When is an athlete’s management agreement in restraint of trade? Lessons from Hamilton Management Group v. Paul Di Resta case

Published 18 November 2014 | Authored by: Nina Goolamali QC

In this article Nina Goolamali, head of the Sports Team at 2 Temple Gardens, reviews the doctrine of restraint of trade in the context of Formula 1®racing following the Hamilton Management Group v Paul Di Resta litigation in which she was instructed by Paul Di Resta as Junior Counsel, led by Paul Downes QC (also of 2 Temple Gardens).

Summary Of The Litigation

On 7th February 2014, a claim brought by Anthony Hamilton (father of Lewis Hamilton, the 2008 Formula 1® World Champion) against Paul Di Resta for alleged wrongful termination of their Formula 1® management agreement was dismissed by consent on confidential terms. The conclusion of the case took place before judgment could be handed down, but was only arrived at after a widely publicised High Court trial before Mrs Justice Asplin; during the trial prominent figures from Formula 1® gave evidence including Robert (Bob) Fernley, Deputy Team Principal of Sahara Force India F1 (Force India) and Martin Whitmarsh, then Team Principal of McLaren Mercedes.

One of the key disputes during trial was whether the management agreement between the parties was unenforceable on the basis that it represented an undue restriction of Paul Di Resta’s trade as a Formula 1 driver.

This legal dispute led both parties to undergo a comprehensive review of the leading authorities on the doctrine of restraint of trade and to examine in particular (1) the reason for and fairness of the length of the agreement; and (2) the quality of the legal advice given to Paul Di Resta when negotiating the contractual terms of the management agreement and how this impacted on the equality of bargaining power between the parties. There were significant factual disputes underlying this aspect of the litigation as particularised below.

 

Restraint Of Trade

In Petrofina (Great Britain) Limited v Martin [1966] Ch 126 at p.180 Diplock LJ defined a contract which was in restraint of trade as follows:

"A contract in restraint of trade is one in which a party (the covenantor) agrees with any other party (the covenantee) to restrict his liberty in the future to carry on trade with other parties not parties to the contract in such manner as he chooses." 

In Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] UKHL 1 (23 February 1967), a case concerning solus agreements restricting the use of a garage forecourt in one case for four years and five months and in another for 21 years, Lord Pearce said at p.324:

The onus is on the party asserting the contract to show the reasonableness of the restraint...when free and competent parties agree and the background provides some commercial justification on both sides for their bargain, and there is no injury to the community, I think that the onus should be easily discharged. Public policy, like other unruly horses, is apt to change its stance, and public policy is the ultimate basis of the courts' reluctance to enforce restraints...There is one broad question: is it in the interests of the community that this restraint should, as between the parties, be held to be reasonable and enforceable?

In Proactive Sports Management Ltd v Rooney & Ors [2011] EWCA Civ 1444 (01 December 2011) Arden LJ approved the approach of Jonathan Parker J inPanayiotou & Ors V Sony Music Entertainment (UK) Ltd (1994) Ch 142 and the two stage process set out there: 

At the first stage, the court has to address the question of whether the doctrine of restraint of trade is engaged, ie whether the contract is one to which the doctrine of restraint of trade applies at all, and, at the second stage of the process, if the party seeking to rely on the covenant raises this as a defence, the court will have to determine whether the restraint on trade is reasonable.

The first stage will not usually be problematic and was not in this case: a contract which locks a driver into the same manager for the whole of his F1 career is obviously in restraint of trade. In relation to the second stage it was submitted that the following legal analysis was appropriate:

  1. Was the contract the result of arm’s length dealings between parties of equal bargaining power? If it was then it will not be difficult to conclude that the restraint was a reasonable one: see Lord Pearce in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] UKHL 1 (23 February 1967) above: “Therefore, when free and competent parties agree and the background provides some commercial justification on both sides for their bargain, and there is no injury to the community, I think that the onus should be easily discharged.”
  2. If, on the other hand one party had the upper hand in the negotiation and was factually able to dictate their own terms the Court must scrutinise the contract with more care to ascertain that it was a reasonable one for the parties to reach.
  3. In determining whether the agreement was arms’ length and between two parties of equal bargaining position the existence of independent legal advice and representation will be an important factor. However it is not conclusive. The situation is not to be equated with a constructive notice of undue influence type situation where a lender may conclusively be absolved from constructive notice of undue influence if the surety received independent legal advice, see Royal Bank Of Scotland v Susan Etridge (No.2) UKHL 4 (2001). It is established that the existence of independent legal advice is only a factor in cases of actual undue influence, see Pesticcio v Huet & Ors (2003)All ER (D) 237.

Critical to the analysis of restraint are three factors that will be indicative of whether the contract was a reasonable one for the complainant to have entered into: (1) The relationship between the parties and whether it was one of trust and confidence; (2) Whether the complainant had a realistic choice in the situation; and (3) the benefit or advantage to the complainant of the contract in question.

