Why Hearts & Partick Thistle lost legal relegation battle from Scottish Premiership/Championship

Following the decision by Lord Clark on 3 July 2020,[1] the legal challenge brought by Heart of Midlothian Plc (Hearts) and Partick Thistle Football Club Limited (Partick Thistle), in relation to their respective relegations from the Scottish Professional Football League (SPFL) due to the early curtailment of the 2019/2020 season, was stayed and referred to arbitration proceedings.  This was in accordance with the provisions of the Rules of the SPFL (SPFL Rules),[2] the Articles of Association of the Scottish Football Association (SFA Articles)[3] and the Arbitration (Scotland) Act 2010.[4]

On 27 July, the SFA Arbitration Panel announced its decision,[5] finding unanimously that Hearts and Partick Thistle’s challenges failed and that the SPFL’s written resolution of 15 April 2020 ending the season and deciding the league positions was entitled to stand.[6].  While unfortunately no written reasons have been released, this article will analyse the legal arguments advanced by Hearts and Partick Thistle and touch on some of the questions that remain unanswered.  Specifically, it looks at:

Background
Legal basis for the challenge
Unfair prejudice
Failure to provide / withholding information relating to the vote
The vote
Competitive fairness and sporting integrity
Removal of granting of rights under the Articles
Good faith
Decision of the arbitration tribunal
Potential for appeal?
Background
By way of re-cap, as was the case with other football leagues around the world, on 13 March 2020, Scottish football ground to a halt when all professional club games in Scotland were suspended as a result of the coronavirus pandemic.[7]

At the time, Hearts were bottom of the Scottish Premiership league with 8 games of the 2019/20 season still to play. They were 4 points behind the team directly above them. Similarly, Partick Thistle were bottom of the Scottish Championship league. They were 2 points behind the team directly above them but had played one less game.

The professional league body in Scotland, the SPFL, had to weigh up the viability of being in a position to play the remaining fixtures of the 2019/20 season at a later date in 2020, or curtailing the season early.

On 8 April 2020, after obtaining legal advice,[8] the SPFL Board presented its members, being the 42 professional clubs in Scotland, with a written resolution to vote upon, together with a document entitled “League Season 2019/20 & Play Offs Legal Briefing note to Members (the “Briefing Notes”[9]. If passed, this written resolution would, amongst other things, amend the SPFL Rules such that it would allow for:

the immediate curtailment of the 2019/20 season in each of the lower 3 divisions of the Scottish Professional League on a points-per-game basis (being the Scottish Championship, Scottish League Division 1 and Scottish League Division 2),
the promotion of the teams deemed to be at the top of each of those 3 divisions as at the date of curtailment, on a points-per-game basis;
the relegation of those teams deemed to be at the bottom of each division (save for Scottish League Division 2) as at the date of curtailment, on a points-per-game basis;
no play-off matches taking place;
final fee payments for the season 2019/20 to be paid immediately to those clubs in the Scottish Championship, Scottish League Division 1 and Scottish League Division 2 based on their final league positions as per the point-per game basis;
1. the SPFL Board having sole discretion to curtail the Scottish Premiership 2019/20 season early such that:

2. the team deemed to be bottom of the Scottish Premiership league on a points-per-game basis at the date of such curtailment would be relegated to the Scottish Championship league;

3. the team deemed to be top of the Scottish Premiership league would be declared league champions; and

4. final fee payments for the season 2019/20 would be paid to the teams in the Scottish Premiership based on their final league positions as per the points-per-game basis.

Ultimately, following a vote by the 42 members of the SPFL, the written resolution was passed with the result that Partick Thistle, who were deemed to be bottom of the Scottish Championship on a points-per-game basis by 0.037 points, were relegated to League 1 for the 2020/21 season.[10] It also resulted in the promotion of Dundee United FC from the Scottish Championship to the Scottish Premiership, and the promotion of Raith Rovers FC and Cove Rangers FC from their respective divisions.

Further, with the authority they now held from the passing of the written resolution, the SPFL Board decided on 18 May 2020 to also curtail the Scottish Premiership 2019/202 season on a points-per-game basis.[11] This resulted in Celtic Football Club being declared winners of the Scottish Premiership League and Hearts being relegated from the Scottish Premiership to the Scottish Championship.

