An APT Legal Challenge: Manchester City’s victory over the Premier League’s rules

Earlier this month, in the latest of a series of high-profile regulatory disputes in football, an independent arbitration tribunal (the “Tribunal”) ruled on the dispute between Manchester City and the Premier League over the validity of the Premier League’s Associated Party Transaction rules (the “APT Rules”).

The Tribunal had already determined, in its first decision of September 2024 (the “First Decision”), that three separate aspects of the APT Rules were unlawful.1

However, the Tribunal has now ruled (the “Second Decision”) that those three unlawful provisions cannot be severed from the rest of the APT Rules, such that the APT Rules (as they stood during the period from their introduction in December 2021 up until their amendment in November 2024) are void in their entirety.2

This article will explore the reasoning and ramifications of the Tribunal’s Second Decision, including the possibility that clubs may now seek to bring damages claims against the Premier League.

Background

The Premier League’s APT Rules were introduced to ensure that where a deal was agreed between a club and an entity connected to its ownership or management, the transaction was at a fair market value. The aim was to prevent clubs from benefitting from inflated incomes and, crucially, to prevent them from artificially reducing their losses in order to circumvent the Premier League’s Profit and Sustainability Regulations (“PSR”).

In the First Decision, it was determined that although the majority of the APT Rules were lawful, they included two provisions which were anti-competitive and one provision which was procedurally unfair.

Most significantly, the APT Rules excluded shareholder loans from their scope, allowing clubs to borrow money from their shareholders at interest rates below market level. This was found to breach competition law because it discriminated between different forms of funding a club may receive (i.e., by treating shareholder loans differently from, for example, sponsorship agreement) and thus distorted competition between clubs.

Aspects of the market value determination process which had been added to the APT Rules in March 2024 were also found to be anti-competitive on the basis that they increased the risk of incorrect valuations, whilst the process for clubs to challenge valuations was deemed procedurally unfair.

Both parties claimed that the First Decision represented a victory. The Premier League asserted that the Tribunal had “endorsed” its APT Rules except for a “small number of discrete elements” which would “quickly and effectively be remedied”. By contrast, Manchester City argued that, since these elements were not severable from the rest of the APT Rules, the effect of the First Decision was that the APT Rules were void as a whole. The matter was thus referred back to the Tribunal for a determination on this point.

The Second Decision

In its Second Decision, the Tribunal referred to the UK Supreme Court judgment in Egon Zehnder Ltd. v Tillman [2019] UKSC 32 as the authority on severability under English law. In that case, it was held that three criteria must be satisfied for an unlawful provision to be severable from a contract such that the remainder of the contract can be enforced. The remaining terms must (i) satisfy the blue pencil test (which means nothing is required to be amended in the remaining wording), (ii) retain adequate consideration, and (iii) not generate any major change in the overall effect of the contract.3

Manchester City submitted that the third of these criteria was not met, as the severance of the shareholder loan exclusion would produce a “major change” to the effect of the APT Rules, such that they became “not the sort of contract that the parties entered into at all”. This submission was made on the basis that the removal of the exclusion for shareholder loans under the APT Rules would mean such loans would go from “zero scrutiny to full scrutiny”.4

The Tribunal found in Manchester City’s favour, ultimately deciding that all three of the unlawful APT provisions were not severable from the remainder of the APT Rules with the effect that the APT Rules were void and unenforceable in their entirety.

Consequences of the First and Second Decisions

The conclusion of the Second Decision does not mean that there is simply an empty space in the Premier League rulebook where the APT Rules used to be. Instead, the Related Party Transaction rules (the “RPT Rules”), which previously applied but which were replaced by the APT Rules in 2021, are deemed to have applied (until the Premier League introduced amended APT Rules in November 2024, following the First Decision).

The RPT Rules required commercial deals with related parties to be at fair market value and deals could be re-valued if it was determined that they were not at fair market value. However, the RPT Rules were narrower in scope than the APT Rules and were far less prescriptive. For instance, an APT required the approval of the Premier League before its implementation, whereas an RPT would be reviewed retrospectively by the Premier League once the club had submitted its annual accounts.

Consequently, if a Premier League club missed out on a commercial deal, or had a commercial deal with an associated party devalued under the APT Rules, which would not have been devalued under the terms of the RPT Rules, or if it incurred costs in complying with the APT Rules that it would not have done under the RPT Rules, the club may have a claim for compensation against the Premier League. Similarly, if a club had been found to have breached PSR on the basis of the APT Rules but would not have done so under the RPT Rules, it may be able to seek damages in respect of any losses suffered.

Further, in light of the First Decision, which found that the exclusion of shareholder loans from the APT Rules distorted competition (i.e., it gave an unfair advantage to clubs receiving loans from shareholders over clubs relying on other sources of funding), any clubs which were prejudiced by the exemption may also have a claim against the Premier League. For example, a club may argue that with additional funding, they may have had greater sporting success and thus would have been able to earn additional revenue.

However, such ‘loss of chance’ claims would be far from straightforward. That said, claims of this nature have been brought in English football before (for example, Sheffield United’s claim against West Ham in relation to the Carlos Tevez third-party ownership saga, which ultimately settled for approximately £20m).

Moreover, whilst the APT Rules were amended in November 2024, these rules, too, have been challenged by Manchester City. The voidness of the original APT Rules was said during the proceedings prior to the Second Decision to be key to Manchester City’s arguments in this respect. As such, the APT saga is far from over.

Conclusion

The Tribunal’s decisions on the APT Rules are the latest in the recent line of successful challenges to the authority of football’s regulators, at national and international level.

Whilst it remains to be seen whether substantial damages claims will yet materialise, it is clear that sports regulations – especially financial regulations – need to be drafted with exceptional care, with particular attention to compliance with competition law, and that regulations which are not so carefully drafted may well be open to challenge.

Authored by 

Ben Cisneros 
Associate 

Jonathon Huggett 
Paralegal