SCOTLAND ON SUNDAY REPORTS
MARTIN HANNAN
EDINBURGH Rugby Ltd is preparing two writs to sue the Scottish Rugby Union if mediation or arbitration fails to find a solution to the present impasse between the two bodies. One is an initial writ for a sum of around £250,000, but should all contact cease, the second is for £5m.

The first figure is the alleged shortfall in sums which Edinburgh Rugby say they are owed by the SRU. But should there be a complete breakdown of relations, the second writ for £5m will be issued, that figure representing the total which Edinburgh Rugby say the SRU are due to pay them under a warranty on the accounts of the governing body on which the club's business plan was based.

Scotland on Sunday can today reveal that letters from Edinburgh Rugby's lawyers, containing what one SRU insider described as "legal threats", have been received at Murrayfield. Last night, the SRU's chief executive, Gordon McKie, confirmed their receipt but would not comment on what he called their "serious content".

Edinburgh Rugby owner Bob Carruthers last night confirmed that the club is preparing the first writ and has retained the services of one of Scotland's highest-paid lawyers, Richard Keen QC, as well as solicitor advocate Brandon Malone in advance of any court action. He would not comment on the readiness or otherwise of a second writ.

With the row escalating, this paper can reveal the full details of the alleged default by the SRU, which is the root source of the present crisis in Scottish professional rugby. Only members of the boards of Edinburgh Rugby and the SRU and their lawyers and accountants have so far seen the written evidence, while the Scottish Rugby Council have not seen any documentation.

The crux of the matter is an alleged shortfall in a payment which was made at least five days late by the SRU in December, 2006. The lateness and the shortfall caused severe financial difficulties for Edinburgh Rugby and triggered the resignation from the Edinburgh Rugby board of Eamon Hegarty, the SRU's finance director.

The contract between the SRU and Edinburgh Rugby called for the governing body to pay an annual total of £725,000 to Edinburgh Rugby as its share of the Scottish participation in the Heineken European Cup and Magners League. Those sums were guaranteed up to season 2010/11, though could be renegotiated if Edinburgh failed to stay in the European Cup competitions or performed very badly in the Magners League.

As detailed in the contract, the money was to be paid in two equal instalments by electronic bank transfer on November 30 and May 31. Bank statements seen by this newspaper confirm that the sum of £362,500 apparently due to Edinburgh Rugby on Thursday, November 30, 2006 was not paid on that date.

A sum of £168,500 did arrive in Edinburgh Rugby's account with Barclay's Bank on Monday, December 4, but that was money due to be paid under the complex funding arrangements which the SRU have entered into - basically, they lend Edinburgh Rugby in excess of £1m a year and do not reclaim the loan if the club performs to its agreed contract.

Edinburgh Rugby's owner Bob Carruthers and other investors had to put their own money into the bank to cover sums that were paid out on December 1, including staff wages. Some time afterwards, the SRU say they did pay a six-figure sum in Heineken and Magners League money, but the club insists they were still £250,000 short of the contracted sum. SRU sources, however, say that "Edinburgh Rugby got everything they were entitled to".

Bob Carruthers yesterday stated that at no time before November 30 did the SRU, via its chief executive Gordon McKie or finance director Hegarty, explain that the payment would be late or give the reason for the £362,500 shortfall, which after subsequent payments is now down to a figure of £250,000.

"I have tried to keep our business confidential," said Carruthers yesterday, "but then I saw this week newspapers quoting the figures that the SRU is supposed to be investing in us.

"The money which was due in on November 30 simply did not arrive. We had a legally binding agreement that the money would be paid on that date. It may have left the SRU account but it certainly didn't reach us.

"When we eventually got the payment, the shortfall was staggering. We had no idea what had happened and the SRU's own placeman on the Edinburgh Rugby board, Eamon Hegarty, hadn't told us."

Documents in Companies House show that Hegarty resigned as a director of Edinburgh Rugby on December 7. Edinburgh Rugby has claimed they were only told of the amounts and details of what the SRU called "recharges" on December 11.

A senior figure at the SRU, speaking on condition of anonymity, contradicted that version of events. While admitting that a payment was late, the insider said the delay was because the Union was "in discussion" with Edinburgh Rugby about helping their cash flow and added that "they knew what the recharges were, for physios and other fitness people, and knew they were due at the end of November". Carruthers denies this.

This paper has obtained a letter written to Hegarty last December by Graeme Stirling, Edinburgh Rugby's managing director, who resigned ten days ago along with chairman Alex Carruthers, brother of the owner.

Both men have since spoken of their disillusionment at the treatment of their club by the SRU.

In his letter, Stirling says: "Following our meeting on December 7, 2006, I have still not received the monies withheld by the SRU against sums due to Edinburgh Rugby in respect of participation in the Heineken Cup and Magners League competitions. This money is due to Edinburgh Rugby under a legally binding agreement with the SRU.

"In response to your schedule of proposed recharges received today, I have attached our response setting out our position in relation to the various payments. As a fellow director, you will no doubt appreciate the importance of these payments to Edinburgh Rugby Limited and how damaging your action is to the company.

"As you know, the club only participates in two tournaments.We were understandably dismayed, therefore, to find that the SRU had defaulted on both of these payments. Your subsequent claim that the SRU now intends to withhold a substantial portion of the outstanding payments without reference to us is deeply disturbing, particularly as you have been party to the business plan since day one.

"It is astonishing to me that I should have to write in these terms to a fellow director of the company. I won't revisit all of the arguments which were raised by both sides at our meeting on December 7, 2006 as you have informed me that you were party to the decisions made by the SRU. I am disappointed that you did not see fit to pursue your duty to represent the best interests of Edinburgh Rugby Limited.