Hearts and Partick Thistle then entered into discussions, facilitated by the SPFL, with other SPFL clubs regarding league reconstruction. League reconstruction would have expanded the number of teams in the Scottish Premiership and Scottish Championship and therefore prevented Hearts’ and Partick Thistle’s respective relegations. A vote on league reconstruction was held on 15 June 2020. However, due to a lack of support from other clubs, the proposal for league reconstruction failed such that Hearts’ and Partick Thistle’s position remained unchanged - they would be relegated for the season 2020/21. [12]

On 17 June 2020, Hearts and Partick Thistle lodged a petition at Scotland’s highest civil court, the Court of Session, in Edinburgh in order to legally challenge, amongst other things, their relegation from their respective divisions within the SPFL.

As per the author’s previous article[13], the presiding Judge, Lord Clark, held that the in accordance with the SPFL Rules, the SFA Articles and the Arbitration (Scotland) Act 2010, the appropriate forum for the legal dispute was arbitration and not the Courts.[14]

An arbitral tribunal was therefore duly appointed in accordance with the SFA’s Articles. The tribunal consisted of three arbitrators. Each party to the dispute was entitled to appoint an arbitrator from the Scottish Football Association’s Tribunal Candidate List. The two party appointed arbitrators then appointed a third arbitrator who acted as Chairman of the tribunal.

As with the majority of domestic football arbitrations, the tribunal hearing was conducted in private. Documents were reviewed, witnesses examined, and legal submissions made during the hearing. With the Scottish Premiership 2020/21 season due to commence on 1 August 2020, there was a degree of urgency for a decision to be made. The tribunal commenced the arbitration proceedings on 17 July 2020.

Legal basis for the challenge
It is important to note from the outset that Hearts and Partick Thistle brought their challenge to their relegation pursuant to Section 994 of the Companies Act 2006.[15] This section provides that a member of a company can seek suitable relief if the company’s affairs are being or have been operated in a manner which is unfairly prejudicial to the interests of the members generally or of some part of its members.

Hearts and Partick Thistle, by virtue of their participation in the Scottish Professional League, were shareholders of the league body, the SPFL. Hearts and Partick Thistle alleged that the affairs of the SPFL, who govern the 42 member clubs in Scotland, had been and were being conducted in a manner that was unfairly prejudicial to its members, including Hearts and Partick Thistle, and that their relegation had been a consequence of this unfair prejudice. As a result, Hearts and Partick Thistle brought their case against the SPFL on the basis of their status as shareholders of the SPFL.

Following the decision in Fulham Football Club (1987) Ltd v Richards & FAPL,[16] it was held by Lord Clark at the Court of Session procedural hearing that it was competent for the dispute brought by Hearts and Partick Thistle under section 994 of the Companies Act 2006 to be heard by an arbitration panel.

Unfair prejudice
In order to be successful in overturning their relegation, which failing, an order for compensation for the financial loss suffered by their relegation, Hearts and Partick Thistle were required to establish that the conduct of the SPFL had been both prejudicial and unfair to the interests of its members, such as themselves.[17]

Hearts and Partick Thistle claimed that they had suffered unfair prejudice as a result of:

the directors of the SPFL breaching their duty to provide sufficient information to members when asking them to vote on the written resolution to curtail the season early;
the directors of the SPFL withholding relevant and necessary information from members prior to the vote on the written resolution;
the directors of the SPFL declaring the written resolution to have been passed notwithstanding that it had actually been rejected by the members;
the SPFL and its members arbitrarily departing from their agreement to observe the principles of competitive fairness and sporting integrity;
the manner of the removal and grant of rights of members set out in the SPFL Articles; and
other members of the SPFL failing to exercise their voting power in good faith for the benefit of the company and instead in a manner amounting to oppression of a minority
Failure to provide / withholding information relating to the vote
The suspension of Scottish football on 13 March 2020 had a significant financial impact on the majority of clubs in the Scottish Professional League. This was largely due to the fact that 43% of the income of Scottish clubs is made up of gate receipts - the highest in Europe.[18] Overnight, Scottish clubs found a significant source of their income had gone. As a result, the majority of clubs in the SPFL were facing considerable financial uncertainty.

However, in accordance with the SPFL Articles, all 42 member clubs of the SPFL were entitled to receive fee payments from the SPFL out of net commercial revenues based on their final league standings (i.e. the clubs would receive a payment from the SPFL based on their final league position).

Within the Briefing Notes, which were issued to clubs together with the written resolution to end the season, the SPFL stated that:

“These payments could be made to these Members immediately after the Resolution was adopted.”

