Mercato Sports (UK) Ltd, Mark McKay v Everton Football Club Co Ltd  EWHC 1567
Ben Smiley, 4 New Square
This case concerned the extent to which dealings between a football club and football agents were governed by the Rules of the Football Association (the “FA Rules”), and in particular the arbitration clause at Rule K of the FA Rules.
Much of the factual background concerning the case remains private, given the Court’s finding that the dispute fell to be determined by way of arbitration.
The claimants alleged that in 2017 they brought an unnamed footballer (“AB”) to the attention of the defendant football club (“Everton”). They claimed payment pursuant to an implied contract or retainer or by reason of unjust enrichment.
Everton denied liability and further sought a stay of proceedings on the basis that Rule K of the FA Rules operated as an arbitration agreement between the claimants and Everton. There was no dispute that the Second Claimant (“Mr McKay”) was an intermediary registered with the FA. In those circumstances, it was accepted that Mr McKay’s claim would be stayed. However, the position as regards the First Claimant (“Mercato”) was less clear.
The claimants’ original case was that Mercato was not and could not be registered as an intermediary with the FA. The latter point was submitted on the basis that Mercato was not a natural person, but the claimants subsequently conceded that a company could be a registered FA intermediary. The former point was also revealed to be incorrect during the course of proceedings, albeit the circumstances in which that registration had been brought about were unclear.
The judge ultimately found that: (a) the registration resulted from the actions of Mercato or persons associated with it; (b) Mercato was aware of its registration; (c) Mercato did not challenge or seek to revoke the registration; and (d) Mercato used the registration number with which it had been provided. Notably, Mercato had used its FA registration number on the invoice rendered to Everton.
The legal test
The judge set out at paragraph  the legal approach he would adopt, which can be summarised as follows:
- An arbitration agreement requires a contract between the relevant litigants;
- Determining whether such a contract is formed involves the application of the normal rules of contractual formation;
- A “horizontal contract” (adopting the language of HH Judge Pelling QC in Bony v Kacou & others  EWHC 2146 (Ch)) can be formed between two persons who have no direct contact with each other, when each of them has a “vertical contract” with a third party;
- An example of a “vertical contract” is accession to the rules of a sport’s governing body;
- Whether “vertical contracts” give rise to any “horizontal contract(s)” “will depend on the facts and circumstances of each alleged party's entry into the vertical contract in question and the nature of their dealings with the other parties”;
- Engagement in a sport will not of itself give rise to accession to rules and vertical contracts, let alone the formation of horizontal contracts with other participants;
- But “accession to such rules can in appropriate circumstances give rise to such horizontal contracts with other participants in the sport”.
The judge then went on to analyse in detail several of the authorities in respect of this issue, including in particular Clarke v Earl of Dunraven (The "Satanita")  AC 59 and Bony v Kacou.
At paragraph  the judge highlighted that: “[t]he conclusions which can be drawn from the actions of a footballer in putting on his or her team's strip and walking on to the pitch in a match organised by the Football Association are not necessarily appropriate when considering the same footballer's business dealings even when those dealings relate to his or her professional career.” He warned that “horizontal contracts” will be more difficult to establish the further removed the situation is from the physical activity of the sport in question.
Application to the facts
The stated approach gave rise to two questions: (a) was there a vertical contract between Mercato and the FA which incorporated the FA Rules; and (b) if there was such a contract, did it give rise to a horizontal contract between Mercato and Everton whereby each agreed to be bound by the FA Rules in their dealings with each other.
As to the first question, in the light of the facts determined regarding Mercato’s awareness, choice and/or ratification of its status as an intermediary with the FA, the judge concluded that Mercato had acceded to the FA Rules.
As to the second question, the judge found it “highly significant” that the invoice rendered by Mercato to Everton bore Mercato’s FA registration number. Mercato was “invoking its capacity under the Rules in dealing with” Everton and “avowedly acting, on the basis that its dealings with [Everton] were subject to the Rules”.
In the circumstances, Rule K governed Everton’s dealings with both claimants, and both their claims were stayed in order for arbitration proceedings to take place.
Generally, the concept of sports’ participants potentially being parties to “horizontal contracts” despite the lack of any direct interaction between them is an interesting one. The case provides useful analysis of the circumstances in which “vertical contracts” will be established between participants in a sport and their governing body, and those in which “horizontal contracts” will then be established between the participants in the sport.
It will be interesting to see how the guidance set down by the judge in this case will be applied in future cases; in particular, his warning that such contracts will be less easily established the further removed the situation is from the sport being played. Notably, here, a “horizontal contract” was established in respect of a commercial transaction which did not (directly) involve any participation in the sport. That demonstrates the particularly fact-sensitive nature of the exercise, and the limit to which general guidance can assist when considering case-specific details.