Sdi Retail Services Ltd v The Rangers Football Club Ltd
|England & Wales
|Sir Ross Cranston
|13 March 2019
| EWHC 591 (Comm)
|Queen's Bench Division (Commercial Court)
|Case No: CL-2018-000726
|13 March 2019
 EWHC 591 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QUEEN'S BENCH DIVISION)
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir Ross Cranston
(Sitting as a High Court Judge)
Case No: CL-2018-000726
Sa'ad Hossain QC and Joyce Arnold (instructed by Reynolds Porter Chamberlain LLP) for the Claimant
Ben Quiney QC and Jason Evans-Tovey (instructed by Mills & Reeve LLP) for the Defendant
Hearing dates: 18–19 February 2019
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 a Part 8 claim concerning a contract granting the claimant certain rights to sell products, including replica football kit, of the defendant. The claimant, SDI Retail Services Limited (“SDIR”), is part of the Sports Direct group. The defendant is The Rangers Football Club Limited (“Rangers”), whose home ground is the Ibrox Stadium in Glasgow. The contract is entitled “Retail Operations, Distribution and IP Licence Agreement” (“the Agreement”) and was entered into by SDIR and Rangers on 21 June 2017. Following a short extension it expired on 10 August 2018.
In broad terms the issue in the current proceedings is whether and how the contractual mechanism in the Agreement resulted in an amended contract regarding certain defined rights, called offered rights in the Agreement. Essentially the offered rights are threefold, relating to (i) the sale of Rangers branded products and replica kit at the Ibrox Stadium and the Rangers webstore (offered right 1); (ii) the sale, distribution and promotion of Rangers branded products other than replica kit (offered right 2); and (iii) the sale, distribution and promotion of replica kit and official rangers kit (offered right 3).
In outline, on 12 July 2018 Rangers sent a notice of offer to SDIR. That was in accordance with the mechanism in the Agreement following an offer from a third party, a competitor of Sports Direct. On 25 July 2018, SDIR sought to match and take on those offered rights on termination of the Agreement. Rangers contends that SDIR was not entitled to accept the offered rights in the narrow way it claims to have done but rather was subject to the material terms and related commercial arrangements, which it claims were contained in the notice of offer.
In this application SDIR seeks declarations from the court as to the meaning of relevant parts of the Agreement. In particular it seeks declarations as to the meaning of the terms “material terms” and “connected commercial arrangement” which feature in the contractual mechanism.
The present application is made against a background of ongoing disputes between SDIR and Rangers as to SDIR's role in supplying Rangers' brands to its fans and the public. In May 2016 Rangers sought to terminate an IP licence between it and a joint venture company it had with Sports Direct, known as Rangers Retail Limited (“RRL”). SDIR litigated by means of a derivative claim relating to RRL. It was given permission to proceed: . If the derivative claim had been successful the licence would have continued for a further five and a half years until early 2023.
However, SDIR and Rangers reached a settlement. RRL's trading activities would cease and the parties would enter a contract governing their future relationship. This led to the 21 June 2017 Agreement, which was to run until 31 July 2018. One aspect of the Agreement was that SDIR took over RRL's various rights including those in respect of replica kit and Rangers branded merchandise. In the Agreement these are called “Rangers Rights”. There are detailed provisions for the licence fee to be paid and the obligations in relation to providing the kit. There is no need to say anything more about these aspects of the Agreement.
Another aspect of the Agreement was its matching right provisions, which are the subject of the present Part 8 claim. In summary, the Agreement allowed Rangers to negotiate with third parties after 31 January 2018 so that they, not SDIR, provided the offered rights. If a third party made what the Agreement termed a third party offer in relation to the offered rights, SDIR had to be notified by means of a so-called notice of offer. SDIR could then choose to match what the third party was offering. If it successfully matched the notice of offer, the parties then entered into a further agreement on the same terms as the Agreement in respect of the offered rights and, if applicable, any connected commercial arrangements.
