the contract in question when made.
- Seventhly, in general, sole agency agreements will not attract the restraint of trade doctrine, at least provided they contain no restrictions other than those necessary or incidental to the inherent nature of a sole agency; the benefits of a sole agency inevitably require giving up the opportunities of other agencies: Lord Pearce, in Esso, at pp. 328-329. Such agreements may be seen as promoting rather than restricting trade; in Lord Wilberforce's words, they "….may be found to have passed into the accepted and normal currency of commercial or contractual …relations": Esso, at p.333. That said, there is, importantly, no absolute exemption from the doctrine. Two authoritative passages make this clear:
i) The first is again from the speech of Lord Wilberforce in Esso, at p.333:
"….there may be some exorbitance or special feature in the individual contract which takes it out of the accepted category: but the court must be persuaded of this before it calls upon the relevant party to justify a contract of this kind. "
ii) The second is from the speech of Lord Reid in Schroeder, at p.1314:
"Any contract by which a person engages to give his exclusive services to another for a period necessarily involves extensive restriction during that period of the common law right to exercise any lawful activity he chooses in such manner as he thinks best. Normally the doctrine of restraint of trade has no application to such restrictions: they require no justification. But if contractual restrictions appear to be unnecessary or to be reasonably capable of enforcement in an oppressive manner, then they must be justified before they can be enforced."
- (III) Applying the law to the facts: Mr. Jeans developed a sustained argument that the IRRA did not attract the doctrine of restraint of trade. First, the IRRA did not restrict Mr. Rooney's trade. Mr. Rooney was and is a footballer; the IRRA impacted and impacted only on his image rights not on his trade as a footballer. Secondly, the IRRA absorbed rather than sterilised activity; see the discussion on sole agency agreements above. Thirdly, the IRRA was an agreement entirely different from the agreement in Schroeder, which the courts held to be objectionable; the agreement in Schroeder had committed the songwriter to an exclusive tie while imposing no obligation on the publisher to publish or promote the songwriter's work. To the contrary, the IRRA had a variety of positive features which both gave Stoneygate an element of control over the operation of the agency and obliged Proactive to exercise "best endeavours" in exploiting the image rights. The IRRA was a highly beneficial contract for Mr. Rooney/Stoneygate; there was nothing oppressive about it. Fourthly, a number of factors which influenced the Judge were applicable, if at all, to the question (question ii) above) of whether the IRRA was reasonable and not to the anterior question (question i) above) of whether it attracted the restraint of trade doctrine. Fifthly, the proof of the pudding was in the eating. The IRRA had been immensely lucrative for Mr. Rooney; the allegation of restraint of trade had only arisen because of the collateral dispute between Mr. Stretford and Proactive.
- Taken as a whole, this amounted to a formidable case and I did not find the issue easy to resolve. Ultimately, however, the more especially having regard to the fact findings of the Judge and bearing in mind that this is an appeal (not a hearing de novo), I am not persuaded that Proactive's case is well-founded, so that I would dismiss the appeal on this issue. I do so, however, with a measure of reluctance, as I shall explain. My reasons follow.
- First, I cannot accept the distinction Mr. Jeans sought to draw between Mr. Rooney's trade as a footballer and the exploitation of his image rights. As it seems to me, both his on-field and off-field activities were part of a single trade. If, per contra, the two are to be separated then I can see no answer to Sir Richard Buxton's observation (when refusing permission to appeal on paper):
" It is no consolation to someone who is capable of making a good living doing A and also a good living doing B to tell him, as the applicant would, that he can be restrained from doing A because he still has B left to him."
