The Super League Case


Research Paper 23 1995-96

Mark Leeming
Consultant to the Law and Public Administration Group

Contents

Major Issues

Historical Background

The origins of Super League

Part IV of the Trade Practices Act

Market Definition

The argument in the Super League case

The exclusionary provision argument

Economic duress

Consequences of News Limited's failure

Breach of Fiduciary Obligations

Consequences for sporting associations

Consequences for political parties and other associations

Conclusion

Endnotes

Major Issues

On 11 March 1996, a judge of the Federal Court of Australia made orders of extraordinary breadth, preventing any alternative rugby league football competition until the 21st century. Although slightly reduced in scope by the Full Court two days later, pending an appeal, it is clear that 'Super League'(1) - a concept into which News Limited poured in excess of $100 million - will not be seen in 1996, nor (subject to the success of an appeal) for some years to come. Not only is the rival competition stopped, but also all of its assets are now to be held on trust for the Australian Rugby League.

This paper deals with three questions. First, how did this come about? Secondly, what was the reasoning in the judge's 220 page judgment? Thirdly, and most importantly, what are the consequences of the decision, not only for the League, but also for other sporting bodies and, more widely, for non-sporting associations formed to promote a common purpose, such as political parties and employer and union federations?

This paper contends that there are two principal consequences of the decision (assuming that it is not disturbed on appeal). On the one hand, the decision stands for the proposition that the provisions in Part IV of the Trade Practices Act 1974 (Cth) (the Trade Practices Act) will not have the same impact on professional sport in this country as similar provisions have had in the United States, principally because of the wide definition of 'market' that has been adopted. That means that, in general, the controlling bodies of professional sports will be able to continue to exercise their powers over clubs, particularly in the area of competition restructuring and club expulsion, without regard to any anticompetitive consequences which the Trade Practices Act might otherwise render unlawful - even though the same conduct in the United States would be unlawful. If this is thought undesirable, attention should be given to amending the legislation, although it might be overhasty to do so before the decision of the Full Court has been delivered.

On the other hand, while those controlling bodies are, on the whole, unaffected by the Trade Practices Act, they will be constrained by fiduciary obligations which may be found to exist between themselves and the clubs. Ironically, this judge-made law may do more to restrict the conduct of sports associations than the statute. Moreover, while the Trade Practices Act generally applies only to corporations, fiduciary obligations arise between unincorporated associations and individuals. This paper contends that, on analogous reasoning to that in the Super League case, fiduciary obligations may arise between political parties and their branches, between union federations and particular unions, in fact, wherever an association is formed to promote a common goal. It may be that an unincorporated political party wishing to disendorse or expel a member or deregister a branch may now have to consider carefully whether it is complying with its fiduciary obligations to that member or branch.

Historical Background

Rugby League in Australia began as a breakaway movement from Rugby Union, as had occurred in England. In 1907 the New South Wales Rugby Football League was constituted as an unincorporated association to organise competitions, arrange international matches and otherwise foster and control the clubs and the game. From time to time, in a series of high profile cases attracting prominent members of the New South Wales Bar, the League was taken to court by players or clubs who thought that the control exercised by the League was unlawful. In 1958, a young barrister, W P Deane, succeeded before the Supreme Court of New South Wales in arguing that the eminent player Greg Hawick had been wrongfully disqualified from the 1958 season by the League (for breach of residence requirements).(2) In 1971, W P Deane, by then a Queen's Counsel, argued, this time largely unsuccessfully, in the High Court that the retain and transfer rules of the League were lawful, not being in restraint of trade.(3)

In 1983, the League decided to exclude the Western Suburbs club, which was experiencing financial difficulty, from the competition. The club was successful in having the decision set aside, on the basis that the League's Constitution did not authorise it to exclude a team from the competition.(4) Four weeks later, the League became incorporated as New South Wales Rugby League Limited, this time with express provision in its Memorandum and Articles of Association to determine which clubs should be entitled to enter teams in the competition. After the 1984 competition, the League again decided not to admit Wests, and this time its decision, which again was challenged by the club, was upheld by the High Court.(5)

While the League(6) was successful before the High Court under its new corporate constitution, one further consequence (whose full ramifications may not have been clearly perceived at the time) was that it became subject to the Trade Practices Act, which applies to corporations but not to unincorporated associations.(7) Throughout the 1980s, the clubs in the competition were also incorporated. The litigation in the Super League case was primarily based on the Trade Practices Act, which as will be described below provides much more stringent restrictions on anticompetitive behaviour by corporations than the common law notion of restraint of trade. The Super League(8) case could never have happened but for the decision by the League to incorporate in 1983.

The origins of Super League

In the expanded competition which included clubs from outside the Sydney metropolitan area, there were some very successful clubs, including the Canberra Raiders and the Brisbane Broncos, which claimed to have some difficulties in their dealings with the older, established Sydney clubs. In particular, there were allegations of the Sydney clubs 'poaching' their players.(9) This background added credence to the rumours which began to circulate in 1994 that the large media corporation News Limited was interested in establishing a new rugby league competition. There was substance to those rumours, for News Limited had in fact been evaluating a proposal, known as Super League, which involved the establishment of an elite competition of 12 teams in Australia and New Zealand. Most of the teams were to be new.

