Previously on marketinglaw.co.uk we have reported on the battle between footballer Wayne Rooney and his former image rights management company over whether the former was within his rights to exit the contract and sue. Jonny Mayner report the Appeal Court verdict.
Topic: People in advertising
Who: Proactive Sports Management Ltd v Rooney & others
When: December 2011
Law stated as at: 31 December 2011
The Court of Appeal has substantially upheld last year's High Court ruling that an Image Rights Representation Agreement (the Agreement) between footballer Wayne Rooney (Rooney) and Proactive Sports Management Limited (Proactive) was void and unenforceable as it represented an unreasonable restraint on Rooney's capacity to earn money from exploitation of his own image rights. The Court of Appeal did however allow Proactive's appeal insofar as Proactive were entitled to payment of post-term commission in respect of contracts negotiated by Proactive before the Agreement was terminated.
Image rights have long been recognised as a potentially lucrative source of revenue for individuals in the public eye and top-ranking footballers and other celebrities commonly enter into agreements with third party agencies who will negotiate sponsorship deals on their behalf in return for a commission over the course of a defined term.
The Agreement had been entered into by Rooney through Stoneygate 48 Limited (Stoneygate) a company which he owned and to which he had assigned his image rights. Stoneygate entered into the Agreement with Proactive in early 2003, when Rooney was 17 years old and playing for Everton Football Club Rooney would enjoy subsequent success playing football for Manchester United Football Club and the England national team. Under the terms of the Agreement Proactive would exclusively negotiate and enter into sponsorship deals for Rooney. Notwithstanding the fact that the Agreement was entered into by Stoneygate, in reality it seems that it was negotiated by Rooney and his family, who benefited from little or no legal advice at the time.
The standard term for such agency agreements involving footballers was on the evidence submitted around two years, and usually the commission payable to the agency, while often expressed in terms of a percentage of revenue generated, will be capped or adjusted by reference to the amount of revenue generated. The Agreement between Stoneygate and Proactive however was for eight years (a sizeable proportion of any footballer's playing career), with no clear right for Stoneygate to terminate the contract earlier, and entitled Proactive to 20% of all revenue generated by sponsorship deals it arranged for Rooney, no matter how much revenue was in fact generated.
Relations between Stoneygate and Proactive deteriorated in late 2008, following the departure of the Proactive director who had been instrumental in signing Rooney to the agency. Stoneygate subsequently sent a letter terminating the Agreement in December 2009, although not before appointing another agency to handle Rooney's sponsorship deals.
Proactive alleged that Stoneygate was in breach of the Agreement and brought a claim in the High Court for arrears of commission which it claimed were owed. Stoneygate argued that the parties to the Agreement had made either some common or mutual mistake as to the content of the Agreement and, more importantly that the Agreement was unenforceable as it represented a restraint of trade.
Restraint of Trade
The doctrine of restraint of trade holds that a covenant or contractual provision which restricts the freedom of a party to do as it pleases will be void unless that restriction is designed to protect legitimate business interests and goes no further than reasonably necessary to protect those interests. In cases where a contract is claimed to be in restraint of trade, the party which benefits from the complained of restrictions has the burden of proving to the court that the contract was reasonable with regard to the legitimate interests of the parties.
High Court ruling
In July 2010 the High Court held that agency agreements such as the Agreement complained of were indeed capable of falling under the doctrine of restraint of trade. Moreover the judge was not satisfied that Proactive had discharged its burden of proving that the restrictions imposed by the contract were reasonable. The Agreement was therefore held to be void for unreasonableness and Proactive was not entitled to all of the arrears of commission it claimed. While Proactive was entitled to payment for services it had rendered prior to the deterioration in relations between the parties it was not entitled to post-termination commission on endorsement contracts which it had negotiated for Rooney before termination of the Agreement.
Significant points to note from the High Court's ruling were:
- the Agreement was not the outcome of negotiation between equals. The Agreement had been dictated by Proactive while Rooney and his family had not received independent legal advice;
- the fact that the agreement was entered into by limited company Stoneygate for Rooney was of little relevance: Rooney and his family negotiated the Agreement and it was Rooney who was personally restricted by the terms of the Agreement
- the fact that Rooney was free to earn substantial sums from his footballing activities was not relevant: there is no distinction in the doctrine between partial and total restraint;
- exclusivity in the Agreement was not an issue, as exclusivity is a common feature of agency agreements;
- the fact that the 8 year duration of the Agreement would likely cover at least half of Rooney's footballing career was deemed unreasonable;
- the 20% rate of commission payable to Proactive, in particular the absence of any cap or tapering provisions in respect of the commission, was unreasonable; and
- solicitors acting for Proactive had warned of the risk of the Agreement being found to be restraint of trade.
Proactive appealed the ruling and the Court of Appeal's judgment was published on 1 December 2011.
Court of Appeal ruling
On appeal, Proactive argued that the Agreement could not be in restraint of trade because Rooney’s exploitation of his image rights was merely ancillary to his primary occupation as a footballer. This argument was however rejected by the Court, which held that the ancillary activity of exploiting one’s image rights was as capable of protection under the doctrine of restraint of trade as any other commercial activity.
The Court also rejected arguments that the Agreement should still be enforceable in respect of entitlements which had accrued under it in spite of it being in restraint of trade. The Court followed established case law that once a party had withdrawn from a contract which was in restraint of trade, the contract was unenforceable.
The Court of Appeal did however partially allow the appeal insofar as it held that Proactive was entitled to post-term commission on endorsement contracts which it had negotiated for Rooney prior to termination of the Agreement. This finding was decided on arguments about the construction of the provisions of the contract dealing with commission and termination and has no wider implications beyond this case.
Why this matters:
This case will be of particular interest to individuals who seek to exploit their image rights and the advertisers or agencies who enter into agreements with such individuals and negotiate sponsorship deals for them.
These image rights agency agreements have now been confirmed by the Court of Appeal as being capable of acting in restraint of trade, even where the exploitation of image rights is not the primary occupation of the subject of the contract (for example, where they are primarily engaged in the sporting or entertainment fields). As such, advertisers and agencies should be particularly careful if seeking to impose or rely upon unusual or onerous contractual provisions (such as on duration of contract, penalties for early termination, and rates of commission).
The Court of Appeal’s substantive confirmation of the High Court’s ruling underscores the importance of caution on the part of advertisers and agencies when entering into an agreement with a young or emerging public figure, particularly where that individual’s potential to earn significant revenue from their image rights in the future is not reflected in their negotiating power at the time the contract is entered into.
Commercially sophisticated parties such as advertisers and PR agencies should ensure that young or emerging public figures which whom they wish to contract (and particularly those who may not be commercially sophisticated) receive appropriate and independent legal advice before entering into any contract with them.