Saturday, February 18, 2012

Arbitrability of an Unfair Prejudice Claim (Part I)

A recent post considered the relation between arbitration and company law, in the context of the inability of arbitration to develop the body of corporate law jurisprudence. Another fascinating area of substantive overlap, is the arbitrability of company law disputes, which the UKCA in Fulham v David Richards was called on to consider in relation to claims of unfair prejudice.

Given the fact-specific conclusion the Court arrives at, a slightly detailed explanation of the factual backdrop is mandated here. Fulham Football Club had filed an unfair prejudice petition in relation to the Football Association Premier League (which manages and regulates the English Premier League) (“FAPL”). FAPL is organised as a company, with the different football clubs in the English Premier League as its members. The claimant contended that the chairman of the FAPL Board had acted as an unauthorised agent in breach of the FA Football Agents Regulations by brokering the sale of a player owned by Portsmouth Football Club (Peter Crouch, for the benefit of those who follow football) who Fulham were interested in to Tottenham Football Club. Under the FA Rules, any player or club is prohibited from using or seeking to use the services of an unauthorised person to act in the capacity of an agent, representative or adviser to a club, either directly or indirectly, in the negotiations or arrangements of any transaction facilitating or effecting the transfer of the registration of a player from one club to another. When Fulham approached the FA for relief, they were informed that the issue would be put to a shareholders’ meeting. In the alternative, the FA asked Fulham to bring arbitration proceedings under the FA Rules. Fulham instead approached Companies Court, alleging that it was an implied term of the FAPL Rules that members of the board of the FAPL would comply with their fiduciary obligations and not act so as to prefer the interests of one member club over another. By way of relief, Fulham sought an injunction restraining Sir David from acting as an unauthorised agent or from participating in any way in negotiations regarding the transfer of players. In the alternative, it sought an order that Sir David should cease to be the chairman of the FAPL and such other relief as the Court thought fit. On the basis of the arbitration clause in the FA Rules which the clubs were bound by, the FA and Sir David sought a stay of the Court proceedings, under section 9 of the English Arbitration Act, 1996.

Against this factual backdrop, the court was called on to determine the arbitrability of this dispute, and to reconcile two earlier decisions of the High Court in Re Vocam Europe Ltd [1998] BCC 396 and Exeter City Association Football Club Ltd. v. Football Conference Ltd. [2004] 1 WLR 2910, which had arrived at seemingly different conclusions. Although the High Court in this case followed Vocam and granted a stay, Fulham appealed on four principal grounds:

(a) the relief in an unfair prejudice claim would affect third parties and hence was not arbitrable;

(b) the very nature of the unfair prejudice claim was one which involved public interest and could not be resolved by a private contractual arrangement;

(c) the 2006 Act impliedly rendered the right to approach a Court for an unfair prejudice claim an inalienable right; and

(d) the arbitration clause here was too wide to be enforced.

The Court begins by clarifying that neither the Arbitration Act nor the Companies Act had anything which expressly indicated the arbitrability or otherwise of such a dispute. Hence, the decision turned on first principles of arbitrability, and the nature of an unfair prejudice claim, both very interesting and complex issues.

On the first issue, the Court admitted that usually, a decision on an unfair prejudice claim had consequences for several other shareholders who would not be parties. However, the special nature of the FAPL (discussed in paragraphs 47 and 48 of the judgment) meant that the nature of disputes were much more limited than in other private companies. Thus, the Court concluded that the nature of the relief it was seeking in this particular case was not one that would render it unarbitrable.

(to be continued)

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