- Secondly, I acknowledge the force in the submission that the IRRA was a very different contract from the contract in Schroeder, understandably disapproved of by the Courts. Amongst the positive features of the IRRA were the provision (cl. 3.3) giving Stoneygate a measure of control over negotiations conducted and contracts entered into by Proactive, the fact that Proactive was only paid by results (there was no retainer) and that Proactive was obliged to use its "best endeavours" (cl. 3.1) to represent Stoneygate in promoting the image rights. Even if Mr. Jeans put it too high in suggesting a major distinction between an obligation to use "best" endeavours as distinct from an obligation to use "reasonable" endeavours, it remained the case that Proactive was under an obligation of this nature in its work on behalf of Stoneygate/ Mr. Rooney. Furthermore, as to the 20% rate of commission – at first blush, on the high side – it was not in dispute that it was widespread in the market (judgment, at [430] – [433] and [760]) and that the same rate was charged on Stoneygate's subsequent contract with Triple S. There is, accordingly, to my mind, no ready analogy between the outcome in Schroeder and the present case.
- Thirdly, nonetheless and despite the fact that sole agency agreements generally do not attract the restraint of trade doctrine (as discussed above), I think that the IRRA does do so. In my judgment, the IRRA has features which on a broad, practical, rule of reason approach do attract the doctrine – as special or exorbitant, reasonably capable of enforcement in an oppressive manner. In summary, those features are as follows:
i) By far the single-most important was the 8 year duration of the IRRA. Other than by accepting a possibly significant liability and unless Proactive went into liquidation or was in breach of the IRRA, Stoneygate had no means of terminating the IRRA before the expiry of the 8 year term. On any view, 8 years must amount to a very significant proportion of Mr. Rooney's football career; the Judge held that it would probably cover about half of his career (judgment, at [647]). Although there was some suggestion in the submissions of Mr. Jeans that a significant duration was necessary for purposes of stability and to match the lengthy terms of contracts with sponsors, the reality, on the facts found by the Judge, is that an 8 year term was "unique": judgment, at [471] – [476]. The length of the IRRA contrasts starkly with the maximum term of 2 years under FIFA regulations for an on-field representation agreement (judgment, at [473]). The Judge's conclusion (admittedly in the section of the judgment dealing with the suggested justification for the restriction) was expressed in strong terms (at [723]):
"….I would have little difficulty in accepting that a two-year tie, running in synchrony with an on-field agency agreement, would be entirely reasonable, provided, no doubt, that the agreement did not contain any other particularly onerous terms. Indeed, I might well have been persuaded that a four or even five-year term might be regarded as reasonable. That appears to have been the sort of timescale initially envisaged within Proactive for the development of the brand…..But I can see no justification …..for an exclusive tie lasting for a full eight years…. "
Interestingly, if in no way decisive, solicitors advising Proactive prior to the conclusion of the IRRA were concerned that it might be in restraint of trade and warned Proactive accordingly: judgment, at [651].
ii) The circumstances surrounding the conclusion of the IRRA, as found by the Judge, are themselves worthy of note. Mr. Rooney was 17 at the time of entry into the IRRA: judgment, at [647]. The terms of the IRRA were effectively dictated by Proactive, with no or very limited meaningful negotiation: judgment, at [649]. Mr. Rooney and his family had no commercial experience and were unsophisticated in financial and contractual matters; they took no independent legal advice: ibid. Mr. Jeans submitted that the focus (or principal focus) of the doctrine of restraint of trade is on the substance of what was agreed, rather than on the circumstances in which the agreement was entered into. While there may well be a degree of force in this submission, I cannot agree that it goes so far as to preclude the Court from taking into account circumstances surrounding the conclusion of a contract when deciding whether to require a party to justify restrictions. Whereas a Court may be wise to proceed with great reserve where it appears that an agreement was negotiated between experienced commercial parties – for fear of presuming to know better than the parties what was in their own best interests – the position may be different where the facts of the individual case suggest the absence of commercial negotiations and an imbalance of power. All the more so, where, as the Judge found here (judgment, at [650]):
"The Agreement itself was not in any sense a standard form which had been tried and tested in this particular field of commerce. On the contrary, it was unusual in many respects and unique in its duration….."
iii) While, for reasons already canvassed, no complaint could be made of the 20% rate of commission per se, the fact that it was payable throughout the agreement at a flat rate and without any tapering was regarded by the Judge as a matter of concern: judgment, at [650]. On the facts, the Judge "very much" doubted (ibid) that a flat rate – without any provision for tapering – would have been the outcome:
" …[if] there had been free and equal negotiations, with proper independent legal advice on each side and, it may be, real competition from other prospective agents…."