Hearts and Partick Thistle submitted that the SPFL misrepresented to the financially struggling clubs that the only way that these fee payments could be made to the clubs would be to vote in favour of the written resolution to end the season.

Hearts and Partick Thistle claimed that advance fee payments could have been made by the SPFL to members without passing a resolution to end the season early. Indeed, Hearts and Partick Thistle argued that an alternative resolution, which had been proposed by Rangers Football Club (Rangers),[19] would have allowed clubs to vote on payments being made to clubs by the SPFL without the season being called early. However, the SPFL refused to put Rangers’ proposed alternative resolution the members on the basis that they deemed it incompetent.[20] In further support of their argument, Hearts and Partick Thistle submitted evidence of previous advance fee payments which had been made to some clubs by the SPFL in season 2016/17.

Hearts’ and Partick Thistle’s position was that had the SPFL agreed to make advance fee payments to clubs, as they had done so in the past, or permitted Rangers’ alternative resolution to be put to member clubs, then this would have prevented struggling financial clubs viewing it as necessary to vote in favour of the written resolution to end the season early and ultimately relegate Hearts and Partick Thistle, simply in order that they could receive the fee payments from the SPFL.

In the event that it was deemed incompetent under the existing SPFL Articles and SPFL Rules to make advance fee payments to clubs, Hearts and Partick Thistle claimed that the SPFL should have informed clubs that the SPFL Rules could simply be amended by the requisite majority to allow for such advance fee payments to be made.

Hearts and Partick Thistle also argued that even if the 2019/20 season ultimately required to be brought to an end as a result of Covid-19, the SPFL failed to inform member clubs that the SPFL Rules did not also require to be amended to allow for promotion and relegation (i.e. that it would have been possible to amend the SPFL Rules to end the season early but to the extent that there would be no promotion and relegation). Indeed, this was the situation with the Dutch Eridivisie where the season was ended early due to Covid-19 but with no relegations or promotions.[21]

By not providing clubs with such relevant information relating to fee payments and explaining alternative options available to the member clubs, Hearts and Partick Thistle claimed that the SPFL had breached their duty to provide sufficient information to allow members to make a properly informed decision when voting on the written resolution to end the 2019/20 season early. They claimed that the insufficiency of information invalidated the written resolution procedure.

The vote
The vote on the written resolution, which ultimately led to Hearts and Partick Thistle’s relegation, formed a central part of their claim of unfair prejudice.

As set out above, in order to curtail the 2019/20 season early and for clubs to be promoted and relegated without having completed a full season, the SPFL Rules required to be amended accordingly.

Any change to the SPFL Rules required an Ordinary Resolution to be passed. As per the SPFL Articles,[22] an ordinary resolution required the support of

75% of member clubs in the Scottish Premiership;
75% of member clubs in the Scottish Championship; and
iii. 75% of member clubs in both League 1 and League 2.
The written resolution to be voted upon was sent to member clubs by the SPFL on 8 April 2020. Although the SPFL Articles provided that a period of 28 days be permitted for a written resolution to be voted upon, the SPFL requested that clubs return their vote as soon as signed and if possible, by 5pm on Friday 10 April 2020.

Just before 6pm on 10 April 2020, the SPFL issued a public statement stating that:

“With the Ladbrokes Premiership and Ladbrokes Leagues 1 & 2 divisions each having approved the resolution, we await the voting slip from one Ladbrokes Championship club that has yet to vote. We will provide an update as soon as we are in a position to do so.”[23]

Therefore, as of 5pm on 10 April 2020, 75% of the Premiership Clubs and 75% of the Clubs in Division 1 & 2 had voted in favour of the written resolution. However, as one Championship Club had apparently not yet voted then the 75% threshold for the Championship Clubs, which was required to pass the resolution, had not yet been reached.

The Championship Club whose vote was purportedly outstanding was Dundee Football Club (Dundee FC). However, Dundee FC had in fact submitted its vote to the SPFL by email prior to 5pm on 10 April 2020. In that email, Dundee FC confirmed their vote was to reject the written resolution.

The pertinent question being asked was, if Dundee FC had sent their voting slip rejecting the resolution prior to 5pm on 10 April 2020, why then did the SPFL release a public statement at 6pm on 10 April 2020 which stated that they were still awaiting an outstanding vote from a Championship club (i.e. Dundee FC)?

