New Balance Athletics, Inc. v The Liverpool Football Club and Athletic Grounds Ltd
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 25 October 2019 |
| Neutral Citation | [2019] EWHC 2837 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL 2019 000565 |
| Date | 25 October 2019 |
[2019] EWHC 2837 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. Justice Teare
Case No: CL 2019 000565
Daniel Oudkerk QC and Edward Brown (instructed by Hausfeld & Co LLP) for the Claimant
Guy Morpuss QC and Theo Barclay (instructed by Stobbs IP) for the Defendant
Hearing dates: 18, 21 and 22 October 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is (another) dispute about football shirts. A manufacturer of sportswear is keen to retain the right to sponsor a famous and successful football club and to manufacture and sell replica football shirts of the club's players. The football club would prefer to give that right to another sportswear manufacturer. So beneficial is such sponsorship to both manufacturer and club that this court is now familiar with disputes in this aspect of commercial life; see for example SDI Retail Services v Rangers Football Club Ltd. [2018] EWHC 2772 (Comm).
The Claimant, New Balance Athletics, Inc., presently has the right to sponsor Liverpool FC and to manufacture and sell the replica shirts of its players. Its right ends in 2020. In circumstances where Liverpool FC won the Champions League in 2019 New Balance is particularly keen to retain that right. Its contract enables it to match any offer by a competitor. Nike has made an offer to manufacture and sell Liverpool FC's replica shirts from 2020. New Balance claims that it has matched that offer but Liverpool FC says that it has not. The sole or principal question is whether New Balance has indeed matched Nike's offer.
The matching right
The Sponsorship Agreement between New Balance and Liverpool FC was concluded in 2011 and amended in 2012 and 2014. The Sponsorship Agreement, by clause 16, addressed the question of renewal and provided that during the “first dealing period” the parties shall negotiate in good faith the renewal of the agreement. If agreement is not reached Liverpool FC may enter into negotiations with a third party competitor of New Balance. If an acceptable offer is received from a third party Liverpool FC must submit the specific terms of such offer to New Balance. New Balance
“shall then have thirty (30) business days from the date of receipt of such third-party offer to Notify the Club in writing if it will enter into a new agreement with the Club on terms no less favourable to the Club that (i) the terms of this Agreement and/or (ii) the material, measureable and matchable terms of such third-party offer.”
If New Balance so notifies Liverpool FC
“the Club shall be obliged to enter into a new agreement containing such terms with the Sponsor”.
Nike's offer
In December 2018 New Balance agreed that Liverpool FC could seek third party offers before the expiry of the First Dealing Period.
On 11 July 2019 Liverpool FC sent Nike's offer to New Balance. What was sent was in fact a signed contract which was stated to be a legally binding contract subject to a condition precedent. The condition precedent acknowledged that New Balance had the “opportunity to review and match all the material, measurable and matchable terms” of the contract and that the contract would “automatically terminate” if Nike received notification of “a Valid Match”.
Nike's offer was to pay Liverpool FC £30 million per season plus 20% of net sales of all licensed products except footwear and 5% of net sales of licensed footwear. Of particular importance to the dispute in this case is the Marketing and Distribution clause which provided as follows:
“Nike will produce/sell (including as to SKU ranger and distribution Licensed Products, and market LFC, in a manner that is consistent with Nike's other top tier UK football clubs eg Tottenham, Chelsea (subject to similar performance). Without limiting the foregoing Nike will:
. produce Licensed Products under at least 2 global Nike-controlled brands (eg Nike and Converse);
. produce Licensed Products in collaboration with third party brand(s), including in association with a major US sports team located in a major US market;
. market LFC and/or Licensed Products through marketing initiatives featuring not less than three (3) non-football global superstar athletes and influencers of the calibre of Lebron James, Serena Williams, Drake, etc with such initiatives being used to market certain Licensed Products produced for the start of Season 2020/2021 in Year 1 and for certain Licensed Product produced for each Season as applicable thereafter;
. sell Licensed Product throughout the Term (including, for the avoidance of doubt, Licensed Products produced for the start of the Season 2020/21 as follows: (i) in not less than 6000 stores worldwide, 500 of which shall be NIKE owned or controlled with the potential for sale of Licensed Product in as many as 13000 stores worldwide, and (ii) within not less than 51 countries online through NIKE.com. Nike warrants that, as of the date of this Contract, it can distribute Licensed Product in at least 6000 stores worldwide, 500 of which are Nike owned or controlled.”
