Thursday, 05 September 2024 Author:
Nick De Marco KC
On 30 August 2024 an independent Premier League (“
PL”) Appeal Board allowed Leicester City FC’s (“
LCFC”) appeal, finding that the Club did not breach Rule E.49 of the PL’ s Profit & Sustainability Rules (“
PSRs”), and so there was no jurisdiction to pursue the complaint against the Club [60]. Their written reasons can be read
here[1].
“In the judgment of the Appeal Board, a Club should be able to determine its conduct and liabilities from the words of the Rules, and unless they are truly ambiguous or nonsensical should not have to consider the unwritten intentions of the PL and the other Clubs.”
This short yet lucid paragraph [46] of the Appeal Board’s finding sums up not only the reason for their finding in the appeal in hand but a key issue concerning the interpretation of a sports governing body’s rules.
The author represented LCFC in the appeal, and in the
LCFC v EFL CFRU case. Any views expressed in this article are his own, and do not necessarily represent those of his clients or his chambers.
Leicester City’s accounting period
The PL PSR rules (which the distinguished Appeal Panel found to have been “
far from well drafted” in relevant parts [47]) appeared to make clear, at least, that a Club is assessed as being in breach of the PSR Threshold at the end of its financial year – and according to the PL rules, that financial year must end between 31 May and 31 July. In LCFC’s case, as with the majority of Clubs competing in the PL, it ended on 30 June 2023. That meant, according to the Club (in an argument accepted by the Appeal Board) it cannot be said to have been in breach of the Upper Loss Threshold in Rule E.49 (as it then was) until at least on or after midnight on 30 June.
The significance of this, as everyone who knows about football will immediately realise, is that 30 June is two weeks into the annual summer transfer window – a window in which clubs do most of their (player) trading activity. The additional significance for LCFC was that it was relegated at the end of the 22/23 football season, formally transferring its membership share in the PL on 13 June 2023.
The Club’s argument was simple. It could not be in breach of Rule E.49 of the 2022/23 PSRs until at least on or after midnight on 30 June 2023, and that included an important period of trading activity (where it could have substantially increased or reduced its losses) in which it was no longer a member of the PL and no longer subject to the PSR rules. As such, the Club could not be in breach, and the PL Disciplinary Commission lacked jurisdiction to determine any PL Complaint against it.
The first instance PL Disciplinary Commission rejected this argument and adopted the arguments of the PL, stating, as recorded at [37] of the Appeal Board findings:
“The Commission considers that, in practice, it is impossible to determine the precise point in time at which LCFC allegedly exceeded the cumulative adjusted loss threshold of £105m … it is not necessary to determine a point in time when LCFC allegedly exceeded the loss threshold and to place that point in time after LCFC was relegated, as LCFC invites the Commission to do, because the disciplinary offence in Rule E.49.2 expressly provides that a Club is ‘treated as being in breach’ of the PSRs when the PSR Calculation results in losses in excess of £105m.”
As the Appeal Board recorded [39], before them the Club emphasised that not only is it entirely possible to identify the date of breach but also:
“…it is obvious and it is necessary to determine the point of breach. It is how the rules work. The precise date of breach is clearly identifiable under the rules and it is crucial. It is the accounting position at midnight on 30 June 2023, if that is the account ending period. It is that date and time only that is determinative of breach or not.”
Determining precise time of breach
Before the Appeal Board the PL continued to pursue the argument that “
it is impossible to determine the precise point in time at which the breach took place.” [41]
The PL focussed on the fact that the assessment of breach was part of an “
accounting process” such that the date was impossible and irrelevant, but the Appeal Board found that argument “
understated” the gap in time between LCFC being in the PL and the end of its accounting period [50] and that LCFC continued to carry on trading during that period [51]. It further criticised the Commission’s acceptance of another PL argument, placing “
too much weight on the phrase ‘treated as being in breach’” in Rule 49.2 [54].
The PL sought to justify its interpretation of Rule 49.2 on the basis of its argument that [55]: “
The PL rules are intended to be enforceable. A construction of the PL Rules that made them unenforceable against a club which breached them at a time it was subject to them would be absurd and contrary to principles of both law and sport.”