Earlier (judgment, at [648]), the Judge had highlighted the consequences of this flat rate of commission:
" ….during the entirety of the eight-year term, Proactive was entitled to be paid at the rate of 20% on all income-producing opportunities which it introduced to Stoneygate and WR, without any attempt to limit or reduce the rate at which commission was payable by reference to the total income generated for Stoneygate. The same flat rate was payable whether Stoneygate's income from the exploitation of the image rights was £10,000 or £10m."
These are conclusions of fact and I can see no proper basis for interfering with them.
- For completeness, I am unable to accept the submission advanced by Mr. Jeans that the duration of the IRRA was relevant only to reasonableness and not to whether the IRRA attracted the doctrine of restraint of trade. It would be curious if (to take a hypothetical example) the term of the contract under consideration was so lengthy as to be patently unreasonable yet that factor was irrelevant to a consideration of whether the agreement attracted the doctrine of restraint of trade. As it seems to me, such a proposition is inconsistent with the authorities discussed earlier. The fallacy, with respect, is that it seeks to treat the two-stage approach as if the two questions are contained in watertight compartments. I do not think that can be right. The two-stage approach is to be followed but that does not mean that questions of reasonableness are necessarily irrelevant to the first question; if exorbitance and the reasonable capability for oppression are relevant to the first question (as determined by authority), then some overlap between the two questions may be unavoidable. These observations apply equally to the various circumstances surrounding the conclusion of the IRRA to which the Judge had regard.
- Fourthly, pulling the threads together and despite the matters urged on behalf of Proactive, I am not at all persuaded that the Judge erred in holding that the IRRA attracted the restraint of trade doctrine. No error of law can be detected in the Judge's approach and his key findings of fact were unchallenged on this appeal. As it seems to me, an agreement which, when entered into, stood to restrict the exploitation of Mr. Rooney's/Stoneygate's image rights for so significant a part of his playing career was one which called for justification – a fortiori given the Judge's fact findings that the length of the term was unique, the circumstances in which it came to be concluded and the absence of any tapering provision. The nature of my conclusion should be underlined: it is and is no more than that in agreement with the Judge the restrictions in the IRRA called for justification. Before this Court, however, Proactive has made no attempt to argue that the restrictions in the IRRA were reasonable.
- Fifthly, I have already confessed to a measure of reluctance in reaching this conclusion. Such reluctance is attributable (1) to the awareness that the IRRA proved extremely lucrative to Mr. Rooney; (2) the absence of evidence of any dissatisfaction on Mr. Rooney's part as to the working of the IRRA, other than that arising, collaterally, from the parting of the ways between Proactive and Mr. Stretford, the director who had been in charge of "Team Rooney" (see Arden LJ's judgment, at [5] above); (3) the recognition, as the Judge effectively held, that as a matter of "commercial reality" (judgment, at [22]) this is a dispute between Proactive and Mr. Stretford over the right to represent Mr. Rooney. These considerations suggested the need for careful reflection before deciding this issue adversely to Proactive. However, as a matter of law they go to post-contractual events, whereas (as discussed) the question of whether the IRRA attracts the restraint of trade doctrine must be decided at the time when it was made. Moreover, the governing consideration is not whether Proactive has conducted itself in some morally reprehensible fashion but whether it is in the public interest that an agreement in the terms of the IRRA should require justification. For the reasons already given, I think that it does and I would dismiss the appeal on issue (2) accordingly.
