Or how Liverpool FC won in extra time
The importance of certainty in contracts is ever present. Lack of certainty provides the opportunity for dispute, the latest example of which concerning agents was a High Court case earlier this Autumn where a former agent claimed against Liverpool FC.
The importance of certainty of terms in agency and distribution contracts was last seen in early 2019 in the judgment of the UK Supreme Court, Wells V Devani, where the parties disagreed on the terms of an oral contract, leaving the courts to consider what the reasonable person would have construed from the terms that were agreed and the principles of the application of implied terms (see here).
Unlike Wells v Devani, in the recent case of Winlink Marketing Ltd (“WML”) v The Liverpool Football Club & Athletic Grounds Ltd (“LFC”) problems arose due to contractual uncertainty in a written contract.
In October 2013 LFC engaged WML to find it a sponsor out of a group of BetVictor, Stan James and Betfred.
WML was appointed on a non-exclusive basis by way of a written introduction agreement, under which WML was entitled to commission on a “Relevant Contract”. In turn “Relevant Contract” was defined as “a legally binding agreement for the grant of Sponsorship Rights entered into during the Introduction Period between LFC and a Prospective Client who was Introduced by the Introducer”.
There are several capitalised terms in that definition, and with the exception of one of those terms, they were defined in the introduction agreement. However, the parties failed to provide a definition of what was meant by the “Introduction Period”!
In late 2013, WML introduced LFC to BetVictor. In early 2014, BetVictor made a sponsorship offer to LFC, but this was rejected. Later in 2015, BetVictor put to LFC another sponsorship offer, but by this time, it was evident that WML was taking instructions from BetVictor and not LFC. Again, LFC rejected BetVictor’s offer.
Then in early 2016, LFC and BetVictor started to negotiate a deal, which was agreed later that year. By this point, LFC was conducting its negotiations via a new employee of LFC (more on this later) and BetVictor had terminated its engagement with WML. However, importantly for WML, LFC had not terminated its introduction agreement with WML. As such, WML sent an email to its contact at LFC for its commission to be paid following the announcement of the deal. WML’s contact at LFC responded to explain that:
- the deal was “nothing to do with me I’m afraid”; and
- the deal was struck by a colleague and the CEO at BetVictor.
WML commenced litigation against LFC for payment of commission amounting to £1,125,000.
LFC was of the view that the deal struck in 2016 was not a Relevant Contract, as the “Introduction Period” had expired. LFC considered that as the sponsorship agreement was entered into close to two and a half years after the introduction, this was past the reasonable time that the parties had mutually intended to apply under the concept of an “Introduction Period” as included by them in the introduction agreement.
The court agreed that the inclusion of the term “Introduction Period” in the introduction agreement could not simply be ignored just because it was not given a meaning. However, the court decided, having looked at the other terms of the introduction agreement, that a reasonable person with the parties’ actual and presumed knowledge would reach the conclusion that the definition of “Relevant Contract” would refer to any legally binding agreement for the grant of sponsorship rights entered into by LFC with a potential sponsor introduced either prior to the termination of the introduction agreement, or after termination of the introduction agreement but where that potential sponsor had been introduced by the agent prior to its termination.
The above conclusion made, according to the court, clear commercial sense because it would prevent LFC from terminating the introduction agreement after having been introduced to a potential sponsor introduced by WML, in order to avoid having to pay commission.
WML 1 – 0 LFC
However, given that the “Introduction Period” had not expired, a further question arose, which was whether WML’s introduction in 2013 was, itself, sufficient to trigger commission becoming payable to WML on the deal struck between LFC and BetVictor in 2016. Again, due to the uncertainty caused by the terms of the introduction agreement, the court had to consider whether such terms either could be read as imposing an obligation for the agent to be an effective cause of the deal in order for commission to flow, or, whether such a term should be implied into the introduction agreement.
In summary, the court decided that the express terms of the introduction agreement could be read so that the intention of the parties was for commission to become payable under the introduction agreement when a potential sponsor entered into a “Relevant Contract” as a result of the introduction by the agent of the potential sponsor to the individuals at LFC that could make the deal happen.
WML 1 – 1 LFC
A consequence of this reading of the terms of the introduction agreement was that a term did not need to be implied. However, the court concluded that a term that the agent needed to be an effective cause would otherwise have been implied into the introduction agreement.
WML 1 – 2 LFC
If an effective cause provision was not read into the introduction agreement, or implied into the introduction agreement, there would have been a risk that LFC could have been responsible for paying two commissions, given its non-exclusive relationship with WML and the number of competitors of WML in the market, both of which would have been known by the parties when the introduction agreement was entered into.
The result? Because of the nature of the deal that was struck between LFC and BetVictor in 2016, and the factual circumstances as to how that deal was initiated and negotiated, the court decided in favour of LFC. Despite the introduction agreement not having been terminated by LFC and LFC having been introduced to BetVictor by the agent, no commission was payable to the agent.
The concept of an agent needing to be an effective cause in a contract between an agent’s customer and its principal is one that will be explored in next month’s Agentlaw news. For now, what is clear is that if an agent wants to be paid on any and all contracts that arise between a customer introduced to a business by an agent, the terms of the agency contract must be so clear as to avoid an effective cause provision being read or implied into it.