"I understand that the SRU may have made a substantial loss on the autumn Test series, and that cash flow may have suffered, but it is not fair or reasonable to transfer the burden to Edinburgh Rugby Limited."

The letter goes on to enclose the invoices for all outstanding payments, including Magners League and Heineken Cup monies, and asks for full payment "without deduction or set off".

This letter raises issues of a clear conflict of interest between Hegarty's role at the SRU and his duties as a director of Edinburgh Rugby Ltd. Directors who fail to perform their fiduciary duties to a company can face penalties such as being banned from becoming a director of other companies.

Despite repeated attempts to contact Hegarty yesterday, there was no reply at his home in Edinburgh.

We can further reveal that doubts voiced by "sources close to the SRU" over Bob Carruthers' personal financial commitment to Edinburgh Rugby are nonsense. The Union holds a personal written guarantee for £1m in Carruthers' own name for which he would be liable should all the arrangements collapse.

His Murrayfield Stadium events company, set up to run music concerts, has also pledged to pay a total of £1.5m to the SRU over the next five years. Carruthers has a long-term plan for developing the business which he is keeping under wraps.

With media businesses worth up to £20m, and having banked a seven-figure sum from the sale of his Cromwell Productions film and television company, Carruthers has deep pockets and is also said by a friend to be "highly litigious". The friend of 20 years standing added: "He can be brash and be passionate, and he usually gets what he is entitled to, but he is hugely committed to rugby. If he also feels he has had a raw deal he is not scared to go to court and he's won cases against much bigger operations than the SRU."

For their part, senior SRU figures say they are ready to "resolutely defend" their position and describe some of Edinburgh Rugby's claims as "fundamentally untrue".

Edinburgh received a censure from the SRU on Thursday evening following the withdrawal of players from the Scotland squad, but agreed to take back their resignation as associate members of the Union.

Carruthers yesterday described the SRU's action against the Edinburgh hierarchy as "ludicrously over the top" and added: "It seemed like a vindictive and petty thing to do."

Despite reports of possible mediation, the two sides now seem further apart than ever. Last night, SRU chief executive McKie said: "We have received letters which have a serious content and these have been referred to our own lawyers. The request for mediation has also been referred to our lawyers against the background of the previous correspondence."

Given their entrenched positions, for both sides it seems as though long and expensive litigation is now inevitable.

WHAT THEY SAY
NEIL HUNTER (Federation of Scottish Rugby Supporters): We Scots are the world leaders at making arguments so personal that we forget why we are arguing. The Forum of Scottish Rugby Supporters (FOSRS) was formed in the midst of one such example: the SRU bloodshed in 2005. It became very clear to supporters that many in Scottish rugby were so involved in little battles and rivalries that they couldn't concentrate on their jobs, which in turn prevented the SRU being run professionally.

The people with the final say as to whether Scottish rugby prospers are the supporters (aka 'The Customers'). That applies at every level from the grassroots clubs to the SRU. Scottish rugby is once again haemorrhaging supporters, this time over the row between Bob Carruthers and Gordon McKie, and our view is that ultimately the row is less important than the continuation of rugby itself.

When the latest row dies down, what will be left? How many supporters, players or sponsors? Both McKie and Carruthers need to be reminded that in a World Cup year when we have an opportunity to increase rugby's appeal, they should put everything into showcasing the sport, not pursuing petty vendettas. The SRU should be the shining light for rugby in Scotland, but after 11 years many supporters despair of that ever happening.

JIM HAY (Chairman of Scottish Professional Rugby Players Association): We have advised the players to 'do nothing, say nothing and sign nothing' as the situation changes almost every day. There are over 50 players signed up at Edinburgh, so the announcement of contract culls affected more than the 12 international players at the club. They are pawns in the middle of a pitiful situation and it is their livelihoods and the future of their families that are at stake. The situation isn't irretrievable as there are still a lot of good people involved in Scottish rugby, but the longer this goes on, more will turn their back on the game.

I think there's undoubtedly going to be a knock-on effect on the national side. It has come at a horrible time, a World Cup year, and it's hard to imagine that the team won't be affected. Internationally, the situation has gone beyond a laughing stock. People are now looking at this traditionally great rugby nation and mocking us.

My opinion has always been that Scottish rugby needs private investment for it to succeed, that we need at least four professional sides. The Carruthers brothers were brave to take on Edinburgh in the first place and they continually state they will not walk out on the club, but still we may be left with just one pro team. The debacle that has plagued our game for many months is going to dissuade people from putting their money into our clubs. Not only that, sponsorship and finance at grass roots is bound to feel an impact of some sort. Many, sadly, would not want their name affiliated with a sport which is in such a mess.

DAVE WILLIAMS (agent for five of the Edinburgh players): I don't think a pro rugby player deserves any more job security than the next man, but everyone wants a stable environment at work in order to perform well and develop over the long term. The players were not consulted by the SRU when the ownership of ERL was transferred last summer. There was unsettlement and some doubt in the camp until the players got used to the new regime and a different culture. Ironically, there were some very positive overtones in May with the announcement of Larkham's signing and the extension of contracts of some key playing staff. That positive outlook has been swept aside by the recent spat.

The players are the key assets of the company so it is no surprise that they have been used as weapons in the conflict, but they are not party to the arguments and would do well to remain impartial. The players want the matter settled as soon as possible so they can return to a constructive working environment. We represent individual players. Until the issues are focused on individuals we have no place in this argument either.

This article was posted on 15-Jul-2007, 07:38 by Hugh Barrow.