 

The Factual Background

Before Paul Di Resta became professionally involved with Anthony Hamilton he was managed by his father Louis Di Resta and had a highly successful career in motorsport. He started his career in Karting and over the period 1994 to 2002 he was British Champion on 9 occasions. He was the McLaren Autosport BRDC Young Driver of the Year in 2004 and in 2006 he won the Formula 3 championship and the BP Ultimate Masters. In 2007 he was awarded a DTM contract by Mercedes and during that year was approached by Williams Formula 1 with the offer of a reserve driver seat. He could not take this up as Mercedes did not release him. In 2008, Paul Di Resta came second in the DTM championship and at that stage his firm focus was upon attaining a Formula 1®seat and engaging a manager who was best placed to attain that goal.

Lewis Hamilton was by 2008 in his second successful year in Formula 1® under his father’s management and this factor taken together with the fact that Louis Di Resta and Anthony Hamilton had known each other from the days when their respective sons had been in Karting cemented the decision for Paul Di Resta to Register with Anthony Hamilton as his manager.

 

The First Management Agreement

Paul Di Resta entered the first and uncontroversial management agreement with Hamilton Management Group (HMG) in April 2008. It was a sole and exclusive agency agreement for a 10-year period but was subject to 3 months’ notice of termination. The aim of this agreement was underlined in an e-mail sent by Anthony Hamilton on 10th March 2008 in the following terms to Peter Goodman, the lawyer then acting for Paul Di Resta to negotiate terms of the management agreement:

There is no automatic end of the agreement in 2008 but an option to terminate at any stage with 3 months notice. If I am unsuccessful in securing a drive for Paul in F1, then termination is simple and can be immediate, if necessary…

HMG failed to secure a Formula 1 drive for Paul Di Resta in 2008.

 

The Position In 2009

At trial, Louis Di Resta asserted that at the Hockenheim DTM meeting on 17th May 2009, Anthony Hamilton said to him words to the effect that his son was not good enough, had not proved himself and accordingly there were no opportunities for him in F1. Anthony Hamilton denied this but Paul Di Resta gave evidence that these statements were contemporaneously relayed to him by his father and this led to a breakdown in the management relationship.

In November 2009, Paul Di Resta was invited to test drive for Force India. He was the fastest driver and accordingly on 17th November 2009, Bob Fernley of Force India offered him a Reserve/Test Driver contract. He asked if he had a manager at the time and Paul Di Resta’s evidence at trial was that he told him he did not.

Paul Di Resta told the Court that on 19th November 2009 Anthony Hamilton telephoned him and said words to the effect of “if you do not work with me you will not get this drive.” This was also disputed by Anthony Hamilton. On the same day, Bob Fernley sent an e-mail to Anthony Hamilton copying Paul Di Resta in proposing that HMG re-engage with Paul Di Resta as his manager. Paul di Resta asserted at trial that the telephone call from Anthony Hamilton and the e-mail from Bob Fernley constituted sufficient pressure to persuade him to enter a new agreement with HMG, given that a Formula 1® seat was at stake. Anthony Hamilton denied that he exerted any pressure on Paul di Resta and asserted that in 2009, he worked on the basis that the first 2008 management agreement simply continued. This factual dispute was not resolved but it was agreed that a form of management continued for 2009 and 2010.

 

Proposed Terms Of The Second Agreement

In September 2010, Force India wrote to Paul Di Resta indicating their intention to exercise the option to retain his services for a full race seat in 2011.

At 12.21 on 10th October 2010 Anthony Hamilton sent an e-mail to Paul Di Resta copying in his lawyer and stating inter alia as follows: 

please see attached a new Driver/Manager Contract which requires agreement and signature prior to agreement and signature of your anticipated and expected Formula 1 driver contract… (underlining added for emphasis)

The terms proposed by HMG included a standard clause that it should be an exclusive management agreement and that the initial term should end on 31st December 2013. However the dispute arose over the time periods proposed in clauses 5.2 and 6.8.

Clause 5.2 provided that HMG should have the option to extend at the end of the initial term if Paul Di Resta had a Formula 1 race contract and the period of extension should be the term of that Formula 1 race contract. There were further options to extend on the same basis to the end of the 2021 Formula 1® season.

Clause 6.8 provided that in relation to sponsorship, appearance or performance fees or merchandise sales, HMG was entitled to commission payable during the term and 5 years thereafter.

