CHELSEA FC GOES COLD… DEFROSTING THE LEGAL IMPLICATIONS

11 March 2022

Chelsea FC owner Roman Abramovich, a Russian oligarch faces sanctions from the UK government as part of its response to Russia’s invasion of Ukraine. His assets are frozen and Chelsea FC is caught in the mix, they have limits on what they can legally do with the sanctions in place. In this blog we discuss the legal side of whether Roman Abramovich and Chelsea FC can fulfil their obligations in their contract, considering the common law and what clauses can help to create certainty in your contracts.

Chelsea FC is Roman Abramovich’s biggest asset, so with the intention to stop him making money – the UK Parliament has sanctioned the club owner by freezing all of his assets. With Chelsea being frozen, can Abramovich and Chelsea comply with Chelsea’s contracts with their players?

Roman Abramovich, the oligarch club owner of Chelsea since 2003, is one of Russia’s richest people, he has stakes in Evraz (a steel giant) and Norilsk Nickel (a nickel and palladium mining and smelting company) and sold a 73% stake in Russian oil for £9.87 billion in 2005. The UK government claims that Evraz Plc, may have been involved in providing steel which may have been used in the production of tanks, as well as an alleged close relationship with Vladimir Putin. Due to the recent Russian attack on Ukraine, the government have imposed these sanctions onto Abramovich along with six other oligarchs. The sanctions imposed on Abramovich included the freezing of his assets, which has caused a snowball effect for many people within and around Chelsea FC.
By Chelsea being frozen, this has stopped multiple incomes: fans cannot buy tickets, there is no merchandise on sale, players cannot be sold or bought, and there are caps on travel costs. These are just some of the results of the sanctions, which are placed to ensure that Abramovich does not benefit. However, it is clear to see that Abramovich is not the only person effected, the players of Chelsea need to ensure that they are being paid and there is not a breach of contract, with Chelsea’s income stream being virtually frozen, there is the risk that the football club will be unable to comply with their contracts. What happens in a situation where, for example, the club cannot afford to pay their suppliers or players? What can the players do?

A contract is an agreement between two or more parties where each party agrees to an obligation in return for the other party fulfilling their obligation, for example, the players for Chelsea will provide a service (playing football) and Chelsea FC will pay for this service (wages). A breach of contract is where a term is broken by one (or more) parties. There has to be a connection between the breach of contract and the loss of the party; where the players refuse to play the loss to Chelsea would be not being able to play those players.

When looking at the breach of contract you, as the non-breaching party, will have a few options as to how to proceed. You may want to terminate the contract, meaning the contract comes to an end. It is important to have a termination clause within the contracts, as you may not be able to rely on common law. The common law relates to the doctrine of frustration of contract, this comes into action when the contract is incapable of being performed (from no fault of either party) and therefore the parties are discharged from their obligations. When a contract is frustrated, it is automatically terminated and no party is can claim for damages. However, the common law is not certain and therefore a termination clause will allow for certainty with termination of the contract.

A termination clause will give scope and express rights to a party, or either party, to terminate an agreement where certain actions happen; such as a client falling into an insolvency situation. It also removes uncertainty as it will be clear in the contract whether the clause can be triggered. With the Chelsea example, it may be that the players have a clause to trigger termination due to not being paid. This would be a specific clause against the other party, where their breach of contract relates to the contractual obligation of not being paid. Having this as an express clause can prevent the argument that the breach is not repudiatory and does not trigger express rights to terminate on grounds of breach.

Once the contract is terminated, it does not undo the contract, the contract still exists and has legal effect. Some of the obligations will be terminated, for example if the Chelsea players terminated their agreement where Chelsea failed to make payments of wages, then the Chelsea players would argue they are no longer obliged to play for Chelsea and would then become free agents; and therefore free to leave the club.

One element which the Chelsea players, or any supplier, wishing to terminate an agreement where the other party is failing to make payment will want to be cautious of is that when arguing that there has been a serious breach they ensure they have grounds to state this. If a party argues that a repudiatory breach has taken place, and it is later determined that it has not, then the other party will have scope to argue that this treatment was itself a breach of the agreement.

If you have any clients who are failing to make payment of their invoices, or who are defaulting on their other obligations as they fall due, then you should get in touch to ensure you understand what your legal position is, the correct method and time to treat a contract as breached and to take the correct and most beneficial action.

If you are in need of a review of your contract to protect your business, or are looking to create an updated set of terms and conditions, then you should get in touch with Ben Rose by telephone (01274 447 065), by email ([email protected]) or simply click here to fill out an enquiry form.

For the purposes of this blog we have treated the Chelsea players and Chelsea FC as a supplier and client relationship and not from an employment perspective.

This blog was written and created by Gabi Devlin.

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