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Knuckles dusts up the QRU with a "handshake": The importance of documentation and procedures in the sports industry - 15 September 2017

On 1 September 2017, Justice Dearden of the District Court of Queensland delivered judgment in the matter of Connolly v Queensland Rugby Union Ltd [2017] QDC 221.

John “Knuckles” Connolly, former head coach of the Reds and the Wallabies, sued Queensland Rugby Union for $159,000 in respect of consultancy fees which would have accrued under a contract for the provision of coaching consultancy services to the Reds during the 2015 and 2016 Super Rugby seasons, had the contract not been prematurely terminated by the QRU.

As Connolly had consulted to the Reds for only six weeks before his services were terminated by the QRU, the Court awarded a total of $150,000 in damages, representing the fees which would have been payable to Connolly during the balance of the term of the contract.

Notwithstanding that the QRU had prepared three separate written contracts in respect of the consultancy services which Connolly was to provide (all of which had been signed, albeit not by both parties), the Court found that the only legally binding agreement between the parties was a “handshake” deal made during a 90-second telephone call between Connolly and Rod McCall, then-Chairman of the QRU, on 9 May 2015 whilst Connolly was doing his grocery shopping at Woolworths.

Partner, Richard Gardiner, Senior Associate, Jon Erbacher and Solicitor, Rozelle Bothma, outline the reasons why the Court came to its decision and provide some tips on how to avoid falling into a similar trap.

Facts

1. The game plan - 8 May 2015

  • The warning signs for the Reds were apparent from the outset of the game on 8 May 2015 as the Crusaders scored their first try after just two minutes of play.  The end result was a whitewash, with the hapless Reds being thumped by the Crusaders by more than 40 points.
  • McCall attended the game with Jim Carmichael, then-CEO of the QRU.  After the game, McCall described the Reds’ performance as “diabolical”. McCall and Carmichael conferred as to the merits of bringing in Connolly as a coaching consultant to assist the Reds.  McCall had known Connolly for a long time, since he was McCall’s coach and the pair had remained friends and kept in touch since.
  • McCall and Carmichael decided to appoint Connolly as a coaching consultant to “take some heat off the team’s performance”.  The plan was for Connolly to start as soon as possible, and to make a media announcement to that effect. 
  • In fact, on the day before the game, 7 May 2015, a draft press release had been pre-prepared and exchanged between the QRU and Reds media managers, referring to Connolly joining “the Reds’ coaching staff” and noting that he would “work with the Reds for the remainder of the 2015 Super Rugby season”, and later that day revised  to refer to Connolly joining the “coaching staff as a consultant” who would be “contracted to the Reds for the remainder of the 2015 and 2016 seasons.
  • So the press release was ready, and all that needed to be done was to obtain Connolly’s agreement to take on the job.

2. The telephone call - 9 May 2015               

  • Connolly recalled a brief telephone call that he received from McCall whilst he was shopping at Woolworths.  During that conversation, McCall asked Connolly if he would “go on board as a consultant, $3,000 a week” and was told by McCall that the appointment would be “until the end of the next Super Rugby season.”
  • McCall’s evidence differed from Connolly’s.  His version of events was that he had not given any iron-clad guarantee as to the term of the deal, and he said to Connolly “…you’ll be contracted like everyone else” (said to be a reference to QRU’s standard employment contract which had an early termination clause).
  • Over the next few hours, the draft press release was passed back and forth between the QRU and Reds media managers, Carmichael, McCall and Sam Cordingley, then-General Manager High Performance of the QRU.
  • The press release was sent to Connolly, and then provided to media later that day, with Connolly to start work on the following Monday.

Was the telephone conversation binding?

The Court preferred Connolly’s version of events in relation to the telephone conversation over that of McCall.  The Court found that there was a legally binding agreement on the following terms:

  • Connolly was contracted by the QRU as a coaching consultant;
  • Connolly’s fee for his services was $3,000 per week;
  • the duration of the agreement was from the time of the telephone conversation until the end of the 2016 Super Rugby Season;
  • there was no provision for early termination by the QRU.

3. The employment contract

  • Following the press release, a draft employment contract was prepared by the payroll officer at the QRU, upon instruction from then-CFO of the QRU, Ashley Selwood, who had been instructed by Carmichael to prepare the contract.  The employment contract was prepared from a standard template and included the following:
    • a “salary of $156,000 per annum (or $3,000 per week for the period of the contract)”;
    • a term “commencing 11 May 2015 and terminating one week after the Reds’ final game in Super Rugby competition in 2016”;
    • a clause which entitled the QRU to terminate the agreement upon 60 days’ notice.
  • Cordingley (another former rugby player who had played for the Reds and knew Connolly) was tasked with sending the draft employment contract to Connolly, which he did on 14 May 2015. 
  • Connolly subsequently signed and returned the employment contact to the QRU.  Connolly gave evidence that, after signing and returning the employment contract to the QRU, he telephoned Selwood, who Connolly had known for some 20 years since his days of coaching the Reds. Connolly said to Selwood “Listen, the contract I put back in is the wrong contract. We’ve agreed to a consultancy, not an employment contract.”  Connolly explained in evidence that he signed the employment contract “based out of loyalty and getting on with the job and trust”.
  • The employment contract was not signed on behalf of the QRU.

Was the employment contract binding?