The rumours reached Mr Ken Arthurson, Chairman of the League, while he was in the United Kingdom. His response was to arrange for documents which became known as the 'Commitment Agreements' to be sent to each of the clubs in the League. Shortly after he returned to Australia, each of the clubs executed the Agreement, whose principal provisions were:

  1. the Clubs agreed to participate in the national competition for the playing seasons 1995, 1996, 1997, 1998 and 1999, and not to participate in any other competition not approved by the League; and
  2. the League agreed to admit the Clubs to the national competition for the playing seasons up to 1999.

One reason for choosing that five year period was that the television rights to broadcast the competition had been sold to Channel Nine until the year 2000.

Despite the Commitment Agreements, work continued at News Ltd on the planning of Super League. Some clubs were approached in confidence and given details of the proposal. On 30 January and 6 February 1995, the Super League proposal was outlined more widely, first to the League and then to the representatives of the clubs. No support was expressed at either meeting for the proposal. Nevertheless, because the Commitment Agreements had been prepared in some haste, at the meeting on 6 February the League proposed that all clubs sign new, more detailed agreements, known as the 'Loyalty Agreements'. A motion was then passed:

That it be recommended to the Board of Directors of the League that any clubs not signing the new Agreement by 9am on 8 February 1995 ... be expelled from the 1995 competition.

The Board of Directors resolved not to accept the recommendation (which taken at face value would contravene the Commitment Agreements). Nevertheless, all of the clubs executed the new Agreements within that short time limit.(10)

The new agreements not only recited the Commitment Agreements, but also made further, more specific provisions, in substantially the following terms:

  1. the Clubs would use their best endeavours:
    1. to assemble, train and field the best possible teams to compete in each grade of the National Competition;
    2. to maintain the services of their contracted players, and obtain the services of the best available players, until 1999; and
    3. to assist the League to maintain and enhance the viability of the National Competition;
  2. the Clubs would have no direct or indirect involvement in any rugby league competition which might undermine the quality, competitiveness and geographical reach of teams in the National Competition, or which might adversely affect the number of well known and experienced players competing in the National Competition; and
  3. the Clubs would not release or otherwise permit players who were presently contracted to play for them to play in any competition other than the National Competition approved by the League.

News Limited responded to these developments on two fronts, simultaneously. In the last days of March 1995, News Limited entered into large numbers of contracts with players and coaches who were already employed under contracts with clubs within the League. A number of clubs executed Deeds with News Limited, releasing their players so that they could play in a 1996 Super League competition. Importantly, News Limited agreed to indemnify the clubs, their directors and officers against liability arising from their entering into the Deeds, in particular, liability to the League for breach of the Commitment and Loyalty Agreements.

At the same time, on 30 March 1995, News Limited commenced proceedings in the Federal Court seeking to set aside the Commitment and Loyalty Agreements because they contravened Part IV of the Trade Practices Act. The clubs aligned with News Limited also sought to have the Loyalty and Commitment Agreements set aside for economic duress. For its part, the League cross-claimed against News Limited and the 'rebel' clubs, alleging breach of contract, the tort of inducing breach of contract, and breach of fiduciary duty. The action was heard by Burchett J. over the last 11 weeks of 1995. His Honour's 220 page judgment was delivered on 23 February 1996, a week before the scheduled starting date of the rival competitions. Final orders were made on 11 March 1996. The operation of some of those orders, which were intended to compel players to participate in the League's competition, was stayed by the Full Court on 13 March, pending an appeal which will be heard by the Full Federal Court from 23 May 1996. After an attempt by the players to organise a competition, under the name of 'Global League', was blocked by the Federal Court, it appears that the 1996 competition organised by the League will proceed. The appeal is unlikely to be decided before the latter half of 1996.

Part IV of the Trade Practices Act

The Trade Practices Act is one of the most important pieces of legislation in Australia. A high percentage of all proceedings in the Federal Court, and many actions in the Supreme, District and County Courts throughout Australia, contain allegations of infringement of Part V, which deals with consumer protection and includes the ubiquitous s.52.(11)

On the other hand, Part IV prevents corporations from engaging in anticompetitive forms of conduct known generally as 'restrictive trade practices' (in America, 'antitrust law'). The general purpose and scope of the Part is to enhance competition by proscribing and regulating agreements and conduct, such as exclusive dealing, secondary boycotts, resale price maintenance, predatory price discrimination and monopolisation, which is perceived to be inherently anticompetitive.(12) Actions to enforce Part IV must be brought in the Federal Court.(13)

Dissatisfaction with the common law's inadequacy in preventing the anticompetitive practices of large corporations, trusts and monopolies led to the enactment of restrictive trade practices legislation roughly a century ago: the Sherman Act 1890 and the Clayton Act 1914 in the United States, and the Australian Industries Preservation Act 1906 (Cth) in Australia, the latter modelled on the former.(14) While the United States legislation was actively enforced, its Australian counterpart fell into disuse as a consequence of narrow decisions of the courts.(15) Not until 1965 was further legislation passed, and constitutional doubts remained until 1970.(16) The present legislation was enacted in 1974, and substantially amended in 1977. However, despite the divergent patterns of legislative history, decisions of courts in the United States and elsewhere remain influential in the continuing interpretation of the Australian Act.