New Balance's response
On 16 August 2019 the Claimant replied by letter to Liverpool FC as follows:
“New Balance Athletics, Inc is happy to Notify the Club that it will enter into a new agreement with the Club as enclosed herewith on terms no less favourable to the Club than the material, measurable and matchable terms of the Nike Offer.”
Enclosed with the letter was a signed offer which, with regard to the Marketing and Distribution clause said as follows:
“NB will produce/sell (including as to SKU ranger and distribution Licensed Products, and market LFC, in a manner that is consistent with other top tier football clubs (subject to similar performance). Without limiting the foregoing NB will:
. produce Licensed Products under at least 2 global NB-controlled brands (eg New Balance and Warrior);
. produce Licensed Products in collaboration with third party brand(s), including in association with a major US sports team located in a major US market;
. market LFC and/or Licensed Products through marketing initiatives featuring not less than three (3) non-football global superstar athletes and influencers with such initiatives being used to market certain Licensed Products produced for the start of Season 2020/2021 in Year 1 and for certain Licensed Product produced for each Season as applicable thereafter;
. sell Licensed Product throughout the Term (including, for the avoidance of doubt, Licensed Products produced for the start of the Season 2020/21 as follows: (i) in not less than 6000 stores worldwide, 500 of which shall be NB owned or controlled with the potential for sale of Licensed Product in as many as 13000 stores worldwide, and (ii) within not less than 51 countries online through New Balance.com websites. NB warrants that, as of the date of this Contract, it can distribute Licensed Product in at least 6000 stores worldwide, 500 of which are NB owned or controlled.”……………………
It is to be noted that whilst the distribution term was matched in terms, the marketing term was not. No reference was made to Lebron James, Serena Williams or Drake.
Liverpool FC's reply
On 22 August 2019 Liverpool FC replied. The Club noted certain omissions and changes in the signed offer and then said:
“The Club does not consider the NB offer to be a genuine one. This is both because of the contrived and unconsidered replication of the warranties and terms in the Nike offer, and because NB cannot deliver on those warranties and terms.”
Particulars of New Balance's inability to deliver were given. It was said that New Balance could not distribute the products in 500 owner-operated stores and that New Balance could not distribute the products in 6000 stores. It was further said that New Balance could not match Nike's offer in terms of marketing. The letter concluded:
“As a result of the above matters, the Club does not consider the NB offer to be a bona fide attempt to match the terms of the Nike offer. It therefore does not meet the requirements of Clause 16.2 of the Agreement.”
Thus there is an impasse between New Balance and Liverpool FC. The Club wishes to give the sponsorship contract to Nike. New Balance claims that it is entitled as a matter of contract to remain the sponsor of Liverpool FC. In view of a requirement that New Balance make substantial payments by 25 October to ensure that the shirts for the next season are available for sale at the end of the present season the Commercial Court agreed to try this issue on an expedited basis.
There are two principal issues. First, with regard to the distribution term Liverpool FC said that New Balance's offer to match Nike's distribution term was not made in good faith. New Balance accepted that it had a duty to make its offer in good faith but said that its offer had been made in good faith. Second, with regard to the marketing term Liverpool FC said that New Balance had not matched it. New Balance said that it did not have to because the marketing term was not a “material, measurable and matchable” term. But if it was New Balance said that it had matched the marketing term.
The oral evidence
New Balance called two witnesses. The first was Mr. Christopher Davis, the son of the company's chairman and Vice-President – Global Marketing and Sports Marketing. His family owns most of the shares in New Balance. He is based in Boston, USA. He gave his evidence in a clear manner. But, unsurprisingly, he...
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