Posted by Gemma Ospedale, Partner
On 1 September 2016 Withy King LLP merged with Royds LLP. The trading name for the merged firm is Royds Withy King. All content produced prior to this date will remain in the name of the firms pre-merger.
Perils of contractual drafting
The case of Berg v Blackburn Rovers Football Club and Athletic PLC concerns the appointment of Henning Berg as Manager of Blackburn Rovers on the 1st November 2012, and his departure after 57 days, which resulted in a claim for a very substantial payment under the contract. Mr Berg was appointed following negotiations with Derek Shaw, Blackburn’s Managing Director, for a fixed term until 30th June 2015. One of the terms included in the contract was the Club’s right to terminate the agreement at any time with immediate effect conditional upon it paying Mr Berg a sum by way of liquidated damages equivalent to the balance of the unexpired fixed period. His annual salary was £900,000. When his contract was terminated by Mr Shaw after only 57 days, Mr Berg claimed £2.25m in damages.
Blackburn Rovers tired to make out that Mr Shaw had not had authority to conclude the wording of the contract that he did and that in fact the only authority he had was to conclude a contract whereby an early termination payment was capped at 12 months salary.
This argument was thrown out by the High Court Judge, who held that whether or not Mr Shaw had authority to enter into the type of contact which he had was immaterial to Mr Berg’s claim against Blackburn, where the sole issue was whether or not the Managing Director had the usual authority to enter into a Service Agreement generally, by virtue of his position. The Judge concluded that he did, as would be only reasonable given his position.
The other defence which the Club mounted was that the clause was a penalty and therefore unenforceable. However the wording of the contract made it clear that if the employment terminated early he was entitled to be paid out for the balance of the period and the claim was not therefore a breach of contract claim (whereby there may have been a penalty issue) but a payment which arose upon the occurrence of an event within the terms of the contract. Consequently the law on penalty clauses was not engaged.
A timely lesson in careful drafting….
This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.
For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222
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