Last month the former Blackburn Rovers Football Manager, Henning Berg, was successful in his claim against his former employer resulting in him receiving an award of £2.25million for what was widely reported in the press to be 57 days’ work. The salaries and negotiated payoffs made to footballers and club management frequently get a lot of press attention due to the eye watering sums involved. Usually however, the truth behind how these sums are calculated is not explained in detail.
In the case of Henning Berg, he entered into a service agreement with his employer on 1st November 2012 for a fixed term due to end on 30th June 2015. Within the agreement was a clause which stipulated that “In the event that the club shall at any time wish to terminate this agreement with immediate effect it shall be entitled to do so upon written notice to the manager and provided that it shall pay to the manager a compensation payment by way of liquidated damages in the sum equal to the manager’s gross basic salary for the unexpired balance of the fixed period assuming an annual salary of £900,000….”.
On 27th December 2012, Blackburn terminated its agreement with Henning Berg and in accordance with the terms of the agreement, was required to pay him a sum equivalent to the unexpired term of the contract amounting to £2.25million.
It is not that often that I would recommend a person read a Judgment unless they are a party to the proceedings or a lawyer but this particular case creates an exception, given that the Judgment is quite an astonishing read from the point of view of the running of the club and the handling of its appointment of such a key individual. For those of you who are interested, here is the link to the decision Hennigh Berg v Blackburn Rovers Football Club & Athletic plc.
To cut a very long story short, after Henning Berg issued proceedings on 14th February 2013, Blackburn Rovers’ solicitors at the time submitted an admission on 1st March 2013 admitting liability for the claim and offering to pay £2.25million in satisfaction of it. Blackburn however, then sought to withdraw the admission, suggesting that its Managing Director, Derek Shaw, had acted outside of the control of the club’s owners who claimed to have instructed him to insert a 12 month notice period provision into Henning Berg’s service agreement in the event of early termination. Rather interestingly, this was despite a press statement placed on the club’s website on 9th April 2013 contradicting this position, stating that Mr Shaw continued to have the club’s complete support.
The club also tried to introduce a defence that the clause referred to above was unenforceable on the basis that it amounted to a penalty clause (penalty clauses being unenforceable in England and Wales). A penalty clause normally applies where a party in breach of the terms of a contract is then required to pay a fixed sum of money, which does not bear any resemblance to the actual loss suffered by the other party. This goes against the principle that in a breach of contract claim, a party is suing the party in breach for losses arising from their actions. The High Court held that a sum of money which was payable under a contract on the occurrence of an event (ie, not a breach because the contract allowed for early termination), could not be a penalty but was instead agreed compensation.
As for the argument that Mr Shaw was acting outside of his authority, his Honour Judge Pelling QC referred to a number of reasons why he considered this argument to be unrealistic. In particular, he referred to the evidence of the Deputy Chief Executive of the League Managers Association who stated that “In my over 30 years of experience in relation to the appointment of football managers to professional football clubs, it is perfectly normal to assume that if the Managing Director and/or a Finance Director of a football club are negotiating the terms of the contract utilising, for example, the facilities of that club and engaging, for example, the club’s solicitors to advise in connection with the proposed appointment, then they have authority to do so. In my experience, it would be unheard of for a Manager to investigate the authority of a Managing Director or Finance Director in these circumstances”. On the basis that Mr Shaw in his capacity as Managing Director of the club had been held out as having the usual authority of someone in that office, then all acts falling within his authority are binding on the club and any party (in this case Henning Berg) who dealt with the company in good faith. The Judge therefore concluded that it was not possible for Blackburn Rovers to suggest that Mr Shaw did not have implied or usual authority to sign employment contracts on his behalf especially as he had done so in the case of its two previous managers, Steve Kean and Michael Appleton.
So there you have it, an explanation of how Henning Berg earned himself £2.25million for 57 days’ work. Given that it was apparently himself who had approached the club following the departure of Michael Appleton, the club probably rues the day it failed to take advantage of what would appear to be its dominant position by negotiating the inclusion of a notice clause limiting its exposure to the sums of compensation payable in the event it chose to terminate the contract early. On a positive note, you could say we all make mistakes but only a fool fails to learn from them. In this case it is probably safe to say that at a cost £2.25million plus legal costs, Blackburn Rovers will not make the same mistake again!Back
Russell is a Partner and Head of Glaisyers' Employment Team.
Russell Brown - Partner
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