IS IT DETRIMENTAL FOR ENTREPRE DRIVE A HARD BARGAIN?
By David Willbe T
he road to a successful venture can be exciting, fast paced and occasionally cut-throat. Most entrepreneurs will agree that among the key characteristics possessed by successful entrepreneurs is an eye for a good deal, and
a willingness to grab it. Inevitably, this will mean driving a hard bargain, and at times getting the best deal for your own company will mean taking advantage of another person’s willingness to accept a bad deal for them.
This approach is so widely lionised within most entrepreneurial communities that it may be difficult to comprehend that pushing too far in one’s best interests could actually work to an entrepreneur’s detriment. The law respects the driving of a hard bargain, but where people take it to an extreme, there are certain cases where the law will refuse to enforce their agreement. Whilst it is always advisable to take reasonable and legitimate steps to pursue your business’s interests, it is also important to be aware of where to draw the line.
Taking advantage of individuals Wayne Rooney first entered the public domain at the age of 15, and virtually immediately was hotly tipped as the next big football star. Quite apart from his on-pitch exploits, this put him into the category of potentially lucrative marketing tool - as such he was in great demand from advertising agencies from the very outset of his football career.
Rooney engaged the services of a footballing agent, Proactive Sports Management Limited, to represent him in negotiations with Everton, which was his club at the time, and advise him on his commercial opportunities. A little while later, for tax reasons, he assigned all of his “image rights” to Stoneygate 48 Limited, a company in which he was the sole shareholder. Paul Stretford, a football agent and director of Proactive with whom Mr. Rooney developed a personal friendship, became a director of Stoneygate to advise Rooney on those image rights.
As part of Proactive’s arrangement with Mr. Rooney, Proactive entered into an agreement with both Stoneygate and Mr. Rooney whereby Proactive would act on behalf of Stoneygate to negotiate sponsorship deals and exploit his image rights. By the end of 2003 there were two contracts in place between Mr. Rooney and Proactive, one in respect of image rights and one for all other representation, both of which were for a period of eight years and entitled Proactive to a 2.5% commission on Mr. Rooney’s footballing wages, and a 20% commission on any off-pitch endorsement deals entered into on behalf of Mr. Rooney. His wife, once
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endorsement and similar deals began to manifest for her, also took on Proactive’s representation and made the 20% commission payments.
In 2008, Mr. Stretford was (for unrelated reasons) banned from acting as a player’s agent for an initial period of nine months. Consequently, the relationship between Proactive and Mr. Stretford broke down irretrievably in May 2008 and Mr. Stretford resigned from his post as a director of Proactive. As the relationship had broken down so badly, Mr. Stretford (as a director of Stoneygate) stopped all payments to Proactive from the Rooney’s, and terminated the image rights agreements with Proactive. Proactive claimed that they were still owed commission, and took the matter to court.
Stoneygate argued (among other things) that the contract between Rooney, Stoneygate and Proactive was not enforceable as it should be classed as a “restraint of trade”, a doctrine which (in certain limited circumstances) will invalidate a contract that unduly interferes with an individual’s ability to follow their trade and use their skills. The argument was that the contract should be considered a restraint of trade as it provided for a term of eight years (which, in most cases, is the majority or all of the top-level career of a footballer) at a uniform commission regardless of how much cash this generated for Proactive, and contained no early termination rights or ability for Rooney to seek a better deal elsewhere.
The Judge found that the contract did indeed impose excessive restrictions on Mr. Rooney’s right to exploit his talents in the ways he might wish, and ruled that it was unenforceable because it was in restraint of trade. The Judge pointed in particular to the wide restriction that Mr. Rooney could not negotiate or enter into contracts with any other agency who might be considered to be Proactive’s competitor, and was instead bound to bring every commercial opportunity that was presented to him to Proactive. The Judge also focused on the fact that this exclusive, long- term arrangement with Proactive was entered into at a time when Mr. Rooney was only 17, and that despite his lack of sophistication in legal matters, he did not take legal advice on the document.
Restraint of trade is an area of law that most entrepreneurs will only encounter when negotiating non-competes with their senior employees, but certain of the considerations that the Judge looked at in the Rooney case are of wider application.
the Judge did consider the fact that there was clearly an
In coming to his conclusion on the point,
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