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Legal comment: Derby County rush to blame – but will it be an own goal?

Derby County

April 12 – The Beautiful Game. A matter more serious than life or death, if you believe Mr Shankley. However, far from complementing the beauty of the game, off-field misdemeanours within the business of football are increasingly stealing the headlines. This time the scandal hitting the headlines concerns Derby County FC and Sam Rush, its former President and CEO.  The Rams dismissed Mr Rush for gross misconduct and breach of fiduciary duty in May 2017. It is fair to say that neither party decided to leave matters there.

Derby County’s parent company, Sevco 5112 Limited, issued proceedings against Mr Rush in the High Court on 22 December 2017 seeking damages of nearly £7 million and an indemnity from Mr Rush in respect of “significant contingent liabilities that will crystallise in the future”. Presumably, this is a reference to ongoing contracts negotiated by Mr Rush during his time at the midlands club.

Sevco alleges that Mr Rush was involved in unlawfully signing off contracts on Derby’s behalf. Specifically, it is contended that the former Pride Park boss permitted:

  1. scouting and consultancy agreements which were not authorised by the Board of Directors the substance of which are currently under regulatory review;
  2. transfer fees in respect of players that were above the figure agreed by the Board of Directors;
  3. wages in excess of what was agreed with and/or notified to the Board of Directors; and
  4. the payment of excessive fees to agents which were also unauthorised by the Board of Directors

The allegations of Sevco against Mr Rush largely hinge upon the latter’s dealings with Wasserman Media Group (WMG), one of the country’s leading sports agencies, where he left the post of Head of European Operations to join Derby in January 2013.

WMG has a history of complaints regarding their dealings with Derby. The link between club and agency is nowhere more obvious than Derby’s Academy Director, David Wassall. Mr Wassall’s son, Aytron, was working both as a coach in the Derby’s youth program and for WMG, primarily in a scouting role. When concerns were raised about this potential conflict of interest, a WMG spokesman said that, while Aytron worked with agents at the firm, he was not a licensed intermediary.

Additionally, in the course of 2015-16, Derby signed five players who were WMG clients: Darren Bent, Jacob Butterfield, Jason Shackell, Bradley Johnson and Nick Blackman. Derby’s manager during some of this time was Paul Clement, also a client of WMG. Other transfers with which Derby now has concerns are reportedly those of Swedish left-back Marcus Olsson and Guinean international Abdoul Camara. The latter became a WMG player shortly after signing in January 2016 and the agency allegedly received a six-figure sum after acting for the Club in the deal for Olsson. That being said, there is no suggestion of any wrongdoing by WMG, Clement or any of the parties mentioned. Derby’s claim is exclusively against Mr Rush.

The mud-slinging goes in both directions. Mr Rush has vehemently denied the claims against him in the press and has counterclaimed. Indeed, he looks to have drawn first blood, succeeding in a claim before the Employment Tribunal for wrongful dismissal. Employment Judge Clark concluded that Derby’s argument regarding a fair dismissal had “no reasonable prospects of success”. Indeed, Judge Clark went so far as to claim that there was “no credible explanation for why the Club acted in the way they did”. It remains to be seen whether the Rams will appeal the findings, but, on their face, they must cast doubt on the strength of Derby’s claims. Mr Rush has established that Derby wrongfully dismissed him, presumably for failing to give him lawful notice of the termination of his employment. If Derby were not entitled summarily to dismiss Mr Rush, what does it say about the club’s assertions that he was guilty of gross misconduct? Nothing good, one suspects.

In defence to the claims against him, Mr Rush is pursuing counterclaims against Sevco for circa £2 million for breach of contract and for damages to his shareholding of the club, which his representatives have indicated is worth around £5m. In seeking to rubbish Derby’s position to the press, Mr Rush asserts that the club’s solicitors had previously subjected many of the supposedly unauthorised payments to intense due diligence without complaint and also that the club’s independent auditors had audited them, again with no concerns being expressed at any stage. Moreover, Mr Rush denies having had the power to sign off payments at the Club.

Were Mr Rush to succeed in his counterclaim, it would probably have severe financial implications for the Rams, whose accounts showed a loss of £7.8 million last year: small change for the Manchester clubs, but a large number for a Championship Club with a £30 million turnover. Promotion to the Premier League and its accompanying sponsorship, advertising and TV rights would undoubtedly eclipse these financial concerns but, with the Rams currently sitting 5th in the Championship, it would be unwise for the Club to rely on this.

While examples of football clubs suing their c-suite executives are rarer, there are sufficient, similar precedents for this particular case to seem relatively humdrum for the world of football transfers. It is unlikely either that George Graham was first or the last football manager to take a bung whilst at Arsenal in the early 1990s.

History will show whether Derby are a club leading the charge to bring transparency to the world of football transfers or simply trying to find a scapegoat on which to pin the blame for failures of corporate governance. However, the recent rise in litigation regarding football transfers suggests that the opacity with which football clubs conduct their financial dealings, which has lent itself to foul play previously, may become rarer. The costs, both financial and reputational, is not something that those in football can bear.

Ben Pilbrow, Senior Associate in the Commercial Disputes & Regulation Team at Shepherd and Wedderburn LLP, with additional reporting from Michael Hargrove