On 19th December 2023, it was announced that Dai Yongge, owner of Reading Football Club, would be fined £20,000 immediately with a further £50,000 suspended, for failure to comply with an independent disciplinary commission’s order back on 15th August 2023 to deposit a sum equal to 125% of the club’s forecast monthly wages in case of any future non-payments of players within 28 days.
Dai failed to comply with the order, and as a result, on 20th September 2023 the English Football League (EFL) charged him for this failure to comply. He then admitted the charge and the independent disciplinary commission was required to determine the appropriate sanction for this rules breach. What arguments were put forward to the Commission, that ultimately persuaded them to make their ruling? Firstly though, an explanation of the timeline of the facts relating to this case will be provided.
Facts
There were several instances of Reading making late payments to players, namely October and November 2022, as well as April 2023, following delays by Dai to transfer sufficient sums of money to the club. The club and Dai were hit with sanctions for breaches of the rules. In relation to the ruling announced on 19th December 2023, of relevance was paragraph 77.2 of the decision dated 15th August 2023, which related to the requirement for Dai to make a deposit of an amount equal to 125% of the club’s forecast monthly wages, in case of any further non-payment to players, within 28 days of the decision.
All charges on the occasion of the 15th August 2023 decision were admitted, and the club and Dai had accepted that a deposit requirement may be appropriate. The decision dated 15th August 2023, imposed an immediate one-point deduction, with a further three points suspended provided that the deposit requirement was met within 28 days of the decision (therefore the deposit had to be paid by 12th September). However, the deposit was not paid within the stipulated timeframe and thus the three-point deduction was activated. In addition, as part of the 15th August 2023, Dai was fined £10,000, and the sum was paid. However, with respect to the deposit requirement, Dai failed to comply with the order by 12th September 2023 (as was required), has not complied since and has allegedly not indicated any intention to comply.
EFL’s submissions
The EFL put forward its position as to what sanctions it felt should have been imposed. It contended that:
a. Dai should be disqualified from all football activity (including ownership and control) for a period of at least 12 months.
b. Dai to pay the EFL’s costs, to be assessed if not agreed.
c. Dai to pay any applicable costs of the Disciplinary Commission.
d. The decision to be published on EFL.com.
EFL stated that its intention with the proposed sanction was to require Dai to divest ownership of the club within 28 days of the disqualification. Robert Weekes KC, acting on behalf of the EFL, relied on two cases, namely: EFL v Derby County FC (2021) and EFL v Macclesfield Town FC (2020).
In the case of EFL v Derby County FC (2021), which related to breaches of the EFL’s Profitability and Sustainability (P&S) rules, the argument by the EFL was that any sanction should serve four principal purposes:
1. To punish the club for breaches of the P&S rules.
2. Vindicate clubs who had not engaged in conduct that was in breach of P&S rules.
3. Deter clubs from future breaches of P&S rules.
4. Restore/preserve public confidence in the fairness of the league competition.
Also, it was considered common ground that any sanction imposed should be ‘proportionate’. The case relating to EFL v Macclesfield Town FC (2020) was used to justify the argument that a second/subsequent sanction must attract a degree of escalation in the sanction.
The EFL advanced several key arguments in support of its proposed sanction:
a. Dai failed to comply with the order and has made it clear he will not comply.
b. A points deduction would be inappropriate since that would be a sanction against the club when the aim is to sanction Dai.
c. A fine would be inappropriate since:
i. The misconduct in question relates to a failure to pay monies previously ordered.
ii. It would be ineffective since he has made clear that he will not comply with the order.
iii. It does not amount to a deterrent.
iv. It does not do anything to remedy the unfairness to other clubs in the League from Dai not adhering to the first decision.
d. It is a very serious case of misconduct because:
i. It has been several months since it should have been paid and there is still no indication of when it will be.
ii. This is a sanction for previous misconduct.
iii. Evidence as to Dai’s inability to pay was needed and very little has been forthcoming, and nothing of substance. The witness statement provided on behalf of Dai failed to provide evidence and Dai has not discharged the burden of proof to demonstrate mitigation.
iv. The conduct should be viewed as deliberate misconduct since payments have been made for His Majesty’s Revenue and Customs (HMRC) and player wages rather than for complying with the order.
v. A potential sporting advantage was gained (through avoiding a points deduction) by electing to meet wage obligations in preference to complying with the order.
vi. Dai conspicuously failed to make any statement of intent to comply with the order and thus the Commission should infer he had no intention of doing so.
vii. A serious sanction needs to be an effective deterrent, both in terms of general and specific deterrence.
Weekes relied upon the wider context of the first decision, and argued that Dai was responsible, at least in part, for this misconduct. He contended that the proposed disqualification was the only acceptable sanction, and a fine would be neither meaningful nor effective, but nonetheless, accepted that the sanction could be suspended.
In relation to mitigation put forward by Dai, the EFL argued that “inability to pay” was not mitigation, as Dai had chosen not to pay, and that the apology was not meaningful in the circumstances, and that no credit could be given for admitting the charge, given its nature and the absence of any saving of time and cost.
Dai’s submissions
Kendra Potts, acting on behalf of Dai, contended that the proposed EFL sanction was vastly disproportionate to the conduct.
Potts referred the Commission to the decision in EFL v Macclesfield Town FC (2020), arguing from (the decision on the case referred to in question) that the central question relates to what “the least severe penalty reasonably possible is that sanctions the club appropriately, while adequately serving the League’s needs and the protection of its structures and value”. Potts also referred to the decision in FA v Birmingham City FC (2019) for the principal that the sanction must be proportionate and go no further than necessary to achieve the aims sought to be achieved by the sanction.