News Limited alleged that the League had breached s.45 and s.46 of the Act. Section 46 prevents a corporation with a substantial degree of market power from taking advantage of that power by eliminating or substantially damaging a competitor, or preventing the entry of a new competitor into the market.(17) Section 45 prohibits a corporation from making a contract or arrangement or arriving at an understanding, which contains an 'exclusionary provision' or which has the purpose, or would be likely to have the effect of substantially lessening competition.(18) An exclusionary provision is a defined term,(19) but amounts in substance to certain types of collective boycotts.

Market Definition

In applying both ss.45 and 46 of the Trade Practices Act, the first question is to determine the limits of the relevant market. If the market is defined narrowly, even a small corporation will have a substantial degree of market power, and be subject to s.46. Likewise, a contract, arrangement or understanding that has the effect of substantially lessening competition in a narrowly defined market may have no such effect in a more generously defined market. '[I]f the market is defined either too broadly or too narrowly an incorrect focus will be directed at the real issue ....'(20)

There is no unambiguous procedure for determining the appropriate market in any particular case. As Deane J. has said, 'the word [market] is not susceptible of precise comprehensive definition when used an as abstract noun in an economic context' (21) However, the approach sanctioned by the courts is to select what emerges as the clearest picture of the competitive processes in the light of commercial reality and the purposes of the law.(22) The characterising feature of a market is the existence of close competition between firms. Within a market there will be substitution on the supply and demand side: buyers will switch to another equivalent product if offered sufficient incentive, and suppliers too will substitute one product for another in their output mix, if sufficient profits can be made selling the new product. On many occasions, courts have approved this test:(23)

It is the possibilities of such substitution which set the limits upon a firm's ability to 'give less and charge more'. Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to 'give less and charge more' would there be, to put the matter colloquially, 'much of a reaction?' And if so, from whom?

A more precise formulation which has been adopted by the courts is:(24)

A vast number of firms might have some actual or potential effect on a defendant's behaviour. Many of them, however, will not have a significant effect and we attempt to exclude them from the relevant market in which we appraise a defendant's power. We try to include in the relevant market only those suppliers - of the same or related product in the same or related geographic area - whose existence significantly restrains the defendant's power. This process of inclusion and exclusion is spoken of as market definition.

It may be helpful to make these abstract ideas more concrete, by considering examples of markets which have been found to exist for the purposes of Part IV, and which have been rejected, when the question of market definition has been in issue. Some examples are:

  1. the market for ski boots in Australia, not the broader markets for sports gear or ski gear, nor the narrower market for Salomon ski boots;(25)
  2. the national market for biscuits, not the broader markets for confectionary or foodstuffs;(26)
  3. the market for advertising real estate in local newspapers circulating in the Eastern suburbs of Sydney, not the total Sydney market for advertising Eastern suburbs real estate,(27) and
  4. the European market for bananas, not the market for fruit.(28)

There have been few applications of the Trade Practices Act to sporting competitions in Australia, and those few have all been player restraint cases, such as the player 'draft' rules in Rugby League. Nonetheless, the courts in those cases accepted the following markets:

  1. the market throughout Western Australia in which cricketers sell their skills or services and clubs buy the skills and services of cricketers;(29)
  2. the market throughout Australia in which AFL clubs compete with each other to attract professional footballers;(30) and
  3. the market for the acquisition of services of rough riders by entities conducting rodeos.(31)

Very recently, there has been some tendency to define market broadly, reflecting a concern that the prohibitory provisions of Part IV should not be activated inappropriately.(32) It will be seen that the same broad definition appears in Burchett J.'s reasons.

The argument in the Super League case

In the Super League case, News Limited contended that there were a number of relevant markets, all confined to rugby league, just as markets in other sporting cases had been confined to one sport. News Limited also derived support from a body of United States decisions, in many of which the market was confined to the particular sport, or more narrowly still.(33) Some of the markets it alleged were:

  1. a market for the supply of a national rugby league competition for viewing by the public;
  2. a market for the supply of television and radio broadcast rights for that competition;
  3. a market for the supply of pay television transmission rights for that competition;
  4. a market for sponsorship rights in respect of the rugby league competition; and
  5. a market between clubs for the supply of teams to compete in the national competition, each club competing in seeking players, sponsorship, supporters and purchasers of merchandise.

News Limited argued that the Loyalty and Commitment Agreements were an unlawful misuse of the League's power in those markets.

Burchett J. rejected the existence of all the markets News Limited contended for. Without defining it with precision, the judge identified a number of factors including the as indicating that the true market, for the purposes of the Trade Practices Act, was broader than rugby league, including at least the other major sports played in winter. The factors identified included:(34)

  1. There was evidence that the clubs were concerned to keep their admission prices to levels comparable to those charged by the other football codes and basketball.
  2. Crowd statistics revealed that when attendance at Sydney Swans Australian Rules matches at the Sydney Cricket Ground rose, attendances at rugby league matches for nearby league clubs Easts and Souths decreased. In other areas, matches were scheduled so as not to compete with soccer or basketball.
  3. Although there was a core body of supporters for whom no other form of entertainment substitutes for rugby league, there were also significant supporters who would be lost to the code if prices increased or quality diminished.
  4. The fact that the national soccer competition was transferred to the summer indicated that its administrators recognised that it competed with league.
  5. Advertisers such as Coca-Cola Amatil treated a large number of sports as part of the one sponsorship market.
  6. Channel Nine was able to substitute effectively with alternative programming when Channel Ten held the television rights in Sydney.
  7. The evidence suggested that participants in the broader market, such as the Queensland Rugby Union, perceived themselves to be competing against the league for sponsorship.
  8. The clubs and News Limited itself in their internal documents had referred on occasion to the competition posed by other codes of football, and basketball.