The SPFL’s explanation for this apparent contradiction was that although the email sent by Dundee FC with their voting slip had been received, it had not been seen or read by the SPFL. Instead, the SPFL explained that the email from Dundee FC had (somewhat ironically) been stopped in an email quarantine system operated by an IT company used by the SPFL, through the Scottish Football Association, to run their email system. That email was said to have been released from the quarantine system at 8.55pm and therefore after the SPFL’s public statement at around 6pm.[24]

The waters appeared to become even muddier when, during the period in which the email had been sent by Dundee FC (prior to 5pm on 10 April 2020) and then finally released from the email quarantine system (i.e. 8.55pm), the SPFL confirmed that a conversation took place between the Chief Executive of the SPFL, Neil Doncaster, and the Managing Director of Dundee FC, John Nelms. During this intervening period, Dundee FC purportedly requested the SPFL to treat their original vote sent prior to 5pm on 10 April 2020 as having not been cast.

As a result, on 15 April 2020, Dundee FC subsequently attempted to re-cast their vote, this time in favour of the resolution. This second vote by Dundee FC was duly accepted by the SPFL. The Dundee FC vote then became the crucial vote which led to the written resolution being passed, as 75% of the Championship Clubs had now voted in favour.

Had the original Dundee FC vote, which rejected the resolution, been accepted by the SPFL then the written resolution leading to Hearts’ and Partick Thistle’s relegation would have failed.

Understandably, the circumstances surrounding the Dundee FC vote, formed a central part of the case.

Indeed, in the previous court hearing, although Lord Clark had ruled that the dispute between the parties required to go to arbitration, he recognised the significance and relevance of the circumstances surrounding the vote, to the case. As a result, prior to the arbitration proceedings commencing, he granted an order in favour of Hearts and Partick Thistle for the recovery of documents held by the SPFL in relation to the vote. Lord Clark stated:

“I regard it as appropriate that I ensure that the parties and the arbitral tribunal are given full and proper disclosure of all material relevant to this claim. Put more broadly, the approach I take to the recovery of documents in a dispute of this nature, significance and urgency is to require parties to put their cards on the table.” [25]

In support of their position, Hearts and Partick Thistle also referred to Article 182 of the SPFL Articles, which recorded that a vote was deemed to have been delivered when it was sent such that the original vote by Dundee FC, which had rejected the written resolution, ought to have been deemed to have been delivered by the SPFL at the time it was sent (i.e. before 5pm on 10 April 2020).

Hearts and Partick Thistle therefore claimed that they had suffered unfair prejudice as a result of the SPFL declaring the written resolution to have been passed, notwithstanding that as a matter of fact and law it had been rejected.

Competitive fairness and sporting integrity[26]
Hearts and Partick Thistle also submitted that both the SPFL and the members had agreed to adhere to the SPFL Rules and in accordance with the rights derived from the SPFL Rules. They argued that it was inherent in the SPFL Rules that competitive fairness and sporting integrity would be observed by the members.

They submitted that the SPFL’s interests as a company were not served by departing arbitrarily from their commitment to competitive fairness and sporting integrity, which they had done when they unfairly relegated Hearts and Partick Thistle.

As a result, Hearts and Partick Thistle submitted that their legitimate expectation that completive fairness and sporting integrity would be adhered to had not been observed.

Removal of granting of rights under the Articles
Another argument advanced was that under the existing SPFL Articles, clubs could only be relegated and promoted when the season had concluded as a result of all games being played.

However, the written resolution, which was deemed to have been passed by the SPFL,

removed the right of Hearts and Partick Thistle under the SPFL Articles not to be relegated until all games had been played; and
granted a right of promotion to other clubs (Dundee United FC, Raith Rovers FC and Cove Rangers FC), which was not contained in the SPFL Articles, without all games being completed.
Hearts and Partick Thistle submitted that such removal and grant of rights was contrary to the way that the members had agreed that the league would operate and was therefore both unfair and arbitrary.

Good faith
Another submission made by Hearts and Partick Thistle was that other member clubs had failed to exercise their voting power in good faith and in the interests of the SPFL.

They claimed that those clubs which had voted in favour of the resolution had done so in a manner which amounted to the oppression of a minority, which was therefore unjust and unfair.

They stated that no member acting reasonably would have considered that the written resolution was in the best interests of the company and as a result the written resolution should be deemed invalid.