The Appeal Board agreed with the general proposition but found that “
this contention begs the question, which is before us, whether LCFC broke the PL Rule in question when it was subject to it, or whether at the material time it was no longer subject to the Rule in question.” [56]
In addition, so far as the PL’s arguments about Clubs allegedly escaping punishment were concerned, the Appeal Board found that:
“any economic consequences of LCFC’s losses, and any penal consequences that might follow from LCFC being treated as having been in breach of the PL Rules, would affect its participation in the Football League rather than its participation in the PL.”
Following the publication of the decision the PL issued an uncharacteristically critical statement about the Appeal Board’s
decision[2]. It is not unusual for parties to feel “
surprised and disappointed” by decisions after they have lost a case, but it is of some concern that the PL, as regulator, expressed such forthright criticism of one its independent Appeal Boards, which was made up of three very senior and distinguished lawyers, two of whom were previously Court of Appeal judges. Just as government ministers are advised not to criticise the courts, so too sports’ regulators should be careful criticising panels when they don’t get the result they want, such criticism risks undermining the independence and integrity of the Premier League’s own judicial process
.
Approach in other cases
In the author’s respectful opinion, the case represents a further welcome restatement of the correct approach to contractual interpretation of sporting bodies rule. Those acting for regulators sometimes feel forced to fall back on “
just interpret these rules so they work for us” argument, sometimes even relying on their own badly drafted rules. But there must be limits to that submission. Rules cannot simply me made up as you go along, to suit each case as it arises. There needs to be clarity and certainty.
Earlier in the year an independent Club Financial Review Panel (“
CFRP”) panel constituted under the rules of the Football league (“
EFL”) rejected a similar argument advanced by the EFL’s Club Financial Regularity Unit (“
CFRU”), in an appeal brought by LCFC against the purported imposition of a Business Plan on LCFC it under the EFL’s Profit & Sustainability Rules.
In
LCFC v EFL CFRU<em><strong>[3]</strong></em>, the CFRU argued, in inviting the Panel to read the rules to work against the Club, that the EFL Rules were
“ ‘far from perfectly drafted’ to achieve the Financial Fair Play Objectives in respect of Clubs relegated or promoted to the Championship” and that “
a strict textual interpretation, based on ‘the niceties of language’ was not appropriate” [38]. But the Panel found there was no ambiguity in the Rules, they were open to only one reading, the CFRU did not have the power to impose a Business Plan on LCFC – to allow the CFRU’s interpretation would be to re-write the rules, which was not the function of the Panel [54] – [55].
Conclusion
These cases highlight some of the flaws in the drafting of financial rules in football, which will always be a difficult and complex area. It is often impossible to provide for all potential outcomes, but the failure to fully align the Premier League and EFL Championship PSR/P&S rules to deal with the inevitability of relegation and
promotion is an obvious example of something missing. The fact that, in these recent cases, regulators cannot get away from the words of their rules by asking panels to read them so as to deal with the problem in hand, one might hope, might mean more care shall in the future be taken in the drafting (and review) of such rules. The author hopes, that the PL, in particular, having been embroiled in so many expensive and distracting recent legal disputes about its PSR rules will carefully consider, and should not rush into, any new proposed financial regulatory rules.
The need for clarity and certainty in sports rules so that, as the Appeal Board in
PL v LCFC found, “
a Club should be able to determine its conduct and liabilities from the words of the Rules” is in line with the approach of the European courts in a series of recent important sports regulatory cases, most notably in football relating to the
European Superleague challenge to FIFA and UEFA’s competition prior approval rules. It is not enough for the regulator to say rules regulating who can compete are necessary for the sport, in order to avoid breaching competition law in certain areas they must also be “
clear and precise”, and “
based on objective, transparent and non-discriminatory criteria”.
Those interested in fairness and consistency in sports law disputes can take comfort in the tendency of these recent decisions to apply (other than in exceptional circumstances) the words of the rules rather than the alleged
post-facto unwritten intentions of those who drafted them.
