In the case of Mercato Sports (Uk) Limited & Mark Mckay v. The Everton Football Club Company Limited,  EWHC 1567 (Ch), the English Commercial High Court dealt with an interesting issue of whether or not an intermediary between the football club and the football player could be bound by an arbitration provision contained in the Rules of the Foot Association and if so, then whether a stay on court proceedings can be granted in favour of arbitration. Read the case analysis below:
AB, a football player, entered into an employment agreement with the Everton Football Club Company Limited (the Club). Mark Mckay (Mark) was the registered intermediary acting on behalf of players and on behalf of football clubs for the transfer of professional footballers from one club to another. It is a disputed fact that whether or not Mercato Sports (UK) Limited (Mercato) was a registered intermediary. Mercato & Mark contended that this contract was the result of their services provided to the Club to hire AB and therefore, they are liable to get paid for their services either pursuant to an implied contract of retainer or by reason of the unjust enrichment by the Club. The Club contended that as per Football Association’s “Rules of the Football Association Ltd 2017 – 2018” (the Rules) there exists an arbitration agreement between the Club and Mercato & Mark.
Rule K of the Rules is headed “Arbitration” and “Agreement to Arbitration”. Rule K (1)(a) provides that:
“Subject to Rule K1(b), K1(c) and K1(d) below, any dispute or difference between any two or more Participants (which shall include, for the purposes of this section of the Rules, The Association) including but not limited to a dispute arising out of or in connection with (including any question regarding the existence or validity of):
(i) the Rules and regulations of The Association which are in force from time to time;
(ii) the rules and regulations of an Affiliated Association or Competition which are in force from time to time;
(iii) the statutes and regulations of FIFA and UEFA which are in force from time to time; or
(iv) the Laws of the Game,
shall be referred to and finally resolved by arbitration under these Rules.”
Applicable Legal Principles
Section 9 of the English Arbitration Act (the Act)
“ (1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.
(4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.”
The Club contended that Mercato and Mark are bound by arbitration provision as they are “inextricably linked” and the claim being brought was “pursued on a joint and several basis.” And also since, Mercato was engaged in activities connected with professional football, it was bound by the Rules simply as a consequence of that participation.
Mercato contended notwithstanding whether or not there had been registration it was not acting as an intermediary in this transaction and so was not a “Participant” for the purposes of Rule K
After going through the evidence on record, the Court found that Mercato was registered as intermediary as a result of either its own actions or persons associated with it and that Mercato was aware of its registration still it did not challenged or revoked the registration. Further, Mercato had used the registration number with which it had been provided by the Football Association. Therefore, the Court came to the conclusion that even if the initial registration of the Mercato as an intermediary was made without its knowledge or authority and as the result of an error on the part of the Football Association, Mercato became aware of its registration and ratified or adopted it by using the registration number on the invoice raised by Mercato demanding payment from the Club for work on behalf of the club relating to AB. That can only have been on the footing that the relations between Mercato and the Football Association were to be governed by the Rules which applied to the status of registered intermediary. That can only have been on the footing that the relations between Mercato and the Football Association were to be governed by the rules which applied to the status of registered intermediary. It follows that as between Mercato and the Football Association the former was bound by the Rules. Whether the Mercato was regarded by the Football Association as an “active” or “inactive” intermediary is immaterial because the question is whether there was an accession by the Mercato to the Rules. The situation might have been rather different if the Mercato had sought to rescind its registration in its entirety and had informed the Football Association that it no longer regarded itself as bound by the Rules but that did not happen.
With regard to arbitration provision, the Court opined that for there to be an arbitration agreement between two litigants there must be a contract between those persons. Such a contract can only exist if the circumstances are such as enable the court to find a contract by application of the normal rules governing the formation of contracts.
The Court had applied the reasoning of HH Judge from Pelling QC in Bony v Kacou & others  EWHC 2146 (Ch) to hold that an implied contract between two persons who have not engaged directly with each other (“a horizontal contract” to adopt the language used by can arise where each of those persons has a separate contract (“a vertical contract”) with the same third party committing them to abide by particular rules laid down by or stipulated for by that third party. Such a vertical contract can arise where a person’s actions amount to an accession to the rules laid down by the relevant third party. Whether a series of vertical contracts gives rise to a horizontal contract (or a series of such contracts) between particular persons will depend on the facts and circumstances of each alleged party’s entry into the vertical contract in question and the nature of their dealings with the other parties.