The Court found that the employment contract, even if operative upon Connolly’s signature alone, came to an end and was subsumed because Connolly was clearly engaged as a contractor (as opposed to an employee) for a defined term and for a weekly fee, and the employment contract was unsigned by the QRU.  Also, the QRU had not undertaken any practical steps to put the employment contract into operation – for example, by obtaining the relevant tax, banking or superannuation information to process Connolly’s pay as an employee. As such, neither party, by conduct or intention, entered into a legally binding agreement consistent with the terms of the employment contract.

4. The contractor agreement

  • Following the conversation between Selwood and Connolly, a contractor agreement was prepared by the QRU and forwarded to Cordingley, who sent it on to Connolly on 2 June 2015.  The contractor agreement was also prepared from a template and contained a clause which entitled the QRU to terminate the agreement upon 30 days’ notice.
  • The draft contractor agreement was subsequently signed by Connolly and returned to the QRU.  Connolly gave evidence that he, again, telephoned Selwood and said “Mate, get the whiteout out, because there was no agreement with the termination clauses”. 
  • Relevantly, the contractor agreement also included a clause providing that “This agreement starts the date that it is signed by both parties…
  • The contractor agreement was not signed on behalf of the QRU.

Was the first contractor agreement binding?

The Court found that the QRU’s failure to execute the contractor agreement, coupled with the provision of a second contractor agreement (referred to below), clearly indicated that despite Connolly’s signature, the parties did not intend to be bound by that document and it was not legally binding upon them.

5. The second contractor agreement

  • Following a conversation between Selwood and Carmichael on 7 July 2015 in relation to the termination clause in the initial contractor agreement, a second contractor agreement was prepared by the QRU and forwarded to Connolly.  The second contractor agreement was essentially on the same terms as the first contractor agreement, but contained a 60 day termination clause.  
  • Connolly did not sign the second contractor agreement, and gave evidence that he telephoned Selwood and said “Actually, this is all over the shop. This is not what I agreed to.”  There were no further discussions about the content of the agreement.
  • The second contractor agreement was signed by the QRU (although not witnessed or dated).

Was the second contractor agreement binding?

The Court found that the second contractor agreement was not legally binding on either Connolly or the QRU, whether by conduct, intention or the signature of both parties.

Outcome

The only legally binding agreement between Connolly and the QRU was the agreement arising from the telephone conversation between Connolly and McCall on 9 May 2015.  As the terms of that agreement did not incorporate any provision for the QRU to terminate the agreement prior to the expiry of the agreed term, the QRU’s termination of the agreement was found to be unlawful and constituted a repudiation of the agreement by the QRU.  The QRU’s repudiation of the agreement resulted in Connolly suffering loss and damage in the amount of $3,000 per week for the balance of the term of the agreement. 

Accordingly, the QRU was ordered to pay Connolly $150,000 plus costs and interest.

Consideration

The reality for participants in the sports industry is that deals will often be done on the basis of an initial informal arrangement, whether arising from a telephone discussion, a meeting, a text message or by email.  That is particularly the case where:

  • participants in the industry (including coaches, players and those involved in the administration of sport) are often well-known to each other, whether socially, in business or both; and
  • the pressures of the sports industry (particularly in professional sport) may require decisions to be made quickly, in order to meet the expectations of stakeholders, supporters and the media.

In the present scenario, an agreement which ultimately cost the QRU dearly was the product of a decision which was made in haste and under pressure, followed by a 90 second conversation between two rugby union stalwarts with personal and professional history spanning more than 20 years.  They were mates, who trusted and were loyal to each other.  They’d “shared beers, rogue moments, laughs, triumphs, defeats and secrets together” (according to The Courier-Mail).  This is a common scenario in the sports industry.

Notwithstanding that the QRU did follow its practice of preparing and issuing a standard form contract in an attempt to document the agreement, the terms of the template documents which were prepared and the insufficient management procedures which were in place to ensure that the agreement was appropriately executed, left the QRU exposed to, and ultimately bound by, a loosely defined “handshake” deal formed during an earlier oral discussion. 

Takeaway tips

The outcome of this case highlights the inherent dangers of informal arrangements, which can be common place within the sports industry (and, indeed, other industries as well).  As sport becomes increasingly professionalised and continues to develop into large-scale business, it is important to ensure that participants in the industry adequately protect themselves by adopting appropriate processes and procedures, and obtaining professional advice when necessary.

Here are our tips to take away to avoid this type of scenario (and the potential to become involved in litigation):

  • During any informal communications, make it clear as to whether you intend to be immediately legally bound by the terms of any agreement which may arise;
  • After any important telephone conversations or meetings, follow up with an email or take a diary note to record the relevant matters discussed;
  • Any agreement which may arise during informal communications should be expressed to be conditional upon the agreement being documented in a formal contract (if that is what is intended);
  • Engage legal advisers to assist in preparing the necessary documentation in order to ensure that it accurately reflects the intentions the parties; and
  • Ensure that you understand the terms of any agreement, and conduct yourself in accordance with those terms.

For further information or discussion, please contact Jon Erbacher, Senior Associate in HopgoodGanim’s Litigation and Dispute Resolution team. Jon has a particular interest and experience in acting for clients in the sporting industry, and is a member of the Australian and New Zealand Sports Law Association. 

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