From these considerations, Burchett J. found:(35)

...that at least the rugby union, soccer, Australian rules football and basketball against which, the evidence shows, rugby league sees itself as competing for spectators, would attract a significant proportion of rugby league's crowds if the League chose to attempt to assert market power by significantly raising prices or giving less; and the sports which would attract persons away from rugby league in those circumstances belong in the same market with it. Both because those other sports would, as competitors, be able to take advantage if the League did act in that way, and also because the League, as I have said, does see itself as in competition with those other sports, it is as a matter of fact constrained in its commercial conduct from acting in the manner of a monopolist.

Accordingly, News Limited failed to establish the existence of the markets it had propounded. Since News Limited had not argued that the League had a substantial degree of market power in any broader market which might be found to exist, the Loyalty and Commitment Agreements could not be found to contravene s.46. Likewise, News Limited had not argued that the Agreements had the purpose or effect of substantially lessening competition in any broader market, so that part of its s.45 action failed.

It is apparent from the breadth of material that needs to be taken into account in a market definition case that the evidence in such cases will be considerable and often disputed. Such cases are long and expensive. Unfortunately, although an extremely expensive case has been fought, with vast amounts of evidence from both sides, there is still no judicial determination of the market. However, on Burchett J.'s reasoning, it seems likely that the conduct of the bodies administering rugby union, Australian rules football, soccer and basketball will not be subject to the provisions of Part IV of the Trade Practices Act which are only triggered by having substantial market strength.

The exclusionary provision argument

Some practices are prohibited only if they have the purpose, effect or likely effect of substantially lessening competition. If those practices are alleged, then it will be necessary to define the relevant market. Other practices are sufficiently heinous that they are unlawful irrespective of their effect on competition. The prohibition against 'exclusionary provisions' in s.45 of the Trade Practices Act is an example of conduct which is unlawful per se.

In general terms, an exclusionary provision is a provision of a contract, an arrangement or an understanding between two or more competitors which has the purpose of preventing or restricting the supply or acquisition of goods or services to or from some other person or class of persons.(36) The American terminology is descriptive: a 'concerted refusal to deal'. Loosely, it amounts to a collective boycott.(37) So, for example, the practice whereby 145 carriers of readymix concrete agreed among themselves to restrict the size of the fleet and to equalise their earnings by rostering trucks was held to constitute an exclusionary provision.(38)

Although contracts, agreements and understandings which fall within this category are unlawful irrespective of their anticompetitive effect,(39) two prerequisites remain: (a) the agreement or understanding must be between competitors, and (b) the agreement must have the requisite purpose. News Limited could not argue that the clubs and the League were competitors in any relevant sense. Instead, it argued that the Agreements contained exclusionary provisions with respect to:

  1. the clubs competing to supply their services to competition organisers and to acquire the services of competition organisers, and
  2. the clubs competing to supply the services of premium players.

Burchett J. rejected these arguments.(40) The clubs were not in competition with each other in the relevant sense; instead, from the very beginning the clubs and the League had jointly co-operated to conduct the competition. As the future Chief Justice of the Supreme Court of the United States had put it, 'Although individual NFL teams compete with one another on the playing field, they rarely compete in the market place.'(41) The clubs had joined in arranging for the League to be incorporated to manage and control the competition. While some clubs were excluded or forced to relocate by the League, according to Burchett J., that was not done on the basis that the clubs were in competition with each other to participate in the league. For example, the Newtown club had 'excluded itself' by not remaining financially viable.(42) There was no process of competition between the clubs when the annual applications were submitted to the League. His Honour accepted that no club which was able to comply with the general requirements would be excluded (a point to be returned to), so that in this respect, it could not be said that the clubs were competing with each other.

Moreover, with respect to the competition for the supply of the services of premium players, this fell within a specific exception in the Act, which excludes from the operation of the Act the performance of work under a contract of service.(43) All the clubs signed up players on standard contracts which had been deliberately cast in such a way as to take them outside the Trade Practices Act. Accordingly, both limbs of the exclusionary provision argument failed.

In any event, Burchett J. found that the Commitment and Loyalty Agreements had not been entered into for the unlawful purpose of preventing, restricting or limiting supply or acquisition. He found that the purpose of the League was to preserve the quality of the competition, while the clubs were actuated by their desire for greater security within the competition.

In the case of all breaches of the Trade Practices Act, the Court retains a discretion to grant a remedy. Burchett J. stated that, had he found that s.45 or s.46 had been breached, he would nevertheless not have ordered the Loyalty and Commitment Agreements set aside. That was because News Limited had 'engaged in self-help in an extreme form'.(44) Its conduct in inducing and 'corrupting' players and club officials to breach their contracts made the situation exceptional, so much so, that any remedy would have been withheld even had the case been made out.