The court also commented that an engagement in activities related to a particular sport does not without more and inevitably amount to an agreement to be bound by the rules of the governing body of that sport let alone to horizontal contracts with all others engaged in that sport. However, accession to such rules can in appropriate circumstances give rise to such horizontal contracts with other participants in the sport.
Bony v Kacou & others
The Court relied on the case of Bony v Kacou & others  EWHC 2146 (Ch)) where the Court was concerned with a dispute between a professional footballer and his former agents and their corporate vehicles. The defendants sought a stay by invocation of the Rules. The defendants had never been registered with the Football Association. The third defendant had been registered for a period but was no longer registered at the time when the dispute with the claimant arose. Moreover, as between the claimant and the third defendant their relationship was governed by express oral and written agreements. The Court concluded that the Rules did not operate as an arbitration agreement between the claimant and the defendants. The first, second, and fourth defendants had never been parties to an agreement with the Football Association while the third defendant’s relationship with that body had ceased. Moreover, as between the claimant and the third defendant there were express agreements which provided mechanisms for dispute resolution and which precluded the implication of a contract in different terms.
Relying on the above ruling the Court held that participation in a sport or in activities connected with that sport does not of itself mean that those participating have as between each other the rights and obligations provided for in the rules of that sport’s governing body. Whether there is an implied contract between such participants to the effect that they have as against each other those rights and obligations is to be determined by a fact sensitive analysis undertaken by reference to the general principles of contractual formation. In particular the court has to consider whether a given participant is a party to a vertical contract making him subject to the rules of the sport’s governing body and whether the circumstances as a whole are such as to give rise to consequent and corresponding horizontal contracts with other participants.
On the contents of the invoice provided by Mercato to the Club, the Court opined that it is apparent that by the invoice Mercato was asserting that it had an entitlement to payment from the Club and that the entitlement derived from services rendered in respect of AB. It is highly significant that the said invoice bore the Mercato’s number as a registered intermediary. That is a compelling indication that the claim for payment was made in that capacity. It also indicates that the services were provided in that capacity. It then follows that Mercato was claiming for intermediary services provided to the Club. It follows that the Mercato was dealing with the Club as an intermediary and in doing so was making reference to its position as a registered intermediary. At the very least it made reference to that position as a registered intermediary when it sought payment. Thus, Mercato was invoking its capacity under the Rules in dealing with the Club. In those circumstances it must follow that it was acting on the basis that its dealings with the Club were subject to the Rules. Those dealings accordingly gave rise to an implied horizontal contract whereby each party was bound by the Rules.
On the issue of whether Mercato was “Participant” or not for the purposes of the Rules, the Court analyzed the Rules and stated that the Rules define “Participant” as “an …Intermediary … and all such persons who are from time to time participating in an activity sanctioned either directly or indirectly by The Association.” In that regard the reference to an “activity sanctioned” by the Football Association must be read as an activity of a kind which is permitted and controlled by the Association. An activity can be sanctioned by the Rules for this purpose even if the Rules provide that it should not be done in the particular way or by the particular person. A person can be participating in such an activity even if he or she is doing so in breach of the Rules. A person who is bound by the Rules does not take him or herself outside the scope of the Rules by acting in breach of the Rules. The dealings in respect of AB were clearly such an activity. So the Mercato was taking part in a sanctioned activity. Even if it was not doing so in its capacity as an intermediary it was doing so when subject to the Rules and would be within the definition of “Participant” by virtue of being a “person” participating in the activity.
The Court have made following conclusions
- that Mercato was bound by the Rules of the Football Association and there was the requisite vertical contract to that effect.
- that Mercato was “Participant” for the purposes of the Rules and the dispute is within the scope of the arbitration agreement constituted by Rule K.
- that the proceedings are to be stayed and the claim referred to arbitration.