 

Contractual Negotiations: 10th October 2010

These 2 clauses were unsurprisingly the subject of intense negotiation between Anthony Hamilton and Paul Di Resta's lawyer. At 15.24 on 10th October 2010, his lawyer e-mailed Anthony Hamilton in amongst other things the following terms:

…Clause 5 – 10 years is way too much, far beyond the norm. I suggest we agree 3 years and you have an option of a further 2 years if Paul has a confirmed F1 drive for those two additional years…clause 6.8 – 5 years is too long and there should be reduced commission…

This prompted an e-mail reply from Anthony Hamilton at 18.32 stating inter alia as follows:

 ...Please don't upset me at this stage of the game. This is not a new negotiation. I have given my commitment to Paul and his father and pulled every favour, string, or whatever that's available to me to get Paul to this point…

What then followed was a telephone call from Anthony Hamilton to Louis Di Resta at 18.46. Louis Di Resta’s evidence at trial, all of which was disputed, was that during this call Anthony Hamilton stated words to the effect that if you don’t give me the 10 year contract, you don’t get the drive but then agreed Paul Di Resta could walk away if things did not work out.

Anthony Hamilton then sent a text to Paul Di Resta at 19.32:

Paul, I had a chat to your dad. Please don’t stress about the contract. I want to do the best for you and the best only. Contracts can be a pain in the ass as can lawyers, but I’ve know (sic) you guys too long to let anything get in the way of the goal for you. Don’t worry about the 10 yrs thing, we’ll sort it to the length of the contracts with options to renew… (underlining added for emphasis)

He then followed this up with an e-mail to Paul Di Resta's lawyer at 22.55:

You are correct 10 years is too long, but this is my mistake as this not what I really wanted to say, or convey…I would like the length of our agreements to cover the length of the F1 or other contracts that I manage to negotiate or secure for Paul. Basically, if I negotiate a 3 year Force India deal, then the length of the term is 3 years…

At trial, privilege in relation to an Attendance note of Paul Di Resta's lawyer made on 19th October 2010 was waived and put before the Court. The part relevant to restraint of trade stated as follows:

12.30-1.00. Calls from Paul + Louis. They understand the possible problems with the length of the contract but feel there is no choice but to accept it.

Paul Di Resta signed the second agreement on 26th December 2010 with clauses 5.2 and 6.8 included in the terms which Anthony Hamilton had originally proposed.

 

Termination Of Agreement

Paul Di Resta terminated the second agreement on 4th May 2012. By letter dated 21st May 2012, HMG accepted this letter as repudiation of the contract. 

 

Restraint Of Trade Arguments Advanced At Trial

At trial, the following issues relevant to whether the Second Agreement was in restraint of trade were the subject of argument:

Was the Second Agreement of excessive length?

It was argued on behalf of Anthony Hamilton that the length of the Second Agreement was not excessive as managing a fledgling F1 racer involves a long lead in when no or minimal money is earned by the manager. If the driver was ultimately successful, then there are potential rewards and there is nothing unfair in the manager sharing in those rewards. However, it is likely to involve years of not earning money before the "investment" in the driver pays off.

In response, it was argued on behalf of Paul Di Resta that the Second Agreement would have tied Paul Di Resta to Anthony Hamilton as his manager for the entirety of his Formula 1® career. Furthermore, Anthony Hamilton did not at trial advance any expert evidence to support the proposition that an agreement of potentially 10 years’ duration with a 5 year overhang was standard or commercially justifiable in Formula 1®. Indeed, it was argued that the evidence adduced on Paul Di Resta’s behalf favoured the contrary finding and that the proposed length of the agreement was akin to “sterilisation” of his trade (per Lord Pearce in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] UKHL 1 (23 February 1967).

 

Was the First Agreement already a fair reflection of risk and investment?

On behalf of Paul Di Resta, it was contended that the First Agreement of 2008, which Anthony Hamilton had been resurrected in 2009, was already sufficiently generous to Anthony Hamilton and met the legitimate commercial risks and investment that a manager in this position had to make.

In this regard, weight was placed upon the decision in Proactive Sports Management Ltd v Rooney & Ors [2011] EWCA Civ 1444 (01 December 2011) in which one of the findings at first instance was that the agreed period of 8 years for the Image Rights Representation Agreement (IRRA) between Wayne Rooney and his Agent was unique in football and driven by the fact that he was hot property rather than having any commercial justification. Lady Justice Arden giving the leading judgment on appeal supported this finding (@ 817j – 818a):

…The term of the IRRA had been longer than the norm and its length has to be contrasted with the likely length of a normal career in professional football. The judge found that Proactive wished to have a long contract because of the stellar potential of Wayne Rooney. That desire had constituted a wish to restrict him from going elsewhere, not a desire to justifiably to protect some legitimate interest of its own to create stability and facilitate continuity and better planning.

It was argued on Paul Di Resta’s behalf that the following exchange during the cross examination of Anthony Hamilton confirmed the absence of commercial justification of the Second Agreement:

Question: what were you obliged to do under this [second] agreement that you are not already obliged to do?

Answer: Exactly the same terms...