Economic duress

The final challenge to the Commitment and Loyalty Agreements was brought by the clubs aligned with News Limited. They sought to set aside those Agreements on the ground that they had executed them under duress. The clubs identified two factors. First, at the meeting at which the Commitment Agreements were proposed, Mr Kerry Packer had stated that he would sue any club or any person who sought to interfere with Channel Nine's rights to televise rugby league, and the League had acquiesced in this statement. Secondly, the letter accompanying the Commitment Agreement stated:

The League will view the failure of any club to sign and Deed by the deadline (45) as an act of gross disloyalty

and

I also refer you to yesterday's meeting of the League which passed a resolution to recommend that the Board of the League consider the expulsion of any club which fails to sign and return the Deed by the deadline.

To satisfy the burden of making out a claim of economic duress, it is necessary to show that the victim was induced to enter into the contract by pressure which was illegitimate. Economic pressure can be sufficient, but overwhelming pressure which does not amount to unconscionable or unlawful conduct will not necessarily constitute economic duress.(46) In the case of Mr Packer's statement, Burchett J. held that the vigorous assertion of his legal rights by him could not amount to duress.(47)

Similarly, Burchett J. held that the League - which in the past had only accepted clubs on the basis of an application renewed annually - would have been entitled to exclude a club which did not sign the Commitment Agreement, because it would have enfeebled the competition by its gross disloyalty.(48) Again, threatening to do what the League was entitled to do could not amount to economic duress. A second reason for the letter not amounting to duress was that Burchett J. found that the threats did not in fact significantly induce the clubs to sign. There was evidence that the clubs perceived advantages in signing, because they would enjoy greater security within the competition.

Consequences of News Limited's failure

Accordingly, Burchett J. rejected all of the arguments of News Limited and the aligned clubs for setting aside the Commitment and Loyalty Agreements. Two consequences were immediate. The clubs which had contracted to play in Super League had breached both the Commitment and Loyalty Agreements, by releasing players, encouraging their sponsors to support a different entity, and licensing the Super League franchisee to use club names, logos and jerseys. Those clubs were liable to compensate the League for the damage their actions had caused, although it seems that the indemnity clauses in their contracts would enable the clubs to pass on their liability to News Limited. Secondly, once the Loyalty and Commitment Agreements were found valid, there could be no real answer to the League's argument that News Limited had committed the tort of inducing breach of contract for which it could recover from News Limited its damages directly.

Breach of Fiduciary Obligations

As it happened, however, Burchett J. found that the League could also be fully compensated for its losses directly from News Limited, because he found that the clubs had breached certain fiduciary obligations to the League.(49) The finding that such obligations existed is surprising. It also has far reaching consequences, both for the future conduct of the League, and more widely. If sports bodies and other associations, including political parties, trade union groups and employer federations, are subject to fiduciary obligations, their behaviour will be circumscribed in ways presently not apprehended. In particular, they will have to be particularly careful when acting to expel a member club or branch or union, and when they restructure or dissolve.

In the light of Burchett J.'s finding, it is worth pausing a moment on the notion of a fiduciary relationship. A fiduciary relationship is one of trust and confidence. A fiduciary is in a position, by his or her own actions, to injure another. In these circumstances, the courts impose a fiduciary obligation which prevents that party from being free to act in his or her own best interests. Instead, his or her own interests must be subjugated to those of the other party. The courts apply stringent rules to ensure that fiduciaries conduct themselves 'at a level higher than that trodden by the crowd' (50) Not only must the fiduciary not profit from the relationship, but also must not put himself or herself in a position of conflict. The clearest examples of fiduciary relationships are those of trustee and beneficiary, solicitor and client, senior employee and employer, and between partners in a partnership. So, a solicitor may not make a profit from an opportunity which came to his or her knowledge through administering a trust, even if the beneficiaries could never have exploited the opportunity, and even though the solicitor acted bona fide and in the interests of the trust.(51) Nor may a senior employee appropriate for himself or herself the company's clients, even if the company was in the process of moving out of that line of business anyway.(52)

A plaintiff who can show that the defendant has breached a fiduciary, rather than a merely contractual, obligation is in an advantageous position in respect of the remedies a court may grant. In contract, the ordinary remedy is for the defendant to pay the damages the plaintiff has suffered by reason of the breach. In the case of breach of a fiduciary obligation, a similar and in some ways more generous compensation is available.(53) However, three further remedies are also available, for which there is no ordinary counterpart for purely contractual breaches. First, if the defendant has made profits out of the breach of fiduciary duty, the plaintiff can recover those profits too. Secondly, if the defendant is impecunious, but the property taken in breach of its fiduciary obligations is now held by or can be traced to some other person, in many circumstances the plaintiff can recover that property from the other person. And finally, where a third person has assisted the fiduciary to breach his or her obligations, in circumstances where the third person knows of the breach, then the third person will be liable for all the damage suffered by the plaintiff, even if the third person never received any of the plaintiff's property. Once it was found that the clubs aligned with News Limited had breached not only contractual but also fiduciary obligations, it was a very short step indeed to find that News Limited had knowingly assisted them so to breach, and was accordingly liable. Burchett J. so found.(54)

This is a novel form of fiduciary relationship. For if one partner in a partnership is disliked by the rest, but is unwilling to depart, it is ordinarily necessary to dissolve the entire partnership. However, of course, the League could under its Memorandum and Articles of Association - and did in fact - exclude clubs, against their will, from the competition. The League excluded Newtown, one of the founding member clubs of the League, while another founding club, Western Suburbs, was forced to relocate to Campbelltown, under threat of expulsion. A third club, North Sydney, was threatened with expulsion when it objected to the advertising of the League's principal sponsor. Under the law of partnership, even where there is express power to expel a partner, the power must be exercised in good faith, which includes the obligation to give the partner who is to be expelled the opportunity to be heard. That certainly does not appear to have been considered in the expulsion threat of 6 February 1995.