They also submitted that reasonable members would have been aware of the significant and ongoing loss that relegation would have on both clubs, especially in the current times, such that they should have considered the option of ending the season with no promotion or relegation. They submitted that a reasonable member would not have voted in favour of arbitrary changes to the SPFL Rules, which would determine promotion and relegation on an average points-per-game basis but also then dispense with play-offs and any resulting promotions and relegations stemming from those play-offs.

Decision of the arbitration tribunal
The arbitration tribunal heard evidence from witnesses including Neil Doncaster, the Chief Executive of the SPFL, and reviewed documents recovered under the court order granted by Lord Clark relating to the controversial vote.

Unfortunately, as with the majority of arbitration proceedings, they were conducted in private.

The tribunal issued their verdict on 27 July 2020, just 5 days before the start of the 2020/21 season. However, a full written decision has not been made public. The part of the verdict released simply stated[27] that the tribunal found that

 “...the challenges to the Written Resolution of 15 April 2020 failed, and that the SPFL were entitled to pass, and give effect to, the Written Resolution and all that flowed from it.”

Therefore, the tribunal, having not overturned the written resolution which had been declared passed by the SPFL, considered the relegations and promotions to be valid. As a result, Hearts and Patrick Thistle’s relegation to the Scottish Championship and the Scottish League 1 for season 2020/21 has been confirmed. Further, Dundee United, Raith Rovers and Cove Rangers have all been promoted from their respective divisions.

The tribunal also refused Hearts and Partick Thistle’s esto (alternative) position that if relegation was not overturned that they should be awarded £10 million and £2 million compensation for the loss they claimed that they would each suffer as a result of their unfair relegation.

From a supporter’s perspective, although a decision prior to the commencement of the new season is to be welcomed, the confidential nature of the arbitration and the verdict itself leaves many questions unanswered.

For example, what were the full details of the events, the conversations and correspondence between the SPFL and Dundee FC following Dundee’s original vote rejecting the written resolution?

Why did the tribunal consider that despite the original Dundee FC vote being sent rejecting the written resolution that they would be entitled to re-cast their vote several days later, with a different position?

However, from a party’s perspective, the confidential nature of the arbitration proceedings is often seen as an advantage over the public nature of litigation in the courts.

In this case, Hearts and Partick Thistle had sought to have the case heard in a public forum via the courts due to the significant public interest in the case. In their joint statement released after the verdict, Hearts and Partick Thistle confirmed that “all parties have been requested not to comment on the tribunal’s decision or reveal details of the hearings on the grounds of confidentiality.”[28]

Appeal?
In accordance with Article 99.28 of the SFA Articles, the tribunal decision is intended to be final and binding on the parties. Further, Article 99.29 of the SFA Articles records that parties to the SFA arbitration procedure agree to renounce their rights of appeal, save in respect of the mandatory provisions of the Arbitration (Scotland) Act 2010.

Further, there is no provision within the SFA Articles nor a separate agreement between the parties which would allow Hearts and Partick Thistle to appeal the arbitral award to the Court of Arbitration for Sport.[29]

Therefore, the only grounds for an appeal, which would be to the Court of Session, would be those mandatory provisions set out in Part 8 of Schedule 1 of the Arbitration (Scotland) Act 2010, being where the tribunal did not have jurisdiction to make the award or where there had been serious irregularity which had caused or will cause substantial injustice to the appellants. The potential scope of any appeal by Hearts and Partick Thistle would therefore have been limited. As a result, Hearts and Partick Thistle have not sought to appeal the decision of the tribunal.

The next battle?
Notwithstanding the tribunal decision signalling the end of Hearts and Partick Thistle’s challenge to their relegation, this unfortunate saga does not end here. Following the initial raising of court proceedings by Hearts and Partick Thistle against the SPFL (which were then stayed to allow for arbitration), the SFA served a Notice of  Complaint against  both clubs for failing to adhere to SFA Article 99.15 which requires that SFA approval must be sought before taking a Football dispute, such as the present case, to court. No such prior approval from the SFA was sought by Hearts and Partick Thistle before they initially raised proceedings at the Court of Session.[30]

A hearing in respect of both clubs’ failure to comply with the SFA Articles has been assigned for 6th August 2020. Possible sanctions for the clubs’ infringement of the SFA Articles could include a significant fine, ejection from the Scottish Cup (Hearts are currently due to play their city rivals, Hibernian FC, in the re-arranged Scottish semi-final on 31 October 2020) and termination of their membership of the SFA. It therefore won’t be long until the Hearts and Partick Thistle legal teams will be fighting their corner again………