Little more than a week after signing a deal to end its squabble with the Edinburgh rugby club, the Scottish Rugby Union is again facing the threat of court action. After buying back the club, it is refusing to honour the contract that it has signed with Stephen Larkham, the Australia fly half, and will find itself party to any legal action being taken on the player’s behalf.

Larkham has hired Lewis Silkin, a firm of lawyers in London, to handle his case and Duncan Sandlant, who is dealing with the case, revealed yesterday that he had given both the club and Bob Carruthers, the Edinburgh owner before he handed responsibility back to the union ten days ago, an ultimatum that they must clarify the player’s contractual status by 5pm today or face being sued.

The confusion arises because of the lengthy dispute that arose between the union and Edinburgh when the club were independently owned. That was resolved earlier in the month when the union paid off Carruthers and took the club back under its wing.

However, in announcing the deal, the union made it clear that, while most of the staff would be transferred to the new organisation being set up under its auspices, Larkham and Lynn Howells, the coach at the time, were to be excluded. In Larkham’s case, the decision seems to have been a cost-cutting move with Gordon McKie, the union chief executive, saying the deal that Edinburgh signed was “not commercially viable”.

From Larkham’s point of view, the problem is that, having behaved with the utmost honour and having refused to tout his services around Europe when the Edinburgh crisis first blew up, he has now been left high and dry.

There had been a number of offers on the table when he chose Edinburgh and he has now found a place to live in the city, arranged schools for his children and rented out his house in Australia, only to find out at the last minute that the deal may not be honoured.

Worse still for the reputation of Scottish rugby in international circles – which will have repercussions when the union tries to sign top-line overseas players in the future – Jason MacArthur, his agent in Australia, has made no secret of his frustration that nobody from either Edinburgh or the SRU has been in contact with him and that the only intimation that he has had that the contract may be in doubt has come through media reports.

The pre-season transfer deadline has closed in France, ruling out the possibility of a move to the likes of Toulouse, who are still in the hunt for a replacement for Frederic Michalak and most English clubs have filled their quota of foreign players. Newport is the only Welsh club potentially in the market for a fly half but cannot afford Larkham, and all the Irish clubs have the position covered. So if the Edinburgh deal falls through, Larkham, who is 33, could find himself with nowhere to go after Australia’s involvement in the World Cup ends.

At the time of the Edinburgh deal, McKie did not rule out renegotiating the Larkham contract, but unless the matter can be resolved quickly, the player’s lawyers will sue whatever is left of the club for breach of contract and the union for inducing the club to break the deal.

However, doing quick deals has not been a strong point for the union this year. It took almost five months to transfer Ross Ford from the Borders to Glasgow when the former was closed, and the SRU has still not settled Gavin Kerr’s future. With two years to go on his contract, he will be playing in Scotland but whether it is Edinburgh or Glasgow, not even he knows. It also took more than three months after Daryl Gibson and Lome Fa’atau agreed to sign for Glasgow for the paperwork to be completed.

Carruthers would also be implicated in any legal action being taken on Larkham’s behalf, since he was the main money-man behind the Edinburgh club, with which the player had his contract. He has been out of reach for comment, on holiday in the Caribbean, but is due back soon.