Burchett J. wrote that 'partnerships also have partners retire and new partners join them'.(55) But the examples taken from the history of the League in the last decade are analogous not to the voluntary retirement of partners, but to their forcible expulsion. It appears that the analogy with a partnership or a joint venture is, at best, strained.

In the appeal (to be heard in May), it is likely that the reasoning supporting the fiduciary relationship will be subject to scrutiny. However, the ramifications are sufficiently significant to warrant some consideration below.

Consequences for sporting associations

If the market for professional sport is as wide as that accepted by Burchett J., there will be little room for the operation of Part IV of the Trade Practices Act to protect sporting associations, clubs, players and ultimately consumers (including spectators) from restrictive trade practices. That result would substantially weaken the protection offered by Part IV of the Act. It would also cast doubt on the precedential weight of numerous earlier decisions in which a narrower approach to market definition has been used. If this aspect of the decision stands on appeal, thought might be given to the question whether the provisions of the Act warrant amendment.(56)

On the other hand, if the clubs do owe fiduciary obligations to the League because all pursue a jointly held objective, it is unescapable that the League also owes fiduciary obligations to the clubs. Indeed, being more powerful than the clubs, and thus more able to cause harm to them, it should follow that its fiduciary obligations will be correspondingly greater. For example, the League could not refuse to admit a club to the next season's competition at will. Burchett J. accepted the following evidence of Mr Arthurson:(57)

One of the matters on which he insisted, with some fervour, was the view that no club which maintained its ability to comply with the general requirements would be forced out of the competition.

Those words may come back to haunt the League, considering the longstanding criticisms that there are too many teams and the increasing pressure to restructure the competition. It may be that the League in years to come, seeking to reduce the number of clubs in the competition, may find itself constrained in its ability to do so by the Super League decision.

Moreover, difficulties may also arise if the League attempts to impose a multi-tiered Division A/Division B structure. Drummoyne District Rugby Club, which competes in the competition organised by the New South Wales Rugby Union, finished last in 1993, but objected to being dropped to the second division. It was successful in the courts, relying not on the Trade Practices Act or any fiduciary obligation, but a separate legal doctrine known as estoppel.(58) The point to be observed is that a club which feels itself disadvantaged by changes sought to be imposed upon it by the controlling body now has, after the Super League decision, an additional potential remedy in court. At the same time, it seems likely that the rate of change in organised sport, and the need for restructuring, is growing. The unhappy prediction is that the number of cases in the courts will increase.

Consequences for political parties and other associations

Formerly, the courts declined to exercise a supervisory jurisdiction over the internal proceedings of unincorporated associations such as political parties. The leading decision is Cameron v. Hogan,(59) arising out of the expulsion from the Labour Party in 1930 of the Victorian Premier, Edmond Hogan, for failing to repudiate the drastic measures proposed in response to the onset of the Great Depression in 1929. At least in the federal sphere, that has changed. Because of the registration requirement under the Commonwealth Electoral Act 1918 (Cth), courts now consider that there is jurisdiction to hear disputes.(60) So, for example, the Supreme Court was asked to find that the disendorsement in 1995 of the Liberal Party candidate for the seat of Macquarie was invalid.(61) The Court held that it had jurisdiction to decide the issue, but found in the event that there had been no breach of natural justice nor of the Party's rules.

It seems probable that the reasoning of Burchett J. in the Super League case in relation to fiduciary obligations is equally, if not more, applicable to political parties, which were likewise formed to promote an object shared by all the members. The fiduciary analogy may be even stronger, because there is (at least in theory!) more communality of interest between different branches of a political party than between different sporting clubs which do in fact compete with each other each weekend. It follows that disaffected members of a political party may therefore:

  1. take their grievances to a court (which will not decline to exercise jurisdiction); and
  2. claim that a fiduciary obligation has been breached, in addition to any other arguments that might exist.

Likewise, Burchett J.'s reasoning may have application to other associations formed to promote a common objective, including other sporting associations, recreational and social organisations such as the RSL, and union and employer groups. It may arguably extend to religious organisations.(62)

In all these areas, analogous reasoning suggests that the controlling body of an association formed to promote a cause may be less free to restructure or expel its member clubs or branches. Even if it has explicit power to do so under its Constitution, that power must be exercised by the controlling body in a manner consistent with its fiduciary obligations. What precisely that means is unclear from the Super League judgment because the judgment deals with the issue only briefly. Once the court accepted that the clubs owed fiduciary obligations to the League, there was no doubt that their conduct breached those obligations However, two tentative suggestions may be made. First, it is suggested that a threshold test would be that the exclusion or restructuring can only occur if the belief is genuinely and reasonably held that it is in the best interests of the common interests for which the association was formed. Secondly, it is very likely that it would also be necessary to comply with strengthened natural justice requirements.

