Rangers and Ticketus – some lessons for English lawyers, outsourcing and commercial contracts

Last week’s opinion by Lord Hodge in the latest chapter of Rangers FC’s administration, is worth reading. It looked at the validity of a claim by a company called Ticketus to future season ticket revenue at Ibrox stadium (in Scotland), in return for an up front payment of cash, under an English law contract entered into between Ticketus and Rangers last summer.

Whilst the decision does not create any new law, it does provide a very useful summary of Scots law on trusts, property, insolvency, agency and delict (tort). So much so, that I wouldn’t be surprised if one enterprising university created a new accelerated LLB based purely on being able to demonstrate an understanding of all issues in the case!

Insolvency and banking/security law experts will be better able to summarise the key issues in the case, but there are a few points that I think are worth highlighting for people involved in outsourcing and commercial contracts.

Some of these may come as a surprise to English lawyers.

Adminstrators can decide to ignore contractual obligations
Adminstrators have the right, in certain circumstances to decide not to perform a contract. (this is not a purely Scots law issue – it is also relevant under English insolvency law)

So in the case of an outsourcing arrangement, upon the administration of an outsourcing vendor the adminstrators may be entitled to decide not to continue providing the outsourced service, or to decide not to comply with an obligation to provide exit assistance. This may also mean that the administrators may decide not to comply with a contractual obligation to transfer dedicated assets/equipment/leases back to the customer if it can getter a better price for them elsewhere.

Whilst the customer may have a damages claim against the (insolvent) outsourcing vendor for breach of contract, that claim will sit alongside claims from all the vendor’s other unsecured creditors. In the meantime, if the service or assets in question are business critical, the customer will likely be suffering a lot of pain as it may neither be receiving service, nor be able to transfer the services to a third party. A damages claim is unlikely to provide much comfort.

For this reason, when drafting an outsourcing contract it’s important to think about what happens in the event of a supplier entering administration (or some other form of insolvency procedure), and (if possible) ensure that the customer has the right to terminate before adminstrators are appointed.
Think about which legal system governs property rights
Making the governing law of a contract English law does not mean that English law will therefore apply to the creation/interpretation of property rights dealt with under the contract where those rights arise (or purport to arise) outside of England.

So, for example, if as part of an outsourcing arrangement you are transferring certain assets in Scotland to the vendor, or entering into a contract under which you will get future revenues arising in Scotland, you need to think about Scots law in relation to any attempt to create a right of security over them.

Securities over intellectual property rights are another good example here – English securities will not work in relation to intellectual property rights owned by Scottish companies (see this previous Techblog for more on that).

If there is a possibility that Scottish property rights may be in scope then you should make sure you take Scots law advice on structuring.

Equity doesn’t apply in Scotland
Scots law does not recognise the concept of equitable interests*, relying instead on purely legal interests, so equity will not step in to “make things fair” (Scots law does have a concept of unjustified enrichment, but that will be of little comfort to Ticketus if Rangers goes into liquidation, as the claim would be against the liquidated company, and in any event provides nothing over the breach of contract claim).

As I say, none of this is new law, but it may come as a surprise to some people.

*The exception to this is a couple of House of Lords decisions where the law lords have effectively incorporated the concept of equity through the back door in order to give a “fair” decision. This is, however, the exception rather than the rule.

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