REUTERS | Ricardo Moraes

Football transfer windows, arbitration and adjudication all in one sentence

Football’s transfer window is open and the papers are full of stories about who may be leaving, who may be arriving and who hasn’t got any money to spend. Speculation is rife, but does anyone wonder what really happens behind the scenes when a footballer’s contract of employment is terminated and he goes off to play for another club?

Apparently, there are rules about this. In England, the FA is the governing body and it has rules that all clubs and players are bound by. These rules extend to termination, either “with just cause” or ” with a sporting cause” and also encompass the “consequences of terminating a contract without just cause”.  Essentially, it means compensation is payable by the party in breach (usually the player). If the player has to pay compensation, he is jointly and severally liable with his new club to pay the old club. In practice, I guess the player’s transfer fee is the “compensation”.

This is all set out in some detail in the judgment in Fleetwood Wanderers Ltd v AFC Fylde Ltd, where the Commercial Court had to decide whether an arbitrator had breached his section 33 duty to act fairly and impartially.

Fleetwood Wanderers Ltd v AFC Fylde Ltd

In Fleetwood Wanderers Ltd v AFC Fylde Ltd, the arbitrator was appointed to determine the compensation that was payable by a player’s new club (Fleetwood) to his old club (AFC Fylde).

One of the issues concerned the regulations governing the transfer of players (snappily called the Regulations on the Status and Transfer of Players, or RSTP for short) and whether they were incorporated into the FA rules. (All players and clubs are bound to comply with the FA’s rules “by express or implied contract”.) The arbitrator decided they were incorporated, which meant Fleetwood was liable to pay compensation to AFC Fylde. In reaching this conclusion, the arbitrator relied on information that he had obtained through an exchange of emails with the FA and also some research that he had carried out himself.

Fleetwood were clearly unimpressed with the arbitrator’s decision, and sought to challenge the award under section 68(2)(b) of the Arbitration Act 1996 for serious irregularity, alternatively under section 67(1)(a) for a lack of jurisdiction (although the judge rejected this argument). It argued that the arbitrator had failed to comply with his general duties in section 33. This was an “irregularity” within the meaning of section 68(2)(b) and it was serious because it caused “substantial injustice” to Fleetwood.

Section 33 of the Arbitration Act 1996 

Section 33(1) imposes a two-pronged duty on the tribunal. It must:

“(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and

(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.”

(It looks familiar, as I’ll come on to later.)

After reviewing what happened, the court agreed with Fleetwood. By making enquiries and obtaining information from the FA during the arbitration without sharing that information with the parties and giving them an opportunity to make representations, the arbitrator had committed an “irregularity” that caused substantial injustice and was therefore an irregularity within the meaning of section 68(2).

In concluding that the arbitrator should have shared the information, the judge noted that he was satisfied that, had the arbitrator done so, both parties would have sought to make representations to him. The judge even wondered if Fleetwood might have been able to persuade the arbitrator that a different conclusion should be reached.

Interestingly, the judge remitted the case back to the arbitrator for him to reconsider, partly because the issue was a discreet aspect of the claim and the arbitrator could look at the point “without re-opening the rest of his conclusions”. I was also interested to see that the arbitrator’s professionalism was not under challenge and there was no suggestion of bias (whether actual or apparent).

Comparisons to adjudication

I mention this case because of the comparisons I think you can draw to adjudication. It is well established in adjudication that an adjudicator has to act fairly and impartially. We all know that these principles are derived from section 108(2)(e) of the Construction Act 1996 and paragraph 12(a) of the Scheme for Construction Contracts 1998, which require an adjudicator to “act impartially”, as well as from the broader natural justice duties that have developed over the years through case law.

We also know that if the adjudicator carries out inquiries of their own, they must share whatever information they gather with the parties. The adjudicator may have jurisdiction to make the inquiry, but the parties must be given an opportunity to comment. Equally, an adjudicator has to tread carefully before relying on their own knowledge and experience. If they go too far, they will be in breach of the rules of natural justice. How far is “too far” depends on the facts, and there are plenty of cases that testify to the difficulties that can arise. As Ramsey J once said, it is precisely because of adjudicators’ prior knowledge that they are appointed in the first place, but it is really a question of how they use that knowledge.

One shouldn’t really speculate on what would have happened if the arbitrator had been an adjudicator, and the challenge had been brought during enforcement proceedings. However, I suspect that the outcome would be both similar and different. Similar insofar as the adjudicator would have been in breach of the rules of natural justice, just like the arbitrator breached section 33 and fell foul of section 68, but different in that there is no right to remit part of an adjudicator’s decision back to him. Instead, there would have been an argument about whether that part of the adjudicator’s decision was severable. I’m not sure it could be said to be, and suspect the whole decision would have ended up being tainted.

I guess the moral of the story is, regardless of the forum you are operating in, you need to be careful that you do not overstep the boundaries and rely on information the parties are unaware of. If you do, you are likely to score an own goal!

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