The matching right provisions had given rise to earlier litigation in July 2018. On 4 June 2018 Rangers had written to SDIR stating that it had received a third party offer. Later it was revealed that that offer was from LBJ Sports Apparel Limited, trading as the Elite Group, a competitor with the Sports Direct group. The letter enclosed a notice of offer and inquired whether SDIR was willing to match it. The notice of offer had a section entitled “Connected commercial arrangements”, with six paragraphs.
SDIR considered that the notice of offer did not comply with the requirements of the Agreement. In a letter to Rangers of 15 June 2018 it stated that the notice of offer sought to redefine material terms in a way inconsistent with the Agreement and did not set them out for each of the three offered rights separately.
On 20 June 2018 Rangers rejected the interpretation which SDIR placed on material terms. Rangers then indicated that it intended to accept the offer from the third party. SDIR applied to this court for an urgent interim injunction. SDIR's particulars of claim (later amended) set out its case about what the notice of offer should contain; why the notice of 4 June 2018 did not comply; and how the material terms as defined in the Agreement did not include some of what the notice had identified as such (the appointment of a retail director, working to maximise sales, sourcing of goods and treatment of employees, compliance with brand standards, corporate governance and independent assessment).
In his witness statement for that hearing SDIR's solicitor, Mr David Cran, referred en passant to the dispute about the interpretation of material terms in the Agreement. In his witness statement Mr Cran set out how, in his view, there were no practical difficulties for Rangers specifying in its third party offer the separate elements of each offered right. Rangers' solicitor, Mr James Blair, asserted in his first witness statement that SDIR was wrong as to the definition of material terms in the Agreement.
At a hearing on 2 July 2018 Bryan J granted interim injunctive relief. A few days later, on 4 July 2018, Mr Blair said in a second witness statement that Rangers did not believe that SDIR was right about the meaning of material terms. However, Rangers had provided it with the whole terms of the third party offer. It had told SDIR all the rights available for it and revealed all connected commercial arrangements.
On the return date of 10 July 2018 Phillips J continued interim relief until an adjourned return date at the end of the month. Until that time, his order read, Rangers should not enter any agreement with a third party unless first, it “set out the details, including the Material Terms (as defined in the Agreement) and the connected commercial arrangements, of the third party offer separately for each of the three Offered Rights”, and secondly, SDIR had given written notice as to whether it was willing to match the material terms of the third party offer in all material respects in relation to the offered rights.
Schedule 3 of the Phillips J's order then set out the preliminary issues of construction of the Agreement which were to be determined at the hearing on the adjourned return date. Among these were the meaning of connected commercial arrangements in the Agreement, what the Agreement meant by the requirement that the third party offer/notice of offer should set out the details including the material terms of each element separately, and how the Agreement operated to continue the relevant provisions for two years.
Before that adjourned hearing took place, on 12 July 2018 Rangers sent a further notice of offer to SDIR. It stated in the covering letter that it was in accordance with the expedited procedure in Phillips J's Order. The notice consisted of three separate offers, stated as “In respect of Offered Rights” 1, 2 and 3. There was no separate section about or mention of connected commercial arrangements.
In relation to offered right 1, there were thirteen paragraphs:
“In respect of Offered Right 1, we offer to provide to you the following:
1. We shall pay Rangers 20% of all receipts (excluding VAT) from the retail and online sale of kit and other products with a guaranteed minimum payment of £350,000 per annum. Payment shall be quarterly in arrears with the first payment due on 1 November 2018. If the sum due would not otherwise reach the guaranteed minimum with the 4th payment, it shall be increased to reach that minimum.
2. Rangers shall retain all royalties or other payments payable to it from its kit manufacturer. We shall have no claim in respect of any payments to be made to Rangers from third parties.
3. We shall be appointed the official retail partner of Rangers. There shall be no free sponsorship or advertising rights provided to us in respect of our appointment but we shall be invited to take out paid advertisements in all Rangers matchday programmes, on Rangers website, trackside at Ibrox Stadium and...
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