04 April 2016

Sports, Integrity and Corrupt Practices

Last December 2015, the football federation for North America, better known as CONCACAF initiated a Court action in the United States of America, to reclaim millions of dollars purported to have lost through a “kick-back” scheme orchestrated by their former office bearers. Jeffery Webb, former president of CONCACAF was convicted for money laundering while Enrique Sanz who as of December was not charged yet, were both instrumental in the engagement of a travel agency called Cartan Tours. It was alleged that more than $40 million were steered towards Cartan Tours purportedly for travel services of CONCACAF  staffs. This suit will be closely watched as it is the first of many expected from the recent FIFA scandal.

As a matter of fact, claims by sports organisations against corrupt practices are not uncommon. For example, in Ross River Ltd v Cambridge City Football Club Ltd [2007] EWHC 2115 (Ch), the Court decided that in a situation where contract succeed based on a secret payment or bribe received by an agent or representative, the principal will have his right to rescission.
That CONCACAF expose’ is unfortunately, a series of embarrasing explosive news in the world of football. FIFA’s former President Sepp Blatter himself is facing investigations for misuse of funds. The recent news where Michel Platini was banned from all football activity for a total of eight years due to a corruption investigation highlights the need for integrity in Sports. It is reported that Platini had accepted an unauthorised payment from the-then FIFA president, Sepp Blatter who is also currently banned. The exact words used by the ethics committee are “Mr Platini failed to act with complete credibility and integrity, showing awareness of the importance of his duties and concomitant obligations and responsibilities.”

Nonetheless the efforts by CONCACAF warrants a review of the position of law in Malaysia. In the local context of Malaysia, how would such corruption cases in Sports be dealt with? Can an ala-CONCACAF kind of action be taken by a sports organisation in Malaysian Courts? What would the cause of action be?

Trust Laws is the obvious cause of action with reference to Tracing and Constructive Trust. We would however suggest that there are elements of sports law which has to be taken into account too.

In an action under the Law of Trusts, we will draw strength from the case of Attorney General of Hong Kong v Reid [1993] 3 WLR 1143. Anthony Reid was the Crown Counsel of the Hong Kong Government. Reid had taken bribes and amongst his ‘investment’ from this corrupt income, were properties purchased in New Zealand. Apart from the eight years of imprisonment imposed on him, the Court also ordered him to pay a total of HK$12.4 million, being the total value of his assets alleged to have been acquired from the bribes. Reid, holding pubic office and carrying the trust of the Government in prosecution matters, was deemed to be a fiduciary by the Court.

It is generally known that a fiduciary that receives any unauthorised profit out of his duty towards his principal would hold the property or profit on trust for the respective principal or rather, the victim. It was held that the moment Reid breach his duties in return for the bribe; he immediately owed the Government of Hong Kong a fiduciary duty.

However, the principle from the case of Lister v Stubbs (1890) 45 Ch D 1 would automatically convert Anthony Reid into a debtor to the Crown for the bribe money he obtained. Is Reid a debtor or a fiduciary?  Interestingly the Privy Council in Reid’s case, overturn Lister v Stubbs.

Briefly, Stubbs was appointed by his master, the firm Lister & Co to buy goods from Varley & Co. Stubbs subsequently accepted bribes and invested in properties apart from other investments. Alongside the bribe money, the plaintiff in that case also sought to claim for the properties in which Stubbs invested in. Unfortunately for the plaintiff in Stubb’s case, the Court was of the view that the relationship between the plaintiff and the defendant was more of a debtor and creditor relationship. The Court could not agree that trust existed in such a situation. The Court observed that the beneficiary should not be entitled to a proprietary right simply because it is not their legal right to receive more than what is necessary in trust. Most importantly, the beneficiary may not have suffered any financial loss due to the bribery.

  The Privy Council, in overturning Stubbs, applied Constructive Trusts on  Reid's properties in New Zealand and effectively permitted the AG (Hong Kong) to forfeit the assets which Reid had purchased with the bribe money mentioned above. The thrust of the Privy Council decision stems from the position it took, that Reid is in fact a fiduciary when acting for the Hong Kong government.

In Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400, Lord Justice Millett held that there are two situations that may result in constructive trust; by operation of law and in cases where the Defendant is implicated in fraud. In most cases, it would fall under the latter category. For example, constructive trust will arise where unauthorised profit is made out of the party’s fiduciary position or even, in situations where a contract has been entered into by or on behalf of the fiduciary as a consequence of fraud.

Furthermore in El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685 it was held that when a party receives money or trust property because they breached their duty towards their fiduciary, they will hold the money or property in trust.

Should the CONCACAF-like corrupt case occurs in Malaysian Sports Organisations, cases like AG (HK) v Reid would be apllicable. However, what is crucial here in terms of sports law, is the requirement of integrity in sports. Most sports organisations enforce the element of integrity very strongly. One example is the ASEAN Football Confederation (AFC) whereby a dedicated team is formed to maintain and enforce integrity in Asian football. That team oversees and investigates any suspicion of breach of integrity which includes match fixing, kickbacks and corrupt practices. A few footballers and sports officials have fallen foul of this integrity code by AFC and has either been suspended or permanently banned from football. It seems that integrity is no more a mere punch line of sports politics but it is in fact becoming essential to maintain the sanctity of sports.

If corrupt practises goes on in Sports, be it on the field or the boardroom of the organisation; the reputation of Sports would be dented. There is no doubt that integrity plays an extremely important role in sports. Participants, spectators, sponsors as well as the public and media will often judge a sports organisation based on the level of integrity they portray to have.

Therefore, if integrity in sports is constantly enforced and if corrupt practices/kickbacks are weeded out, actions taken by CONCACAF may not be necessary anymore. The sports integrity movement in recent years is a positive preventive step to prevent corrupt practices in sports.

In addition to all the above discussion, it is submitted that more steps ought to be taken in order to eliminate all possible corrupt practices. Basic steps like advertising or promoting ethics in sports, issuing anti-corruption measures, setting stricter in-house rules, getting the Governmental bodies to work closely with sports organisations or even allow media to spread awareness. Considering the fact that the media are often the “eyes and ears of the public” and with such transparency available, it would be beneficial to sportsmen, the public and the government.

The future of good clean sports should start with powerful integrity mechanism in all sports organisation. Once the mechanism is effectively enforced, sports organisations will severely minimize the CONCACAF debacle and FIFA scandal. Recourse to law and activation of cases such as Reid’s case ought to be the last resort for any sports organisation. In time, sports must learn to clean itself and develop its own internal rule of law to weed out corrupt practices.

Richard Wee
Janessa Kok