A significant number of people around the globe love and enjoy football. Playing the game, watching, and even betting on it are things they look forward to. Many people often fantasize about what it could be like to own their football club.
For many, this isn’t just a dream, but their reality.
On that note, whether an individual is ‘fit and proper’ to run a football club is a debatable topic. To understand this more closely, we need to understand what ‘fiduciary duties’ are, and if there are any remedies for breach of duty.
What is a Fiduciary?
“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.”
In regards to football, most existing clubs are incorporated as it provides advantages in raising capital. Moreover, it leads to a limitation of liability as well as preferential tax options.
An owner who is in a fiduciary relationship with a particular club has duties and obligations. The first and most important obligation is that of loyalty. However, there are three primary fiduciary duties of the owner, them being:
- The “no profit” rule;
- The “no conflict” rule; and
- The “undivided loyalty” rule
What are the Fiduciary Duties Under the Companies Act 2006
Since the inception of the Companies Act 2006, Company Directors are recognizable as fiduciaries. As such, they must perform specific duties, as per the law. Operating out of these duties is a breach and will lead to consequences.
The key fiduciary duties of a Company Director are as follows:
• S171: duty to act within powers;
• S172: duty to promote the success of the company;
• S175: duty to avoid conflicts of interest;
• S176: duty not to accept benefits from third parties; and
• S177: duty to declare an interest in a proposed transaction.
Essentially, these duties mean that the powers of the company (or the club) which the director will exercise should be done in good faith and for the benefit of their company as a whole.
Furthermore, it means that if the owner were to allow their interest to become a priority, it is a breach of their duties. The owner must always be aware not to allow any conflict of interest. The personal interest of the owner must not be impossible over the part or benefit of the company.
Examples of Breach of Fiduciary Duties:
By reading the rules, it seems as though they are very concise, clear, and easy to follow. This might be the case; however, the very strictness of these rules makes them boring for the owners. In many cases, owners of football clubs often act as if the club is their own, and they may do as they wish to with it. This is an unwise approach and will be a significant breach of duties.
Below, we will elucidate some examples of breach of fiduciary positions. Moreover, if an individual does not disclose their intent of action beforehand to the club and gain permission before doing so, it is a breach.
It is worth noting that the Board of Directors may give their permission to the individual on behalf of the club, after which it will not be a breach.
Below are some examples of breach of duties:
A contractor is gifting an expensive item (such as a gold watch) to the owner of the club, after concluding a deal with the same.
A sporting goods company is offering a consultancy fee to the owner of the club, even after negotiation of the kit sponsorship deal. Quite obviously, this is a conflict of interest and, therefore, a breach.
A sporting director is offering a sum of money as an incentive to the owner of the club. This sum may be provided for procurement of sale for a player, from their club to another club.
An owner cannot hold a share in a different football club in the same league, as it is a conflict of interest.
An owner may not purchase a piece of land with just a promise of economic development of the community. It means that the governing body of the club cannot buy land citing economic growth for the city due to its proximity to the club services.
The club may not agree to pay a sum of money, which is above the transfer value of the player, as a result of familiarity with the agent.
These are some common examples of hypothetical situations that might be a breach of fiduciary duties. However, the fiduciary obligations of an owner are strict, and thus do not always require bad faith or fraud. A breach can occur without any awareness of their wrongdoing or any losses.
In some instances of an ‘innocent breach,’ the court may excuse it if they consider it appropriate on the grounds that the owner did not act dishonestly or unreasonably.
Remedies to Breach of Duties
Any actionable unlawful act may be remedied with damages. However, there is a conflict in this too. Typically, damages compensate losses, whereas owners may gain in certain circumstances even if the club does not suffer any loss.
In cases like these, it may be difficult to prove the loss due to diversion of opportunities or secret profits.
The remedies that a club may claim against a fiduciary are as follows:
• An account of the club’s assets and what they may have done to them
• An account of any profits by them as a result of a breach of duties
• Restoration of property
• Equitable compensation for any losses
• Imposing a constructive trust over any unauthorized profits as a result of questionable conduct
It is a common misconception held by many that owners may do as they wish with their clubs. In reality, any incorporated club automatically takes on the legal status of its own. The club’s assets and properties are its own, and not the owners. Owners must be aware of the legalities to stay out of legal trouble.