Conclusion

Three issues emerge from the Super League decision of wider import than the immediate consequences for the League competition. First, the change from an unincorporated association to an incorporated entity brings into play the operation of the Trade Practices Act. Even if only the controlling body incorporates, the branches or clubs remaining unincorporated, the Trade Practices Act can still apply.(63) That Act may limit the behaviour of the body in unanticipated ways, particularly when restructuring occurs. Even though the arguments raised by News Limited in the Super League case failed at trial, it is important to note that they could not have been raised at all prior to the League's incorporation in 1983.

Secondly, assuming Burchett J.'s reasoning is upheld on appeal, there can be little application of the protective provisions of Part IV of the Trade Practices Act in professional sports. That may be a matter of concern to be addressed by the Parliament.

Thirdly, and again if Burchett J.'s approach to identifying fiduciary relationships is maintained on appeal, the judgment may have wide application to organisations including political parties, union and employer groups, other sporting bodies, recreational and social associations - in short, potentially any grouping formed to pursue a joint objective. If those bodies seek to restructure or expel their members, they will have to have regard to the fiduciary obligations owed. The precise content of those obligations is not yet clear, but if the restructuring or expulsion disadvantages a club or branch or member, there will be every incentive to apply to the courts for redress.

Endnotes

  1. Although referred to in some News Limited documents and throughout the judgment of Burchett J. as 'Superleague', the company incorporated to manage the competition was 'Super League Pty Limited'. The correct term is 'Super League', which is used throughout this paper.
  2. Hawick v. Flegg (1958) 75 WN (NSW) 255.
  3. Buckley v. Tutty (1971) 125 CLR 353.
  4. Unreported, Helsham C.J in Eq., 22 November 1983.
  5. Wayde v. New South Wales Rugby League Ltd (1985) 180 CLR 459. Deane J. was appointed to the High Court in 1983 and was a member of the majority in Wayde. He was appointed Governor-General in. 1996.
  6. In 1986 another company, Australian Rugby Football League Limited was incorporated. Throughout this paper, both it and New South Wales Rugby League Ltd are referred to as 'the League'.
  7. In fact, it applies only to trading, financial and foreign corporations, because of the limits of Commonwealth legislative power: see Constitution, s.51(xx), Trade Practices Act, s.4. However, the High Court has held that the Western Australian National Football League (and by analogy, similar bodies such as the League) is a trading corporation: R v. Federal Court of Australia; ex parte Western Australian. National Football League (1979) 143 CLR 190.
  8. News Limited v. Australian Rugby Football League Limited & Ors (1996) 135 ALR 33. Orders made 11 March 1996.
  9. See report compiled by Chris Masters shown on Four Corners on 22 May 1995.
  10. Subject to certain reservations by the Brisbane Broncos and the Canberra Raiders not relevant to this paper. The Broncos in fact executed the Loyalty Agreement shortly after the nominated time limit.
  11. 'A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.'
  12. See Refrigerated Express Lines (Australia) Pty Ltd v. Australian Meat and Livestock Corporation (1980) 44 FLR 455 at 460.
  13. They are 'special federal matters': see Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), ss.3(1), 6.
  14. For historical background, see Heydon, Trade Practices Law (1989, Law Book Company), pars. [1.30]-[1.220]; Areeda and Turner, Antitrust Analysis (4th ed 1988, Little Brown & Co).
  15. Huddart Parker & Co Pty Ltd v. Moorehead (1909) 8 CLR 330; Adelaide Steamship Co Ltd v. The King (1912) 15 CLR 65, (1913) 18 CLR 30.
  16. Resolved by Strickland v. Rocla Concrete Pipes Ltd (1971) 124 CLR 468.
  17. Section 46 provides:
    1. A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of -
      1. eliminating or substantially damaging a competitor of the corporation ... in that or any other market;
      2. preventing the entry of a person into that or any other market; or
      3. deterring or preventing a person from engaging in competitive conduct in that or any other market...
  18. Section 45 provides:
    1. A corporation shall not -
      1. make a contract or arrangement, or arrive at an understanding, if -
        1. the proposed contract, arrangement or understanding contains an exclusionary provision; or
        2. a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or
      2. give effect to a provision of a contract, arrangement or understanding ... if that provision -
        1. is an exclusionary provision; or
        2. has the purpose, or has or is likely to have the effect, of substantially lessening competition.'
  19. See s.4D (reproduced at footnote 36 below).
  20. Gardiner, 'The Continuing Saga of Market Definition: QIW Retailers Ltd v. Davids Holdings Pty Ltd' (1995) 3 Trade Practices Law Journal 177 at 178.
