Manchester City Football Club Plc v Royle

An employment contract’s compensation clause may use league status as a broad-brush proxy for common-law loss. Where expressions such as ‘in the Premier League’ are ambiguous at the boundary between seasons, they must be construed in light of the clause’s purpose, structure, relevant league rules and commercial context. Formal share transfer is not decisive where the club has lost its entitlement to compete in the Premier League and is certain to play in the First Division in the next season. The compensation should reflect the future earnings and replacement prospects which the clause was intended approximately to capture. The clause is not a precise assessment of damages, so the exact date of an administrative change carries less weight.

A football club dismissed its manager shortly after the final match of the season. The club had finished in a relegation position and was certain to play in the First Division in the following season, but the formal transfer of its Premier League share had not yet occurred.

The manager claimed compensation at the Premier League rate under clause 14.3 of his fixed-term employment contract. The first-instance judge held that being ‘in the Premier League’ meant being a shareholding member under the Premier League Rules. The issue on appeal was whether compensation depended on formal membership or on the club’s settled future playing status.

1. Appeal allowed. The Court of Appeal, unanimously agreeing through Smith LJ, Sedley LJ and Gage LJ, set aside the first-instance order.
2. Clause 14.3 was intended to provide a broad-brush proxy for the assessment of common-law damages following premature termination. The relevant considerations were the earnings the manager would have received and the difficulty of replacing them. The formula was approximate rather than a precise calculation of loss.
3. The expressions ‘in the Premier League’ and ‘in the First Division’ were ambiguous in the short period after a season ended but before formal share transfers occurred. The parties had not addressed that eventuality when drafting the contract. Both a membership-based construction and a construction based on relegation or promotion were tenable.
4. The ambiguity was resolved by the purpose of clause 14.3, read with the structure of the contract and the distinction in Premier League rule B.3 between relegation and subsequent share transfer. The manager’s compensation was intended to reflect the status and earnings he would have had in the next season. Since the club was ineluctably going to play in the First Division, the First Division rate applied even though the share transfer had not been completed.
5. Sedley LJ added that the same reasoning would apply where a club had earned promotion but had not yet taken up its share in the Premier League. That was a parity-based hypothetical qualification rather than a necessary basis of the decision.
6. The precise consequential order and costs were left to be considered in light of the judgment.

• Manchester District Registry, Mercantile Court: In July 2004, His Honour Judge Kershaw QC found for the manager, holding that the club remained in the Premier League because it still held its share.
• Court of Appeal (Civil Division): The appeal was allowed and the first-instance order was set aside: [2005] EWCA Civ 195.