While accepting that Dai bore the burden of proof on mitigation, Potts suggested that there was no bad faith and no late payments of players since the first decision. Furthermore, she went on to suggest an immediate sporting disadvantage with the activation of the suspended three-point deduction.
Potts submitted that any breach was not in bad faith/cynical but simply due to Dai being unable to make the required payment. She also pointed to the fact that all salary payments since then were made on time, which was the issue behind the deposit order being imposed and suggested that a failure to pay deposit sums is not as serious as a failure to pay players would have been.
Potts discouraged the Commission from treating the prior sanction as something which went both to seriousness and aggravation since it would represent a double penalty, while she encouraged the Commission to have regard to apologies and early admission by Dai, while also relying on his efforts to sell the club. However, she accepted that the wider context was relevant to the extent set out in paragraph 65 of the first decision (previous defaults by the club on monies owned to HMRC and past breaches of the P&S rules). Potts went on to argue that, as to the previous conduct, there was no repeat of the failure to pay players (unlike in the case of EFL v Wigan Athletic (2023)). In addition, she suggested that in the case involving EFL v Macclesfield Town (2020), there were no charges levied against the club’s owner.
Potts relied on these cases to justify her argument that disqualification would represent a radical departure from earlier cases and offend the principles of fairness and legal certainty. She suggested that the appropriate sanction was a fine of £10,000 or £20,000, and when asked regarding an alternative case, she suggested that the Commission might impose fines which increase incrementally over time if the deposit was not paid.
Potts did accept that the Commission had the option of imposing a disqualification order but highlighted that to adopt such an approach would undermine the need for consistency in sanctioning.
Decision by Commission
The Commission was faced with submissions on the sanction which were very far apart.
Despite the valiant efforts of Potts, the Commission was unimpressed by Dai’s failure to provide detailed/explicit evidence as to the reasons behind his existing failure to pay and as to his future intentions. Allowing for any concerns on confidentiality, which Dai expressed in relation to details about a potential sale of the club, Dai’s evidence failed to provide any details regarding his financial circumstances, the cause of his present hardship, steps taken to secure loans or other assistance, if he anticipates being able to pay, and if so, when.
However, the Commission was not persuaded to make a finding that the clear written statements from Dai that he was, at the time of writing the statement, unable to pay, should be rejected. The Commission was not prepared to conclude that Dai was intent on not complying at all with the first decision, either.
It was noted that Dai had assistance from lawyers in drafting both his letter and written statement. Therefore, the Commission found it striking that he omitted to make any commitment to pay the sums, which it felt implied a reluctance to be pinned down to a timescale rather than to a more fundamental defiance of the disciplinary regime. Nonetheless, a failure to comply with the deposit requirement is considered a serious failing and no adequate explanation was provided as to why.
The Commission was prepared to accept in principle Dai’s admission and apology amounts to mitigation, but its weight was deemed to be significantly undermined by his failure to provide any adequate explanation of the reasons for the default.
In this case, the Commission had no power to vary the first decision, therefore it follows that Dai has a continuing obligation to pay sums into a deposit account and maintain the account as stipulated in the terms in a confidential annex that was provided as part of the first decision.
The Commission was not persuaded that in context of this referral, a period of disqualification effectively forcing a sale of the club, would be proportionate. It was felt that such an approach would mark a radical departure from any previous precedent. Also, the fact that the charge triggering this obligation to pay the deposit was late payment of players on three occasions of one or two working days, with no further non-payment of players like in the EFL v Wigan Athletic (2023) case, was taken into consideration.
The EFL relied on the wider context of the club’s disciplinary breaches and failures to make payment. In the first decision, issued back on 15th August 2023, the Commission treated Dai as one of the club’s beneficial owners “as much of a part of the club’s efforts as Mr Odell (Chief Financial Officer)”. It went on to say that it “considered the actions of the club as a whole, including Dai”. Therefore, while the Commission accepted Potts’ submission regarding the position of Dai and the club not being simply “conflated”, it deemed that the two are not entirely distinct in this context.
The Commission also took into account that disqualification would not achieve the immediate objective of putting the funds in the deposit account. The EFL was explicit in its desire for Dai to give up his role at the club, while Dai claimed his intention to sell. Although it was considered possible that the proposed sanction by the EFL could impact upon the sale process, no evidence was produced to be able to assess how.
The Commission felt that the EFL’s proposed sanction would be disproportionate, even taking into account the need for deterrence. It was submitted by both parties, and agreed by the Commission, that a points deduction would be inappropriate given that the failure to deposit the funds was caused by Dai and not the club.
The Commission considered that, in practice, despite having the power to impose any sanction, the most realistic options are either a suspended disqualification or some form of fine. In this case, even a suspended disqualification was considered disproportionate. The Commission also recognised the force of Mr Weekes KC’s submissions in relation to the appropriateness of a fine, given that the issue relates to a non-payment and that the explanation put forward largely was related to inability to pay. However, the Commission noted Dai’s ability to access funds to discharge other obligations.
The Commission seeks to impose sanctions which serve to encourage compliance with the underlying obligation, and which thereby serve to protect interests of the club’s players as envisaged in the first decision.
Therefore, the sanction imposed by the Commission was as follows:
· An immediate £20,000 fine for Dai.
· A further £50,000 fine, suspended until 12th January 2024 provided the required deposit was made in full by then.
· As per the first decision, Dai was required to maintain the deposit until 30th June 2024, but now must also maintain the deposit account for a further period from 1st July 2024 till 31st August 2024, plus any additional day Dai fails to make the deposit after the date of the decision up until the day the suspended fine falls due if no payment is made.