The enforceability of "MoUs" - How the ICC panel decided Pakistan and India's bilateral tour dispute

Published 05 December 2018 | Authored by: Rustam Sethna, Harekrishna Ashar

On 20 November 2018, the Dispute Resolution Committee constituted by the International Cricket Council (ICC DRC) issued its Award1 in a protracted legal battle between two of international cricket’s most fierce rivals – Pakistan and India; litigated by their respective national boards, the Pakistan Cricket Board (PCB) and the Board of Control for Cricket in India (BCCI).

In essence, the dispute related to a claim for breach of contract and substantial damages brought by the PCB against the BCCI arising out of an alleged agreement between the BCCI and PCB to play seven bilateral series between them over the period 2014-2023. The alleged agreement arose further to certain resolutions tabled at the ICC Executive Board Meeting on 8 February 2014 relating to a new financial model and governance structure for the ICC (February Resolutions). This culminated in the parties signing a letter dated 9 April 2014 (April Letter), which forms the fulcrum on which the issue in the present dispute rests. A more detailed background to the dispute may be accessed through this LawInSport article2.

The issue was referred to a three-member panel comprising The Hon. Michael Beloff QC (Chairman), Dr. Annabelle Bennet AO SC and Mr. Jan Paulsson (hereinafter, the Panel). Much of the analysis in the Award was centred around the Panel’s assessment of whether the April Letter had the effect of a binding contract, and whether India (with BCCI the contracting party) had breached a legally binding contract to tour Pakistan (PCB being the counterparty) in respect of two proposed tours in 2014 and 2015, respectively.

This article examines:

  1. the Panel’s approach in arriving at its decision;

  1. the salient legal principles considered; and

  1. how those principles were applied to the facts of the case in light of the evidence presented to the Panel.

Approach of the Panel

In exercise of its powers under Article 9.10 of the Terms of Reference of the ICC Disputes Resolution Committee, the Panel determined the dispute to be governed in accordance with English law, being the governing law set out in the April Letter3.

In proceeding with its analysis, the Panel identified five core issues that arose out of the pleadings4 of which, (i) the “Legal Status and Breach Issue”; and (ii) the “FTP Issue”; and (iii) the “Government Approval Issue” were fundamental to the Panel’s eventual determination. As such, these issues will be focused on, for the purposes of this article.

  1. The Panel’s analysis of the Legal Status and Breach Issue involved determining whether the April Letter constituted a legal binding agreement between the parties, and that if in the affirmative, whether the BCCI was in breach thereof.

  2. Moreover, in light of the February Resolutions which sought to streamline the process by which future bilateral series between member states of the ICC were scheduled, the FTP Issue required the Panel to determine whether the April Letter, if contractual, was subject to a condition subsequent, namely that the parties execute a long form FTP Agreement. The FTP Agreement essentially refers to a mutually agreed and binding agreement to be executed between Full Members5 in relation to bilateral tours, subject to (1) force majeure events; (2) no material breach by the other party; and (3) an agreement being reached by the parties on any changes to the applicable ICC playing conditions made after the date of the FTP Agreement.6

  3. The Government Approval Issue centred around whether the inability of the BCCI to obtain prior approval of the Indian Government to play against Pakistan would be a force majeure event and could be read in to the April Letter, were it accepted as a binding agreement. However, as will be seen below, the Government Approval Issue proved to be less significant in the Panel’s final determination.

The BCCI argues that the April Letter represented only the first step of a three-step process (and one which was not in itself legally binding).

The PCB, on the other hand, argues that the April Letter was sufficient to legally bind the parties. Thus, it argued that any subsequent FTP Agreement (i.e., the alleged third-step, as detailed below) was “a routine matter”, and no more than a mere "formality", as required by the February Resolutions7.

The three-step process as sought to be established by the February Resolutions necessarily involved:

Step 1: Members proposing periods when they might undertake a tour series against each other;

Step 2: Multilateral discussions between Members through an ICC-facilitated process to arrive at an agreed FTP Schedule for all Members for the period 2015-2023; and

Step 3: Members entering into bilateral FTP Agreements in accordance with the FTP Schedule agreed upon in Step 2 above, based on the agreements reached in Steps 1 and 28.

In the Award, the Panel expressed that the FTP Agreements (Step 3) could not be finalized and committed to by Members unless and until a Master FTP Schedule had been agreed to (Step 2)9, before which any Member could change its position in respect of dates agreed earlier discussions.

Legal principles applied by the Panel: How to determine the enforceability of a letter

With the April Letter in place, the Panel focused its analysis on enforceability by recounting salient principles of English contract law, which, for the purposes of this article have been categorised as follows:

  1. Objective interpretation: At the outset, the Panel determined that an objective view of the April Letter (i.e., the alleged contract in question) was paramount. Therefore, to be considered was “what a reasonable person with the background knowledge available to the parties would have understood it to mean” (emphasis added).10 Thus, objectivity, it was noted, was required not only to interpret the terms of the contract, but also the facts of the case.

