The phrase ‘subject to contract’ is pivotal to the preservation of legal rights, particularly when negotiating for multi-million pound contracts.
On this occasion, the eagerness of a national sports fraternity overtook the urgency for a logical and constructive approach to long-term franchise agreements, resulting in an outcome none would have wished for.
In June 2000, the Football League entered into a contract for licensing rights with ITV Digital (or ONDigital as they were then known), who themselves were subsidiaries to both Carlton Communications Plc and Granda Media Plc.
Having begun negotiations in April 2000, ONDigital were extended permissions to tender for contracts not exceeding £10m, whereupon this particular bid was now worth in excess of £240m, which therefore required the oversight of Granda and Carlton, but nothing more.
In a document titled ‘Initial Bid for Audio-Visual Rights Football League 2001/2 – 2003/4 ONDigital’ Executive Director Graeme Stanley expressed within the Financial Arrangements section, that:
“ONdigital and its shareholders will guarantee all funding to the FL outlined in this document.”
While noting that as with the remainder of the document, all statements therein were ‘subject to contract’ and therefore not binding upon any parties.
During the negotiation period, the value of the contracts increased to £315m, and at the point of their contracting, express notice was given in clause 18, which read:
“18. ONdigital and FL shall use their best endeavours to execute a long form agreement within 60 days which will be negotiated with reference to the Football League Pre-Tender Document of 27th March 2000…and will include clauses such as standard legal boilerplate, confidentiality, compensation for ONdigital if there are significant changes in competition structure which adversely affect the value of the rights granted to ONdigital, minimum broadcast commitments, quality guarantees for programmes and competitions and the like.”
In December 2001, talks began which centred around the alleged winding down of ONDigital; and so, the claimants proposed that the defendants Carlton and Granda were now liable as guarantors for any sums due, which at the point of litigation, was little under £134m.
As was expected, the defendants noted that while assisting as a parent company, at no point did they enter into a contract with the claimants, and as such, were not responsible for any outstanding ONDigital debts.
Relying upon the comments made in the pre-contract documentation, as well as a vague mention of guarantees in Clause 18, the court examined how corporate contracting and personal liability are distinctly different animals.
With reference to principles espoused in Salomon v Salomon, Kerr LJ had himself expressed in JH Rayner (Mincing Lane) Ltd v Department of Trade and Industry how:
“The crucial point on which the House of Lords overruled the Court of Appeal in that landmark case was precisely the rejection of the doctrine that agency between a corporation and its members in relation to the corporation‟s contracts can be inferred from the control exercisable by the members over the corporation or from the fact that the sole objective of the corporation’s contracts was to benefit the members.”JH Rayner (Mincing Lane) Ltd v Department of Trade and Industry
While due reference was given to the Statute of Frauds 1677, in which section 4 clearly explains how:
“No action shall be brought whereby to charge the defendant upon any special promise to answer for the debt default or miscarriage of another person unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised.”Statute of Frauds 1677
While it was further noted that in ‘Chitty on Contracts’, paragraph 4-022 stressed how:
“Apart from the exceptional case of a written offer signed by one party and accepted orally by the other, the writing must acknowledge the existence of a contract. It is now settled, after some hesitation, that a letter expressed to be ‘subject to contract’ is not in itself a sufficient memorandum to satisfy the statute.”
This rendered any argument for financial guarantee fatal to the claim, and left the court no choice but to exempt the defendants from all liability relating to damages for breach of contract, while reminding the parties that:
“[A] subject to contract proposal is the antithesis of or at the least incompatible with a unilateral offer. The former is not open to acceptance; it is the essence of the latter that it is.”