In response, it was argued on Anthony Hamilton's behalf that unlike other long term management agreements, so long as he managed Paul Di Resta there was no realistic possibility of managing anyone comparable and so was rather different from the sporting manager who has a stable of players under his management as in Proactive Sports Management Ltd v Rooney & Ors [2011] EWCA Civ 1444 (01 December 2011). He also prayed in aid the fact that Paul Di Resta had been advised by a lawyer before entering the terms of the Second Agreement and that his lawyer had in fact provided the template for the agreement. Furthermore, the justifications he gave for the length of the Second Agreement (see above) also justified the terms of the same. 

 

Threat to disrupt the Force India Offer

It was alleged that Anthony Hamilton had threatened to disrupt the Force India offer and effectively held a gun to the heads of Paul Di Resta and his father. Although this was denied by Anthony Hamilton (and ultimately no finding of fact was made in respect to this); if this was correct, it was contended that this was a serious breach of the first 2008 agreement and the principle that a person should not be entitled to benefit from their own wrong should be invoked.

 

Assurances that the parties could walk away

It was alleged that Anthony Hamilton gave assurances that the parties could walk away. These assurances were intended to induce a signature on the agreement and allay any fears which Paul Di Resta had. The importance which Paul Di Resta attached to this ability to walk away was made clear on day 6 of the trial during his cross examination:

To be locked into somebody for their entire F1 career, that is not the way you should run your life. I don’t get ten-year contracts when I sign my drive so why in my right mind would I give somebody else a ten-year term and not have a get-out clause?

Anthony Hamilton's evidence however was that he made clear that prior to Paul Di Resta getting a F1 drive he would be happy for him to walk away but once he had an F1 drive, he would expect his own position to be protected with a longer term contract duration and that this was the subject of negotiations between himself and Paul Di Resta's lawyer.

 

Legal Advice received by Paul Di Resta

It was argued on behalf of Paul Di Resta that the independent legal advice which he had received was inadequate. The existence of independent legal advice should not therefore provide an unanswerable response to the allegation that the Second Agreement was entirely one sided. In this regard, again analogies were drawn with the position of Wayne Rooney in his litigation with Proactive. Wayne Rooney had been 17 years old at the time of negotiating his agreement with Proactive, had not received legal advice and had been found by Judge Hegarty QC at first instance to be wholly unsophisticated in legal and commercial matters.Paul Di Resta was a novice Formula 1 driver in his early twenties, entirely reliant upon legal advice in matters of contractual negotiation and the advice he received did not give him the necessary protection.

No finding was made in respect of the quality of the legal advice received but it was argued by Anthony Hamilton that there was no inequality of bargaining power as Paul Di Resta had received and relied upon legal advice when he entered the Second Agreement (whereas Anthony Hamilton acted for himself), the template agreement was provided by Paul Di Resta's lawyer and the Second Agreement was fully negotiated and important changes made in the course of negotiations.

 

Points Arising From The Paul Di Resta Litigation

Whilst the claim was dismissed by consent before judgment could be handed down, this litigation had the following features that are important for Advisers for professional sportspersons to consider in the context of contractual negotiation of sports contracts:

  1. If there is a pre existing agreement between the parties and a second agreement is concluded between them with more onerous terms, it is incumbent upon the party relying upon the second agreement to demonstrate that the terms of the same reflect a genuine commercial risk;
  2. To demonstrate a genuine commercial risk, it remains important for a party (a) to adduce evidence on the reasonableness of the terms of the agreement from those with knowledge of the industry, in this case, Formula 1 (this was an important factor in the Rooney decision); and (b) to be able to identify those additional economic/ reputational risks being taken or management services being provided to justify the terms in particular the duration of the agreement;
  3. This litigation had the unique feature (not seen in other leading reported cases on restraint of trade) of one contracting party receiving legal advice but the advice arguably being inadequate. This opens up the argument that the party in receipt of the legal advice was not suitably protected in negotiations and not of equal bargaining power;
  4. The litigation raises very difficult issues of when privilege should be waived to demonstrate inadequacy of legal advice to the Court and what the implications of waiver are upon that party’s disclosure obligations.

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About the Author

Nina Goolamali

Nina Goolamali QC

SILK: 2017 CALL: 1995

Described as “one of the most knowledgeable and personable barristers around”, who is “supremely intelligent” and “just keeps getting better”, Nina has a very well established practice in Sports Law. She took silk in 2017 and is ranked as a Tier 1 Barrister in Sport in the Legal 500 2017.

Nina is highly regarded as a skilled, commercially astute and sensitive advocate and negotiator in complex multi-million pound cases arising in sports disputes.

Nina leads the 2TG Sports Team and has been described in Chambers & Partners as a “sports expert”. She is praised in the Legal 500 for having “unwavering tenacity and determination to get the right result for the client” and “an impressive level of technical knowledge.”

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