Circumstances of deal hold key to McIlroy legal fight
20 October 2013
This article, written by Partner Niall Collins, first appeared in the Sunday Independent on 20th October 2013. © Copyright Sunday Independent 2013. All rights reserved. To view this article as it originally appeared, please download the pdf document to the right.
Golf has a habit of throwing up some rather interesting legal spats. Back in 1930, an amateur golfer by the name of Cyril Tolley succeeded in a claim for defamation when he was depicted in a national newspaper advertisement with a packet of Fry's chocolate sticking out of his trouser pocket. The defamatory meaning of the advertisement was said to be that Tolley had used his reputation as an amateur golfer for advertising purposes.
Earlier this year, Vijay Singh filed a lawsuit against the PGA Tour claiming damages for its handling of and reaction to the deer antler spray controversy. Singh's lawsuit alleges the Tour exposed Singh to public humiliation and breached its duty to him by utilising a flawed investigation and imposing unfair discipline.
That particular litigation train doesn't look like reaching a station any time soon.
Closer to home, last Monday Rory McIlroy's legal team applied to have the case against his former management company, Horizon Sports Management, heard in the Commercial Court in Dublin. Depending on which report one reads, the grounds of McIlroy's claim appear based on, amongst other things, breach of contract and also that the agreements with Horizon are in restraint of trade and are 'unconscionable'.
Central to the dispute is the agreed level of Horizon's commission, which is understood to be five per cent of McIlroy's pre-tax on-course earnings and 20 per cent of his off-course earnings. Further, there is the question of whether Horizon should be entitled to commission on a Nike contract in circumstances where Horizon is no longer McIlroy's agent. With the Nike contract alone reputed to be worth in the region of (EURO)20m per year, we are talking chunky commissions here.
Horizon intends to counter-claim against McIlroy for damage done to its reputation and for loss of earnings through McIlroy's termination of the agreements. This is all set against the background of the ongoing Oakley lawsuit in the US and relating to the circumstances in which McIlroy's contract with Nike was concluded. Contrary to some reports, it would not be unusual for a sports agent to be remunerated to the tune of 20 per cent commission. What is important in this case are the surrounding circumstances in which the bargain between Horizon and McIlroy was struck. It has been reported that the original (December 2011) agreement with Horizon was entered into 'in circumstances of great informality' with McIlroy not obtaining any independent legal advice. This is key.
Although the courts are typically reluctant to interfere with parties' freedom of contract, when the bargain card is played, the courts have demonstrated a willingness to grant relief in certain circumstances. Firstly, it must be established that the bargain is oppressive to the complainant in overall terms. Secondly, that the complainant was suffering from a 'bargaining weakness' (the lack of independent legal advice being particularly relevant here). Thirdly, that the other party has knowingly taken advantage of the complainant. The case is due to be listed for trial in October 2014 to fit in with McIlroy's extensive travel schedule.
However, given the high settlement rate of cases in the Commercial Court, I think it unlikely that we will see a trial amidst the full glare of publicity. That said, there will undoubtedly be a plethora of legal skirmishes in the meantime. For example, extensive discovery of documents will be sought by both parties and there will undoubtedly be conflicting views about what each party is entitled to see.
It has been reported that McIlroy recently spent some time with Wayne Rooney following a Nike photoshoot. I wonder whether Rooney discussed his own successful case against his former management company, Proactive Sports Management.
In 2003, Rooney's company entered into an Image Rights Representation Agreement with Proactive. Rooney was 17 at the time, the contract had an eight year term and, although his family was actively involved, he did not obtain independent legal advice. Proactive was appointed as the sole and exclusive representative of Rooney's company and was entitled to 20 per cent of the sums payable to the company from the commercial exploitation of Rooney's image rights.
The case eventually found its way to the Court of Appeal which decided that the agreement was unenforcable as it was an unreasonable restraint of trade. This was, broadly, because it imposed extensive restraints on Rooney's freedom to exploit his earning capacity over a very long period of time and on terms that were not the product of a negotiation between 'equals'.
The Court opined that Rooney and his family had no commercial experience, were utterly unsophisunconscionable ticated in financial and contractual matters and that there was a very substantial imbalance in bargaining power between the parties. The inference being that, supported by independent legal advice, Proactive might, amongst other things, have conceded a reduction in the 20 per cent commission rate and/or the eight-year term.
Interestingly, although the agreement was ultimately found to be unenforcable, the Court opined that there can be a right to the payment of commission posttermination on the basis that it is the procuring of endorsement contracts which gives rise to the right to commission and not the ongoing provision of services. In other words, the procurement triggers the payment and, therefore, the commission could be payable whether or not the representation contract continues. It all depends on what the parties agreed. So, all in all, an interesting precedent to throw into the mix.
Austrian writer Baroness von Ebner-Eschenbach once said that, 'In youth we learn; in age we understand'. McIlroy will learn a lot from this acrimonious experience.
However, I think we forget sometimes that he is still only 24. I believe his current behaviour displays a definite maturity and that he is retreating into a very familiar environment. He appears to be taking control of what he can control.
Supporters of Irish sport and its stars should want this episode and the Oakley lawsuit to conclude as swiftly as possible. We should want McIlroy to be able to concentrate, without distraction, on what he does best. If that can happen, then when the history of the old shepherd''s game and the legends which graced the fairways is finally written, there is little doubt that one Rory McIlroy will feature prominently.
The content of this article is provided for information purposes only and does not constitute legal or other advice. Mason Hayes & Curran (www.mhc.ie) is a leading business law firm with offices in Dublin, London and New York.