  21. Queensland Wire Industries Pty Ltd v. Broken Hill Proprietary Company Ltd (1989) 167 CLR 177 at 195.
  22. Singapore Airlines Ltd v. Taprobane Tours WA Pty Ltd (1992) ATPR 41-159 at 40,172 per French J.
  23. Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481; 25 FLR 169; (1976) ATPR 40-012, approved in Queensland Wire Industries Pty Ltd v. Broken Hill Proprietary company Ltd (1989) 167 CLR 177; Arnotts Ltd v. Trade Practices Commission (1990) 24 FCR 313 at 328-329; Davids Holdings Pty Ltd v. Attorney-General of the Commonwealth (1994) 49 FCR 211 at 225, and many other decisions.
  24. Areeda and Kaplow, Antitrust Analysis, (4th ed, Little Brown & Co, 1988), p.572; approved in Singapore Airlines Ltd v. Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 178; Davids Holdings Pty Ltd v. Attorney-General of the Commonwealth (1994) 49 FCR 211 at 234.
  25. Mark Lyons v. Bursill (1987) 75 ALR 581, (1987) ATPR 40-809.
  26. Arnotts Ltd v. Trade Practices Commission (1990) 93 ALR 657, (1990) ATPR 41-002; (1990) 24 FCR 313.
  27. Eastern Express Pty Ltd v. General Newspapers Pty Ltd (1991) 30 FCR 385, (1992) 35 FCR 43.
  28. United Brands Company v. The Commission of the European Communities [1978] 1 CMLR 429.
  29. Hughes v. Western Australian Cricket Association (1986) 19 FCR 10.
  30. Adamson v. West Perth Football Club (1979) 39 FLR 199, 27 ALR 475.
  31. McCarthy v. Australian Rough Riders Association (1988) ATPR 40-836.
  32. See Re Queensland Independent Wholesalers Ltd (1995) ATPR 41-438, 132 ALR 225.
  33. Including International Boxing Club of New York Inc v. United States 358 US 242 (1959); National Collegiate Athletic Association v. Board of Regents of the University of Oklahoma 468 US 85 (1984), and decisions of other federal courts.
  34. (1996) 135 ALR at pp.74-85.
  35. (1996) 135 ALR at p.81.
  36. The section provides:
    1. A provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be taken to be an exclusionary provision for the purposes of this Act if -
      1. the contract or arrangement was made, or the understanding was arrived at, or the proposed contract or arrangement is to be made, or the proposed understanding is to be arrived at, between persons any two or more of whom are competitive with each other; and
      2. the provision has the purpose of preventing, restricting or limiting -
        1. the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons; or
        2. the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons in particular circumstances or on particular conditions,
      by all or any of the parties to the contract, arrangement or understanding or of the proposed parties to the proposed ccontract, arrangement or understanding, or, if a party or proposed party is a body corporate, by a body corporate that isis related to the body corporate.
  37. See Report to the Minister of Business and Consumer Affairs ('the Swanson Report') (1976, AGPS); par. 44.116.
  38. Gallagher v. Pioneer Concrete (NSW) Pty Ltd (1993) 113 ALR 159.
  39. Subject to authorisation by the Trade Practices Commission (now the ACCC): s.88.
  40. (1996) 135 ALR at p.94.
  41. National Football League v. North American Soccer League 459 US 1074 at 1077 (1982).
  42. (1996) 135 ALR at p.94.
  43. Section 4(1).
  44. At p.187.
  45. Letter of 7 February 1995 (see (1996) 135 ALR at p.115).
  46. Crescendo Management Pty Ltd v. Westpac Banking Corporation (1988) 19 NSWLR 40 at 45-46; Dimskal Shipping Co SA v. International Transport Workers Federation [1992] 2 AC 152 at 165-166. See generally Sindone, "The Doctrine of Economic Duress" (1996) 14 Australian Bar Review 34.
  47. (1996) 135 ALR at p.115.
  48. (1996) 135 ALR at pp.116-117.
  49. (1996) 135 ALR at pp.122-127.
  50. Meinhard v. Salmon 164 NE 545 at 546 (1928) per Cardozo CJ, approved in Warman International Ltd v. Dwyer (1995) 182 CLR 544.
  51. Phipps v. Boardman [1967] 2 AC 46.
  52. Warman International Ltd v. Dwyer (1995) 182 CLR 544.
  53. See Re Dawson (decd) [1966] 2 NSWR 211; Witten-Hannah v. Davis [1995] 2 NZLR 141; cf. Target Holdings Ltd v. Redferns [1995] 3 WLR 352.
  54. (1996) 135 ALR at p.126.
  55. (1996) 135 ALR at p.124.
  56. See Wood, 'How level is this new playing field?', The Australian, 26 March 1996.
  57. (1996) 135 ALR at p.94.
  58. Drummoyne District Rugby Club v. New South Wales Rugby Union (1994) Aust Contracts Rep 90-039. Very generally, the doctrine of estoppel may give rise to rights when one party makes representations by its words or conduct on which the other party relies to its detriment: see Commonwealth of Australia v. Verwayen (1990) 170 CLR 394; Waltons Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387.
  59. (1934) 51 CLR 358.
  60. Baldwin v. Everingham [1993] 1 Qd R 10. See on this topic Forbes, 'Judicial Review of PoliticalParties', Research Paper, Parliamentary Research Service 1996 (forthcoming).
  61. Thornley v. Heffernan (unreported, Brownie J, 25 July 1995; McLelland CJ in Eq, 12 September 1995).
  62. Cf. Scandrett v. Dowling (1992) 27 NSWLR 483.
  63. Hughes v. Western Australian

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