Paying the penalty in a football case

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In a recent claim brought against Blackburn Rovers Football Club by Henning Berg, its manager, the High Court decided that a contractual payment due as compensation on early termination of Berg’s fixed-term contract by the club was not a penalty and was enforceable.

Blackburn Rovers terminated Berg’s three-year fixed-term contract after just 57 days in the job. There was a provision in Berg’s contract giving Blackburn Rovers the express right to terminate, provided that the club notified him in writing and paid him a sum equal to his gross basic salary for the unexpired balance of the fixed period (£2.25m) as liquidated damages.

The club initially admitted that it was liable to pay the penalty of £2.25m, but later argued that the contractual provision was a penalty clause and therefore unenforceable. It was in the club’s interest for the clause to be deemed a penalty as that would mean that payment under it could not be enforced by Berg, who would then only be entitled to damages for breach of contract under normal contractual principles. That would require him to mitigate his loss, limiting his entitlement to damages by requiring him to take steps to find alternative employment…

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