To this end, the panel highlighted the “golden rule” of objective enquiry, as laid out in a previous case, BCCI v Ali11 which states that “the words of a contract should be interpreted in their grammatical and ordinary sense in context, except to the extent that some modification is necessary in order to avoid absurdity, inconsistency or repugnancy”. In other words, a contract must be read “as is”, unless of course, such reading would give rise to an unreasonable or incompatible view.

  1. Interpreting ambiguous terms: The Panel invoked the principle of “contra proferentem” according to which, a document, if ambiguous, ought to be interpreted against the party which tenders it (in this case, the PCB). Additionally, according to English Common Law, a commercial contract, if ambiguous, is required to be construed based on “business common sense”. How the Panel applied this principle will be touched upon in the following section.

  2. Conduct as an aid to interpretation: The Panel observes that on one hand, once a contract is signed, any subsequent (presumably contrarian) conduct of the parties cannot be used as an aid to interpret the contract. With that being said, if both parties perform their respective parts of the contract, it would be “difficult to submit that the contract is void for vagueness or uncertainty”.12

  3. Contractual intention: Next in contention was the more subjective element of intent, or the English law principle of “intention to create legal relations”. It was noted that generally speaking, an agreement to negotiate is not enforceable. However, when it is unclear as to when negotiations between parties have concluded, the courts would “look at the entire course of negotiations to decide whether an apparently unqualified acceptance did in fact conclude the agreement”.13 This, of course, would be a factual assessment.

Additionally, the setting in which the parties enter into an agreement is important. For example, an agreement which is concluded in a “commercial setting”, which for all practical purposes satisfies the conditions of contract formation, gives rise to the presumption that the parties intended to create legal relations. Thus, the onus of proving that there was no intent would be on the party who asserts no legal effect of the document. This onus was described as “a heavy one”.

It follows that to establish enforceability, the following two considerations are key:

  1. How important is the agreement to the parties? and

  2. Did any party act in reliance on the agreement?

However, neither feature compels the establishment of intent, with the Panel at pains to stress the importance of a case by case, factual assessment.

Application to facts and key takeaways

Legal Status and Breach Issue and FTP Issue

Notwithstanding the principles enumerated above, the Panel noted that “the question of contractual intention is in the last resort a question of fact […]14. Thus, the Panel’s next task was to make a factual assessment to determine whether the April Letter amounted to a binding contract at all.15

At the outset, the Panel conceded that the April Letter “bore all emblems of a contract16. This was evidenced by (for example)17:

  1. Use of words like “agreed”; that teams “will” play each other with the word "will" recurring throughout the text of the letter;

  2. A “best efforts” obligation in respect of a tour in 2014, which was used to assert the unqualified, binding obligations in respect of later tours;

  3. Reference to criteria for sale of media rights;

  4. Parties having considered certain circumstances which would render the letter to have no effect, implying that otherwise it would be of effect;

  5. Having no affinity towards being a mere "MOU" or letter of intent;

  6. Previous drafts which had undergone significant changes; and

  7. Having been signed by senior officials representing both camps.

However, the Panel stopped short of holding the April Letter as a legally binding document, laying heavy emphasis and relying on what it termed as "countervailing factors" it must take into account to determine whether the April Letter intended to create legal relations between the parties.18 These factors trail back to:

  1. The Panel’s determination of the intent and effect of the February Resolutions. Thus, for Members to enter into legally binding FTP Agreements, it was necessary for Members to negotiate inter se their desired tour programmes and inform the ICC. This according to the Panel was a key objective of the February Resolutions.

  2. Moreover, Appendix C of the February Resolutions (which was binding on both parties, and all Members) unambiguously envisaged that only a signed FTP Agreement would be legally binding upon the signatories. Thus, the April Letter, which was not in the form prescribed for an FTP Agreement could not be binding upon the parties.

  3. The fact that the April Letter fit neatly as "step 1" of the three-step process for finalizing future bilateral tours between Member States. Thus, being a necessary precursor to the second and third steps, the April Letter could not itself be binding.

  4. No FTP Agreement could be finalised and committed to by Members until and unless a Master FTP Schedule had been agreed. Thus, Members could "change their positions" on bilateral arrangements (for e.g., as documented in a letter such as the April Letter) prior to a Master FTP Schedule being formalized – being step 2 of the three-step process.

  5. Relying upon evidence presented by a PCB board member to the Panel, the Award recalls that as on the date of the April Letter, the PCB’s own schedule accounted for no less than six clashes with the dates for which a bilateral series could have been scheduled with the BCCI. Thus, as on the date of the April Letter, it was unrealistic for the PCB to have assumed that each of the six clashes with other Member boards could be resolved to accommodate an India tour. Such predicament of the PCB adds further clout to the notion that the April Letter was merely an arrangement between the boards, and not in the nature of a legally binding contract.

  6. Relying upon a liberal construction of contracts,19 the Panel observed that the April Letter did not form a legally, binding contract between the parties. However, as stipulated for in the April Letter, the execution of an FTP Agreement (being in the form prescribed in Appendix C of the February Resolutions, and containing a force majeure clause, among other elements) was deemed crucial to the formation of a legally binding contract and could not be passed off as a mere formalisation of an agreement already reached.

