UK: Scope of Duty - The Decision in Football League

Last Updated: 2 August 2006
Article by Sarah Clover

In a decision to be welcomed by professionals and their insurers, the Court in the Football League Ltd v edge ellison took a narrow approach to the scope of duty, confirming that there is no such thing as a general retainer and that only in limited circumstances will a solicitor’s duties go beyond the express terms of his retainer. The decision also evidences a continued willingness seriously to curtail the circumstances in which a solicitor will bear responsibility for business decisions reached by commercially astute clients.

At the beginning of 2000, the Football League put out to tender its broadcasting rights. This process was conducted by the League’s Commercial Committee, a group of businessmen specifically chosen for their business acumen. The Football League appointed various external advisers to assist in the tender process, including edge ellison to provide legal advice and Active Rights Management Limited ("ARM") to conduct the commercial negotiations via its owner and principal, Stephen Townley.

A number of broadcasters were interested in bidding for the rights including ITV Digital (then known as ONdigital). ITV Digital was a relatively new company and a joint venture between its ultimate parents Carlton and Granada, and was their flagship venture into the new field of digital broadcasting.

The market for the rights was a complicated one because many of the broadcasters were also bidding for the Premier League rights and there were several rounds of bidding. The "auction" came to a head on 14 June 2000 when the rights for the Premier League matches were sold and Mr Townley gave the four broadcasters still apparently interested in the Football League’s rights 24 hours to submit their final bids. Only ITV Digital submitted a bid by the deadline, so a deal had to be closed immediately before they realised that they had no competition and the market collapsed.

At an evening meeting on 15 June 2000, final negotiations took place. Mr Townley skilfully negotiated a fee from ITV Digital of £315 million for a three-year contract despite the fact that by that stage ITV Digital was (unbeknown to itself) the only remaining bidder. A short form contract was signed, having been approved and in part drafted by edge ellison. Carlton or Granada were not parties to this contract, and there was no separate agreement by which Carlton and Granada guaranteed ITV Digital’s obligations. Although there were subsequent negotiations intended to lead to a long form agreement, no such agreement was ever signed.

The bid document submitted by ITV Digital on 7 June 2000 had contained the following sentence: "ONdigital and its shareholders will guarantee all funding to the FL outlined in this document". In subsequent litigation, the Court heard the Football League’s argument that Carlton and Granada had guaranteed ONdigital’s obligations under the contract. ITV Digital’s evidence, however, was that this sentence was not intended to be a formal offer of guarantees.

As is well known, ITV Digital got into financial difficulty and went into administration in March 2002 owing £178.5 million under the broadcast rights contract. Following the failure of its litigation against Carlton and Granada, the Football League launched a £140 million action against edge ellison.

The allegations

In summary, the Football League’s allegations were that edge ellison:

  • was expressly instructed that the Commercial Committee required financial security as an essential part of the transaction;
  • owed a duty to the Football League to obtain its instructions as to whether it wanted parent company guarantees to be part of the contract; and
  • should have raised the issue of parent company guarantees on, or at some time after, 7 June 2000 on the basis of the wording in the bid document which suggested that Carlton and Granada might be prepared to provide parent company guarantees.

The decision

Mr Justice Rimer ruled that the Football League’s claim against edge ellison failed. Dealing with the first allegation, he concluded that at no point had edge ellison been instructed to advise on, or obtain the security of parent company guarantees. Taking into account the Commercial Committee’s admission that they fully understood the concept of parent company guarantees, the Court also concluded that the Commercial Committee had implicitly taken the commercial decision that it was content to deal with ITV Digital alone, and at no point had the committee intended that guarantees should be sought.

The key issue was therefore whether, absent a specific direction to do so and against this factual background, edge ellison owed a duty to the Football League proactively to seek its instructions as to whether parental guarantees should be sought.

In ruling that edge ellison owed no such duty, the Court followed the principles set out in Pickersgill v Riley (2004) which held that whilst a solicitor has a duty to point out any "legal obscurities" or "hidden pitfalls" which he comes across in the course of his work, he is under no duty to warn clients of the commercial risks of a transaction when not asked to do so and when the clients are experienced in the matters at hand. The Court concluded that the issue of whether guarantees should be sought was not a "hidden pitfall" but a pure business decision made by experienced committee members who were well aware of the potential risks and in which the solicitors had "no implied duty to play any part in". Further, the circumstances did not warrant the imposition of a duty on edge ellison to prompt the Commercial Committee to consider the issue of bidder-solvency.

The judge did, however, find that although edge ellison had not been provided with a copy of the bid document until after the short form contract was signed, nevertheless the solicitor should have asked for a copy on the evening of 15 June because the bid document was referred to in the short form contract upon which the solicitor was advising. Having seen the document, he should have picked up the possible suggestion that Carlton and Granada would give parent company guarantees. However, had he done so, the Football League would not have insisted on guarantees which would have delayed the signing of the contract. Further, the judge found that the solicitor should have picked up the bid document reference during the course of the negotiation of the long form agreement but, once again, had he done so this would not have resulted in Carlton and Granada providing parent company guarantees. He awarded £4 nominal damages in respect of these two breaches of duty.

Conclusion

Whilst Football League concerned a solicitor, similar principles are likely to apply to other professionals. The decision suggests that the courts are alive to the need to keep any proposed expansion of the implied duties of solicitors in check. When picking over failed commercial transactions with the benefit of hindsight, it is tempting for claimants to turn on their advisers, often blurring the distinction between legal and commercial considerations in the process. If the Court had agreed with the Football League, the door would have been opened to claims that a solicitor is bound to "review the whole range of commercial considerations that underlie a particular deal, work out which ones he is concerned the client may not have given sufficient thought to and remind him about them". This would have been too great a burden to impose on solicitors. The decision also confirms that the experience of the client will continue to be key in the consideration of the duty owed.

Barlow Lyde & Gilbert acted for the defendants, edge ellison.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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