Berg v Blackburn Rovers Football Club & Athletic Plc

Permission to withdraw a formal admission should be granted only where the proposed defence is realistically arguable and the court’s discretion, considered in all the circumstances, is consistent with the overriding objective. A contractual payment is not a penalty where it becomes due on an event other than breach of contract. A company’s managing director ordinarily has implied or usual authority to enter employment contracts in the ordinary course of business. An undisclosed internal restriction on that authority does not affect the company’s liability to a counterparty acting in good faith.

The defendant applied under CPR r.14.1(5) for permission to withdraw an admission of liability for £2.25 million payable under a fixed-term employment agreement with its former club manager. It relied on two proposed defences: that its managing director lacked authority to agree the relevant terms, and that the contractual compensation provision was an unenforceable penalty.

The central issues were whether either defence was realistically arguable and, if so, whether permission should nevertheless be granted having regard to the relevant discretionary factors.

1. Application dismissed. Neither proposed defence was realistically arguable. Permission to withdraw the admission would therefore serve no useful purpose, because a summary judgment application would be bound to succeed.
2. Under CPR r.14.1(5) and paragraph 7.2 of Part 14 Practice Direction—Admissions, the court must consider all the circumstances and give effect to the overriding objective. Relevant matters include the application’s good faith and justification, prejudice, the parties’ conduct, prospects of success, avoidance of satellite litigation and disproportionate use of court resources, and the proximity of any final hearing.
3. The realistic-arguability test is the appropriate starting point. The court cannot resolve material factual disputes at this stage, but need not accept unsupported factual assertions without scrutiny. If no realistically arguable defence is shown, it is unnecessary to consider the other discretionary factors.
4. Clause 15.3 was not a penalty. Early termination was expressly permitted as of right, and the payment became due on that permitted termination rather than on breach of contract. The penalty doctrine was therefore not engaged.
5. Mr Shaw, as Blackburn’s managing director, had usual or implied authority to sign an employment contract on behalf of the company. Any undisclosed internal restriction on that authority was immaterial to Blackburn’s liability to a counterparty dealing in good faith.