Football Club counts cost of MD’s imprudence

Mr Berg entered into a service agreement with Blackburn Rovers FC in November 2012 to become their Manager at an annual salary of £900,000. The terms of the contract were agreed between Mr Berg and Derek Shaw, the football club’s Managing Director. The contract was to expire on 30 June 2015 and included an early termination clause. This provided for the salary for the balance of the fixed term contract to be paid by way of liquidated damages if the contract was terminated early.

Mr Berg’s contract was terminated on 27 December 2012, at which point Blackburn Rovers argued that Mr Shaw did not have the authority to enter in a contract with Mr Berg other than on their ‘standard’ terms that it was terminable on 12 months’ notice with early termination compensation limited to 12 months’ salary.

As Mr Berg’s employment had been terminated early, he sued for payment of £2.25m, the two-and-a-half year balance of the fixed term. The High Court held that the fact that Mr Shaw did not have actual authority from the club’s owners to conclude the service agreement on the terms he did was immaterial to Mr Berg’s claim for compensation. The only issue in relation to Mr Berg’s compensation claim was whether Mr Shaw had the usual authority to enter into the service agreement on behalf of Blackburn FC by reason of his appointment as MD.

In the event, the football club was unable to demonstrate a realistically arguable case that Mr Shaw did not have the authority usually vested in a Managing Director and it therefore had no defence to the claim.

Comment

As the Judge said in this case, the law relating to breach of contract is not to relieve a party from the consequences of a commercially imprudent bargain.