Proactive Sports Management Ltd v Rooney & Ors  EWCA Civ 1444
Court of Appeal (Lady Justice Arden, Lord Justice Sullivan and Lord Justice Gross), 1 December 2011
The English Court of Appeal has held that a contract entered into by Mr Wayne Rooney (Rooney), the famous English footballer, with Proactive Sports Management Limited (Proactive) in relation to image rights is unenforceable. Upholding the High Court’s judgment the terms of the contract were found to constitute an unreasonable restraint of trade. Proactive was therefore not entitled to recover the £4.3 million pound damages it sought but was awarded a reasonable rate of commission for contracts it negotiated.
The genesis of this dispute is a relationship between Rooney, and a Mr Paul Stretford, the founder and former Chief Executive of Proactive. It starts back in 2000 when Rooney was 15 years old and in the same year as he scored a last-minute winning goal against Arsenal to end their 30-match unbeaten run. Much has changed since then but the litigation remains constant and this case is the latest in a series of disputes involving Mr Stretford’s activities.
Top professional footballers usually have two main sources of income. The first, naturally, derives from success on the pitch and payment by their club. The latter, primarily dependent on the first, relates to the ability of the player to successfully exploit his personal brand off the pitch. The proportions of each revenue stream will vary but in Rooney’s case are reckoned to be about 50:50. Clearly, the exploitation of one’s personal brand, or ‘image rights’, can be extremely lucrative.
Rooney and his wife Coleen sought to exploit their image rights and, in the usual way for such matters, assigned them to special purpose entities for just this purpose. Rooney’s company, Stoneygate 48 Ltd (Stoneygate) and Coleen’s, Speed 9849 Limited (Speed), each then appointed the colourful Mr Stretford to act as their agent. Mr Stretford, on behalf of his employer Proactive, would negotiate with third parties who wished to sponsor his employer’s celebrity clients or to use their name or image in advertising.
To complicate matters, Mr Stretford was also Rooney’s official agent in relation to his footballing activities. Football Association rules prohibited a corporate body from acting as a football agent and therefore this role was conducted in Mr Stretford’s personal capacity.
In 2008, Mr Stretford was suspended by the FA for 18 months and fined £300,000 for breach of its rules. The background to the punishment also led to Mr Stretford also being dismissed by Proactive for gross misconduct. Mr Stretford left Proactive and sought to retain the Rooneys as clients. As a director of Stoneygate, Mr Stretford formally terminated the IRRA with Proactive in December 2009 and did not make any further payments to Proactive. Inevitably, Proactive sued the Rooneys seeking payment of unpaid commission under the IRRA as well as damages arising out of the alleged repudiatory breach of contract by Stoneygate. The total value of the claim was considered to be in excess of £3 million.
At the heart of the dispute was an Image Rights Representation Agreement (IRRA). This was signed in early 2003 when Rooney was just 17 years old and contained terms which:
entitled Proactive to 20% commission on all contractual payments agreed on behalf of Stoneygate
fixed the contractual term for eight years
made no provision for termination by Rooney or Stoneygate
stated that Rooney, his parents and Stoneygate had sought, taken and understood independent legal advice (when in fact they had not).
No written agreement was ever signed between Proactive and Coleen or Speed although for a time Proactive performed a similar role on similar terms.
At first instance Judge Hegarty QC found that the IRRA imposed very substantial restraints upon Rooney’s freedom to exploit his earning potential over a very long period of time on terms which were well in excess of anything else in the market and which were not the outcome of a process of commercial negotiation between equals. The IRRA was accordingly found to be unenforceable because it was too onerous on Rooney and Stoneygate and an unfair restraint of trade.
In reply, Proactive contended that the doctrine of restraint of trade should not apply because the IRRA did not apply to Stoneygate’s ‘main’ trading income, which was from footballing activities. This was rejected and Proactive was accordingly obliged to show that the terms of the IRRA were reasonable. If it could not do so then the IRRA would be unenforceable and its claim would fail.
Proactive argued that the terms of the IRRA were reasonable in all of the circumstances because:
it was exposed to a risk by agreeing to act for such a young player;
it was contractually obliged to use its best endeavours to promote Rooney’s commercial interests; and
it had to adopt a long-term strategy in order to develop the value of the player’s brand.
These factors were found to be of little weight and, accordingly, Proactive had failed to justify the restraints imposed on Stoneygate and Rooney under the IRRA. Judge Hegarty QC held that the IRRA was unenforceable and Proactive was entitled to recover neither any commission which would otherwise have fallen due nor any damages for breach of the IRRA’s terms. However, Proactive was entitled to i) damages or a restitutionary remedy for the period between the breakdown of relations in October 2008 and the acceptance of Stoneygate’s repudiatory breach of contract in December 2009 ii) damages for premature determination of the IRRA, and iii) a reasonable remuneration for its services, but not at the 20% commission rate of the IRRA.
Court of Appeal
Proactive appealed the decision to the Court of Appeal, where Lady Justice Arden, delivering the leading judgment, held that:
(a) Proactive was entitled to commission on payments made by third parties to Stoneygate after termination of the IRRA in respect of contracts negotiated by it prior to termination
(b) the IRRA was indeed unenforceable as being an unreasonable restraint of trade
(c) Proactive was not entitled to commission at the rate stated in the IRRA of 20%
(d) the rate of commission to be applied is not simply the 20% commission rate in the IRRA
(e) judgment against Speed should reflect a commission rate of 20% for all contracts agreed.
It is unsurprising that the contract was not enforceable: in a profession where the maximum term of representation for on-field activities is limited to two years, a non-terminable agreement for eight years imposed on an inexperienced 17-year old and his parents who were “wholly unsophisticated in legal and commercial matters” and signed without legal advice was never going to be looked upon favourably. Quite how these circumstances arose is quite staggering given that two firms of solicitors separately advised that the terms of the contract were in restraint of trade.
The case is a useful reminder of the different, potentially conflicting, capacities in which the same individual can be expected to act in commercial arrangements. It is especially important where directors acting as employees also happen to be shareholders in multiple companies.