Carlton & Granada £178.5m, <br></br>Football League 0
High Court rules that media giants are not liable for ITV Digital's debts
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The Football League's hopes of recovering £178.5 million from Carlton and Granada following the collapse of their joint venture with ITV Digital were dashed today. A High Court judge ruled that the media giants are not liable for the channel's debts.
Mr Justice Langley's ruling that the parent companies had not entered into any legally-enforceable guarantee dealt a severe blow to the Nationwide League clubs, some of whom had staked their future on a £315 million broadcasting contract signed in June 2000.
The judge had heard that many clubs entered into long-term commitments on the strength of the agreement, under which they believed the money was guaranteed by Carlton and Granada as the sole shareholders of ITV Digital.
The court action hinged on whether the shareholders were liable for the remaining two years of the deal agreed by the TV channel, which went into administration in April after failing to attract enough subscribers to watch Division 1, 2 and 3 matches.
League lawyers relied on a statement of parental guaranteed funding made during negotiations and on public statements by Carlton and Granada that they would continue to fund the company and pay its debts.
But the judge upheld the shareholders' assertion that there was no legally enforceable guarantee because offers made in a bid document during negotiations were always subject to contract and there was no guarantee written into the final contract.
In a statement to the London Stock Exchange, the two companies said they welcomed the judgment.
The statement said: "Carlton Communications plc and Granada plc welcome the judgment given today in the High Court declaring that neither Carlton nor Granada have any liability whatsoever to The Football League Limited in connection with the broadcast rights contract between the Football League and ONdigital."
Shares in both companies were down around 2% just before the announcement. After the judgment, Carlton's shares were flat at 180p and Granada was down a marginal .25p at 95p.
The judge said: "In my judgment, Carlton and Granada are entitled to the declaration they seek that neither company is liable to the Football League for any sums due under, or damages payable for breach of, the contract.
"There was no guarantee by either company of ITV Digital's obligations under that contract."
In a damning judgment, Mr Justice Langley said the League had got off to an "unpromising start" in seeking to rely on a guarantee by third parties of obligations involving £315 million when the only reference to a guarantee was to be found in one short sentence of a document which was subject to contract.
"It is all the more unpromising when the relevant negotiations are conducted in a major commercial context between two companies (the League and ITV Digital) with the benefit of the professional advice of experienced management and lawyers," he said.
"In my judgment, the Football League's case remains just as unpromising at the finish as it looked at the start."
The Football League said it was "very disappointed" by the outcome.
In a statement it said: "The League will now consider its grounds for appeal and would like to pay tribute to football supporters throughout the country for backing their clubs in this campaign."
Delia Smith, major shareholder of the Nationwide First Division club Norwich City, said today's court ruling would mean players could expect lower pay and it would force clubs to try to generate money from other sources.
She said: "Today's decision means we have been left with a £2 million hole in our budget for each of the next two years.
"There will be no 'fire sale' of players at Norwich City, but any new players' contracts signed from now will have to be at a much lower level.
She said Norwich, like many other clubs, would now have to look at alternative sources of revenue.
Norwich City had already launched a scheme for fans to buy shares in the club, which has raised almost £750,000.
Smith, who with her husband Michael Wynn Jones are joint major shareholders, added: "Today's decision is not a surprise, because nothing is a surprise in football any more. Prior to this we were waiting more in hope than expectation."
The judge added he did not think that in any normal commercial negotiation a party would be content to rely on such a statement from such a source as providing the security of shareholder guarantees in such large sums.
Nor did he think the League in fact did rely on the statement or even thought it had obtained an effective guarantee agreement, despite the evidence of its witnesses.
"The 'subject to contract' statement was indeed more than a rubric," he said. "It was in commercial terms a statement of the obvious."
The League's case fell at this "first and fundamental" hurdle.
The judge also rejected argument that Carlton and Granada had given actual or ostensible authority to ITV Digital to give a guarantee.
In any event, he said, the League's case was "unsustainable" because there was no written document as required by law.
The League had pursued its case despite a new £95 million deal signed last month with BSkyB.
The judge ordered the League to pay the costs of the case, said by a League spokesman to be "significantly less than £400,000".