A guide to fiduciary duties owed by football club directors and remedies for breach of duty

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Published: Thursday, 07 January 2016 Written by Nicholas Siddall No Comments

Whether a person is “fit and proper” to own and run a football club is a frequently debated question today. The press often reports on unsavoury behaviour and recent legal articles have explored the adequacy of the various owners’ and directors’ tests and how they might be improved.1

This article supplements the debate by examining the additional fiduciary duties owed in law and equity by directors of incorporated football clubs, and the associated rights and remedies available to clubs should such duties be breached.

 

What is a Fiduciary?

To begin, one needs to understand the curious question of what a fiduciary actually is? The answer to that conundrum is not settled but the English model, based upon equitable principles, is perhaps best explained by the words of Millet LJ (as he then was) in Mothew:2

A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.

In relation to football, most professional clubs today are incorporated (either on a Limited or PLC basis) because of the advantages it provides as regards ability to raise capital,3 preferential tax options and the limitation of liability.  

Incorporation also involves recognition that the company is a separate legal entity from the owner(s) (shareholders), with its own rights and assets. However, club owners today (i.e. principal shareholders) are normally also directors of the company, and company directors have long been recognised as fiduciaries who owe such duties to the club.4

 

What are Fiduciary Duties?

Once an owner/director is shown to be in a fiduciary relationship with the club what does that mean? What are the consequences of that status? What are the special duties that fiduciaries owe compared to, for example, employees? Millet LJ in Mothew stated:

"The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.5

Those classic fiduciary duties are traditionally summarised as:

  1. The “no profit” rule;
  2. The “no conflict” rule; and
  3. The “undivided loyalty” rule.

 

Fiduciary Duties under the Companies Act 2006

Company Directors have long been recognised as fiduciaries and this has led to the statutory codification of a director’s duties in ss170-7 Companies Act 2006 (“CA”).6 It is not possible to contract out of these duties (s232 CA) as they are imposed as a matter of law.

The key duties for the purposes of this article (which replicate the traditional rules set out above) are:

  • S171:duty to act within powers;
  • S172:duty to promote the success of the company;
  • S175duty to avoid conflicts of interest;
  • S176duty not to accept benefits from third parties; and
  • S177duty to declare an interest in a proposed transaction.

The essence of the duties is that the powers of the company are to be exercised by the director in good faith and for the benefit of the company as a whole.

Thus the hypothetical wrongdoing owner would act in breach of those duties if they allowed their own interest to conflict with the duty to the company or if they were to derive an unauthorised benefit from their actions.

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About the Author

Nicholas Siddall

Nicholas Siddall

Nicholas is a member of Littleton’s sports law team and accepts instructions from individuals and organisations in the ordinary courts and the relevant tribunals. Nicholas is an appointed panel member for Sports Resolutions who are the leading sports appeals/arbitration service. 

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