Terms and conditions: a Faustian pact?

Playbill of the first performance of "Faust, The tragedy of the first part" by Goethe in Weimar on 29 August 1829

The online computer games company Gamestation pulled a clever terms and conditions stunt for April Fools’ Day, which caught out over 7,500 customers.  What they did was amend their online terms and conditions by including the following:

By placing an order via this web site on the first day of the fourth month of the year 2010 Anno Domini, you agree to grant Us a non-transferable option to claim, for now and for ever more, your immortal soul.

Should We wish to exercise this option, you agree to surrender your immortal soul, and any claim you may have on it, within 5 (five) working days of receiving written notification from gamestation.co.uk or one of its duly authorised minions.

We reserve the right to serve such notice in 6 (six) foot high letters of fire, however we can accept no liability for any loss or damage caused by such an act.

If you:
(a)  do not believe you have an immortal soul;
(b)  have already given it to another party; or
(c)  do not wish to grant Us such a license,
please click the link below to nullify this sub-clause and proceed with your transaction.

Had any customers clicked on the link, they would have been led to a page notifying them that the clause was an April Fool and congratulating them on being “so vigilant” by offering them a £5 voucher.

Consumers who purchased games online at Gamestation on 1 April 2010 should perhaps not be too concerned about the appearance of 6 foot letters of fire demanding their immortal soul, as a result of consumer protection legislation that makes the careful reading of standard terms and conditions less important.

Consumers are substantially protected by the Unfair Terms in Consumer Contracts Regulations 1999 (as amended). These regulations provide that where a contractual term which has not been individually negotiated causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer, then it is an unfair term.

If a seller or supplier attempts to include an unfair term, the term is not binding on the consumer.  However, the Regulations do not apply to terms that relate to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.

So provided a court does not consider that the grant of an option of an immortal soul is part of the price paid for a computer game, this Faustian clause is not binding.

The mad, mad world of football insolvency

Like many Pompey fans, I was appalled at the long list of local trade creditors included in the administrator’s Report to Creditors.  These include charities, notably St John’s Ambulance, and a number of local schools and colleges.  All can expect to receive only a fraction of what they are owed (but at least Pompey fans have donated more to St John’s Ambulance in the last 24 hours than is owed by the club).

In an earlier blog on insolvency we described the deprivation rule, which is a long-standing insolvency principle.  It is a common law principle set out in Ex p Jay: In re Harrison (1880) 14 Ch D 19, but has been codified in s.107 of the Insolvency Act 1986 and r.4.181 of the Insolvency Rules 1986.  The principle states that the assets of an insolvent company must be distributed in accordance with the shareholders’ and creditors’ share of their interests in the company.  It is against public policy to permit a company to contract out of this principle to favour one shareholder or creditor above all others.

So how is it that Pompey and other clubs in financial difficulty continue to pay their outstanding transfer fees and players’ wages in full, in what amounts to a preference to these so-called football creditors?  There is no legal exemption for football clubs in insolvency law.  Instead, this is the effect of provisions in both the Rules of the Premier League and the Regulations of the Football League.  These define “football creditors”, and require clubs to settle the debts of these football creditors in full in order to retain membership of the Premier League (or relevant Football League).  In the Premier League, a club’s share of television (Sky) distribution rights revenue can even be distributed directly to the football creditors by the Premier League itself.

Many, including HMRC and even the current administrator at Pompey, consider that this effectively gives football creditors a “super creditor” or “pre-preferential” status, but so far the legality of the relevant provisions in the Rules of the Premier League and Regulations of the Football League has not been tested in court.  There are good arguments for these rules, based upon ensuring that there is fair competition between clubs by ensuring that a club does not gain an advantage over others in any league by importing top players and defaulting on their transfer fees or pay. 

However, expect more public scrutiny of these provisions as the Pompey administration plays out.  No-one can be happy that a club can default on debts to local charities at the same time as paying million pound transfer fees.