HomeInsightsCourt of Appeal allows appeal by Sports Direct against decision relating to an injunction granted against Rangers Football Club due to its “flagrant” breach of IP Licence Agreement

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Facts

The claimant, SDI Retail Services Ltd (SDIR), is part of the Sports Direct group of companies.

The defendant, The Rangers Football Club Ltd, operates Glasgow Rangers Football Club.

The parties have been involved in a bitter and highly litigious dispute since 2016, primarily arising from Rangers’ attempts to replace SDIR with an alternative partner for the supply and sale of the Club’s replica kits and other branded merchandise.

In June 2017, the parties entered into a Retail Operations, Distribution, and IP Licence Agreement (the 2017 Agreement), compromising all disputes and proceedings between them and their directors, and appointing SDIR to operate and manage Rangers’ retail operations on an exclusive basis until 31 July 2018 (the Initial Term).

The 2017 Agreement provided that, in the last six months of the Initial Term, Rangers could enter negotiations with third parties for the grant of “Offered Rights” for the period after the expiry of the Initial Term, but had to give SDIR a two-year right after expiry of the Initial Term to match any offer received from a third party (the Matching Right). “Offered Rights” were defined as the right to operate and manage the Club’s retail operations and the right to perform certain activities in relation to various products, including the official and replica Rangers kits

In 2018, Rangers entered into a Technical Kit Supplier agreement with LBJ Sports Apparel Ltd (trading as the Elite Group) and Hummel A/S (the Elite/Hummel Agreement) for the manufacture and supply of official and replica kits for the 2018/2019, 2019/2020 and 2020/2021 seasons, without notifying SDIR of the offer or giving it the opportunity to exercise the Matching Right.

In July 2019, Lionel Persey QC, sitting as a Judge of the Commercial Court, found that Rangers had breached the 2017 Agreement by entering into the Elite/Hummel Agreement without adhering to the Matching Right provisions. He granted an injunction restraining Rangers from “performing”, or “assisting” Elite or Hummel to perform the Elite/Hummel Agreement.

In December 2019, Rangers applied for a declaration that the injunction did not prohibit it from seeking to recover from Elite sums said to be due to it under the Elite/Hummel Agreement, including by issuing proceedings in Scotland against Elite. SDIR opposed the application, maintaining that steps which facilitated, encouraged or promoted performance of Elite’s payment obligations were caught by the terms of the injunction.

In January 2020, Mr Persey QC granted the declaration sought, finding that the act of requiring monies to be paid did not amount to “assisting” a counterparty to perform an agreement. SDIR appealed that decision, arguing that Mr Persey QC had made specific errors in his reasoning.

Decision

In Phillips LJ’s view, in granting the declaration, the judge had not given sufficient, if any, consideration or weight to the broader context and purpose of the injunction as he should have done. In his ex tempore judgment of July 2019, in which he explained the reasons for the grant of the injunction, he had referred to enforcing the terms of the 2017 Agreement “as far as possible”. He had recognised that, by entering into the Elite/Hummel Agreement, Rangers had breached the 2017 Agreement. Therefore, Rangers should not only be prevented from performing the Elite/Hummel Agreement, but also should be required actively to repudiate it. The court could not control the actions of Elite, as Elite was not a party to the litigation, but it could prohibit Rangers from taking any steps to cause or contribute to Elite’s performance of the Elite/Hummel Agreement. In Phillips LJ’s view, this was plainly the broad purpose and intention of the injunction, and permitting Rangers to sue on the Elite/Hummel agreement was not enforcing the terms of the 2017 Agreement “as far as possible”.

Further, by using the court process to do so, the court would be enforcing an agreement that it had already held should not have been made and should, as far as possible, not be performed.

The judge had interpreted the injunction as preserving Rangers’ right to receive revenues under the Elite/Hummel Agreement, the result being that Rangers should be permitted to enforce that entitlement. In Phillips LJ’s judgment that analysis was flawed because:

  • Rangers’ right to receive revenues from Elite was a contractual right pursuant to an agreement that was being undone “as far as possible”;
  • the injunction did not confer some further or separate entitlement on Rangers to receive revenues from Elite;
  • the injunction did not (and could not) prevent Elite from making payments into Rangers’ bank account, which could be done without any involvement by Rangers;
  • Rangers was only entitled to receive payments in the sense that it was not restrained from receiving them and the injunction did not recognise or create a legally enforceable right to receive (or enforce) such payments; and
  • Rangers not being prohibited from receiving revenue from Elite did not justify the conclusion that the injunction permitted Rangers to sue Elite under the Elite/Hummel Agreement to recover that revenue.

Phillips LJ concluded that it was contrary to the clear purpose and intent of the injunction to grant Rangers the declaration that it sought.

As for the terms of the injunction, they contained nothing that ran counter to such purpose and intention. They amounted to a comprehensive order that Rangers “undo” the Elite/Hummel Agreement as far as within its power.

As for the meaning of the word “assist” in the injunction, around which the judge’s decision had revolved, Phillips LJ said that, in context, it plainly intended to restrain Rangers from taking any steps, including (contrary to the judge’s findings) coercive steps, that would further or promote performance of the Elite/Hummel Agreement by Elite. The word conveyed actions of the type that would lead to accessory liability for another’s wrongful conduct, e.g. “inducing” or “procuring” a breach. The prohibition was of any action that caused or contributed to performance of the Elite/Hummel Agreement by Elite, which included suing Elite for sums due under it.

However, Phillips LJ found that if Elite were to sue Rangers for damages for repudiatory breach of the Elite/Hummel Agreement, it would not be a breach of the injunction for Rangers to seek to set-off the debts owed by Elite, provided Rangers did not also counterclaim for such debts. Demanding payment of, and suing for, a debt was an exercise in encouraging and procuring performance of the relevant payment obligation by the debtor, either by eliciting payment or converting the obligation into a judgment, and amounted to “assisting” performance. Asserting a set-off, however, was purely a defence to an opposing claim, rather than assisting the other party to perform the relevant payment obligation.

Phillips LJ also said that if Rangers were to invoice Elite for revenues due, that would also be “assisting” Elite to make payment and perform its obligations, and therefore a breach of the injunction.

Lord Justice Baker agreed with Phillips LJ’s reasoning. Lord Justice Underhill dissented, stating, amongst other things, that it was not a natural use of language to describe the initiation of proceedings by Rangers against Elite for payments due under the Elite/Hummel agreement as “assisting” Elite to perform its obligations.

The appeal was allowed. (SDI Retail Services Ltd v The Rangers Football Club Ltd [2021] EWCA Civ 790 (27 May 2021) — to read the judgment in full, click here).