A football transfer with a twist: further clarification on the agent’s duty to disclose
At the end of last year, the Dutch Supreme Court handed down an important judgment on the scope of the agent’s duty to disclose. Previously, I wrote a blog in the Dutch language (Voetbaltransfer en de plicht van de bemiddelaar) about the case at first instance. Now that the Dutch Supreme Court has ruled on this matter, it is time to take stock.
The agency agreement
The agency agreement is a special contract for services (Article 7:425 et seq. of the Dutch Civil Code (hereinafter: ‘DCC’)). The agent acts as an intermediary in the conclusion of an agreement between the principal and a third party. By virtue of the connecting provision in Article 7:427 DCC, Article 7:418 DCC, amongst others, applies to this legal relationship. If the agent has a personal interest in the conclusion of the legal transaction, he must inform his principal thereof. This duty of disclosure serves as an important safeguard against the risk that the agent might allow his own interests to take precedence over those of the principal. The present case is a good example of this.
Background
The matter stems from a dispute between the Dutch professional football player Stefan de Vrij (hereinafter: ‘De Vrij’) and the Dutch agency company Sports Entertainment Group Football (hereinafter: ‘SEG’). De Vrij had been advised by SEG on business matters since his youth. For instance, SEG was involved in De Vrij’s transfer from the Dutch football club Feyenoord to the Italian football club SS Lazio in 2014. When De Vrij’s contract with Lazio expired in 2018, SEG held talks with various clubs. One of those clubs was Internazionale, also based in Italy. De Vrij eventually signed a five-year contract with Internazionale in February 2018. His gross salary (including bonuses) over five years amounted to approximately € 48 million. De Vrij’s employment contract stated that SEG had acted as player agent for Internazionale and that De Vrij was not represented. In March 2018, SEG entered into a separate commission and cooperation agreement with Internazionale. This agreement stipulated, among other things, that SEG would receive € 7.5 million in commission from Internazionale if De Vrij signed a contract with Internazionale with a maximum gross salary of € 50 million over five years. In connection with tax advice sought by De Vrij, he became aware of the agreement between SEG and Internazionale in 2019. De Vrij claims that SEG concealed the commission arrangements with Internazionale. According to De Vrij, he was disadvantaged by SEG, as SEG had an interest in not negotiating the best deal for him.
First instance
In the first instance, the following two questions were the centre of the discussion:
1. Was there a legal relationship between De Vrij and SEG?
2. Had SEG breached the prohibition on serving two masters (in Dutch: “het verbod op het dienen van twee heren”)(Article 7:417 DCC)?
The court answered the first question in the affirmative. Despite the wording of the employment contract, which stated that SEG had acted on behalf of Internazionale and that no one had acted on behalf of De Vrij, the court held that SEG had also acted on behalf of De Vrij. That ruling was partly based on the long-standing working relationship and SEG’s own statements.
According to the court, there was no breach of Article 7:417 DCC. It had not been sufficiently established that SEG had prioritised Internazionale’s interests over those of De Vrij during the negotiations. However, that finding did not alter the fact that SEG had a vested interest in the transaction. As SEG had not fully informed De Vrij about (the amount of) the commission agreements with Internazionale, the court found that the duty of disclosure under Article 7:418 DCC had been breached. De Vrij was awarded damages in the amount of € 4,750,000.
Appeal
The court’s judgment was upheld in appeal. The Court of Appeal emphasised that there had been a long and uninterrupted relationship of trust between De Vrij and SEG. De Vrij was entitled to trust that SEG was acting in his best interests in the negotiations with Internazionale.
The Court of Appeal rejected SEG’s defence that De Vrij should have known that SEG would profit from the transfer. According to SEG, the exact amount of the commission was therefore irrelevant. Precisely because the commission agreements were already available in draft form and the employment contract was still subject to negotiation, SEG should, in the court’s view, have been fully transparent. The Court of Appeal awarded De Vrij (higher) damages of over € 5.2 million.
Appeal in cassation: how far does the duty of disclosure extend?
On appeal in cassation before the Dutch Supreme Court, SEG argued that the duty of disclosure does not extend so far as to require the intermediary to inform the client of the exact amount of his commission. Furthermore, De Vrij was said to have a duty to investigate.
The Dutch Supreme Court did not follow this reasoning. As soon as the intermediary has a (direct or indirect) personal interest in the conclusion of the agreement, Article 7:418 of the DCC (on conflicts of interest) applies in full.
Crucially, the duty to disclose is not dependent on whether there is actually a conflict of interest. Nor does the client have a duty to investigate. Article 7:418 of the DCC is intended to protect the client. That objective is achieved by requiring the agent to exercise full transparency, including the extent of its own financial interest. Furthermore, the client can then assess for himself whether there might be a conflict of interest.
Conclusion and take-away
The judgment of the Dutch Supreme Court confirms and clarifies the scope of the agent’s duty of disclosure. The takeaway is therefore as follows: anyone acting as an agent must exercise full transparency regarding any personal interest in the transaction. If the agent receives a commission, the amount thereof must also be disclosed to its client.