  7. The Panel’s determination was further buttressed by a subsequent letter dated 26 June 2014 by the PCB to the BCCI containing a draft long-form FTP Agreement which included a force majeure provision stating that formal written rejection of government approval could justify non-compliance with an otherwise agreed tour.20 However, no FTP Agreement was signed between the PCB and BCCI, despite continuing dialogue between the Boards.

  8. The Panel was also persuaded by the evidence of BCCI witnesses, and it considered inconceivable that the BCCI would have ever agreed to a contract without a force majeure clause referring to the absence of government approval, stating that if such clause was not among the terms of the letter the arrangement could not be the final one between the parties.

Government Approval

Once it was determined by the Panel that the April Letter did not constitute a legal, binding agreement between the parties, the issue regarding government approval was rendered moot. However, in light of a recent dispute between the parties before the ICC Technical Committee in 2017 on India’s failure to play Pakistan in Round 6 of the ICC Women’s Championship of 2014-2016, the Panel noted that the evidence before it in the present case was far more extensive than in the previous instance.

Governed by Article 9.5 of the ICC DRC Terms of Reference, strict rules of evidence in judicial or other proceedings do not apply to proceedings before the Panel, and the Panel was entitled to consider any evidence submitted or provided and give such weight to it as it reasonably thinks fit.

Thus, as a quasi-judicial dispute resolution body, the Panel was equipped and aided by an array of substantive evidence in making its determination. As conceded in the Award, the Panel admitted to being ultimately persuaded by the evidence of BCCI witnesses Professor Shetty and Mr Khurshid, former Foreign Minister of India on the “oral tradition” of Government Approval being sought before any bilateral series between India and Pakistan.21

Ruling

The Panel acknowledges that the given the fact sensitive nature of the dispute, the application of the relevant legal principles to the facts was fundamental to determining whether the April Letter amounted to a binding letter at all.22 Applying the legal principles set out above to the facts of the present case, the Panel concluded that if scrutinized through the lens of a microscope, the April Letter could be read as a contractually binding document between the parties. However, deploying a telescope to view things in a broader perspective, and in light of the circumstances out of which the letter arose (i.e., the February Resolutions), the April Letter could be viewed as no more than a declaration of intent creating a “moral obligation” but not a legal one.

By adopting a broad, telescopic view to the facts in the present case, the Panel’s determination qua the nature of the April Letter effectively dismissed the claims of the PCB relating to a breach by the BCCI. As the Panel had bifurcated issues of liability and quantum at the forefront of the proceedings, such determination by the Panel on liability effectively deemed PCB’s claims for damages illusory. Notably, the Panel’s detailed consideration to and analysis of the arguments submitted by each party to the dispute23 is telling of the fine margins along which this legal battle was contested. Indeed, with certain BCCI arguments rejected and deemed “difficult to sustain” the result could have gone either way. Eventually, by deploying a holistic approach and the “telescope-microscope” analogy, the Panel justified its application of English contract law to the facts of the case, ruling in favour of the BCCI.

Conclusion

While the Award presents an astute legal analysis of principles of English contract law and enforceability, noteworthy is the Panel’s observation that in reality the issue at hand is one that goes far beyond the enforceability of any letter of intent, MOU, or other document of similar form and substance, by whatever name called. Indeed, the Award “does no more than to establish legal rights and obligations in the case before it in light of the law, the rules governing the administration of the sport and the specific evidence adduced by parties”.24

Disputes between Members in relation to bilateral tour agreements are infrequent, but when arise, typically revolve around political and / or security reasons.25 Given the generally frosty political relations between the two nations, the Award provides significant and relevant insight to the application and interpretation of principles of English law to arrangements between ICC Members. Whilst the Award acknowledges that as a common practice, Members have been arranging (and successfully completing) bilateral tours without executing an FTP Agreement, this practice could soon change. The Award goes on to provide sound guidance as to the intent of the February Resolutions and establishes that a long-form FTP Agreement is critical to forming a legal, binding contract between Members.

If the conduct of the parties to the dispute could warrant a special mention from the Panel, it is hoped that the BCCI and PCB could garner this positive momentum back to the negotiating table and restore bilateral relations between “two proud cricketing nations26 beyond participation at ICC Events.27

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About the Author

Rustam Sethna

Rustam Sethna

Rustam is an Indian qualified lawyer currently working at sports law firm Coccia De Angelis Vecchio & Associati, Rome. He has recently completed a Master’s degree in International Sports Law from Instituo Superior de Derecho y Economía (ISDE), Madrid (2018 edition) and has previously gained 3 PQE as an Associate with AZB & Partners, one of India’s leading full-service law firms.

Harekrishna Ashar

Harekrishna Ashar

Harekrishna is a Master of Laws candidate at the University of Cambridge. He is qualified as an Advocate & Solicitor in India and holds a Master of Laws degree from Columbia Law School. He has previously clerked at the Delaware Court of Chancery and has gained 3 PQE as a commercial lawyer in Mumbai, India.

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