Most of us are familiar with the mantra that liquidated and ascertained damages for delay are not enforceable if they constitute a "penalty", as opposed to a genuine estimate of loss. This doctrine was used by the Court of Appeal to strike out an interest clause in a football contract that provided for a rate of 5% a week – the equivalent of 260% a year!
This clause was the subject of an appeal in the case of Jeancharm Ltd vs Barnet Football Club Ltd and related to late payment by Barnet for football kits supplied by Jeancharm. Incidentally, there was also a provision, if Jeancharm was late in delivering, for payment of damages to Barnet of 20p a day for each garment missing.
Barnet argued that the interest clause was unenforceable. The county court rejected this argument but the Court of Appeal said it was "an extraordinarily large sum to have to pay for administrative costs". It was extravagant and unconscionable in comparison with the actual loss, and was therefore unenforceable. In other words, only realistic interest rates will be enforced.
Another football case that hit the national press, Middlesbrough Football & Athletic Company (1986) Ltd vs Liverpool & Athletic Grounds Plc, related to the transfer of German international Christian Ziege from Middlesbrough to Liverpool in the summer of 2000. Liverpool acquired him for £5.5m and sold him a year later to Tottenham Hotspur for about £4m. Middlesbrough opposed the transfer to Liverpool and alleged that Liverpool had broken Football Association rules.
The rules contained two relevant provisions:
- A club can only make an approach to a player under contract with the written consent of the club to which the player is contracted.
It appears that both Rangers and Chelsea were prepared to buy Ziege for £7.5m and Valencia was prepared to pay £8m
- The contract between the club and the player is confidential and cannot be disclosed, except with the prior written permission of both parties.
Mr Ziege's contract contained a provision that Middlesbrough would give permission for him to move if it received an offer for him in excess of £5.5m. It appears that Liverpool came to learn of the clause, approached Ziege directly and, having persuaded him to move, offered Middlesbrough £5.5m for him. Liverpool claimed it would never have paid more for him and thought it was "at the upper end of the price range for a full-back …"
But it appears that both Rangers and Chelsea were prepared to buy Ziege for £7.5m and Valencia was prepared to pay £8m. He did not want to go to any of these clubs.
Middlesbrough claimed damages on the basis that, had Liverpool not misused confidential information, it would have received a higher price for Ziege, and also that Liverpool's direct approach to the player without the club's consent prevented it having the opportunity in advance of persuading Ziege to stay.
The Court of Appeal thought that a claim for damages could arise and set aside the first judge's dismissal of Middlesbrough's claim. The damages could constitute the additional amount that Liverpool would have bid for Ziege had it not known of the confidential figure. Or, the club could claim for losses suffered through not having Ziege for the 2000/1 season – such as the loss of an award that it would have received had it finished four places higher, loss of gate receipts, loss of profit on ancillary sales, loss of television facility fees and so on. These totalled an astonishing figure of more than £5.5m, but the claims were not so fanciful as to justify the dismissal of them. The trial judge should have looked at them.
So, though we often say that breaches of a confidentiality clause rarely give rise to a damages claim, this case indicates how they might.