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Merchandising & Licensing Update - SDI Services Limited v The Rangers Football Club Limited

The relatively recent case of SDI Services v Rangers FC raises two interesting issues. The first relates to the construction of clauses in a Retail Agreement in light of the commercial relationship between the parties. The second is the Court's willingness to grant an injunction compelling a defendant to do something rather than abstain from doing something.

The relatively recent case of SDI Services v Rangers FC raises two interesting issues.  The first relates to the construction of clauses in a Retail Agreement in light of the commercial relationship between the parties.  The second is the Court's willingness to grant an injunction compelling a defendant to do something rather than abstain from doing something.

The Background Facts

In 2017 SDI Services, a subsidiary of Sports Direct, was involved in proceedings against Rangers.  The litigation lead to a Retail Agreement under which Sports Direct was granted the right to manufacture, distribute and sell Rangers branded football kit and other merchandise.  In 2018, this Agreement was the subject of further litigation.  The Court ordered an expedited trial given the imminent start of the Scottish Premier League football season.  The dispute concerned the provisions of the Agreement.

In June 2018, Elite Group had made an offer to Rangers for a non-exclusive deal. Rangers served notified Sports Direct who subsequently exercised their matching right under the terms of the Agreement.  This meant that Sports Direct matched the offer Elite had made.  Rangers declined to enter the deal with Sports Direct.  However, in September 2018, Rangers entered into a varied agreement with Elite for the manufacture and sale of kit. 

Sports Direct claimed it was not given the opportunity to match the second offer and was entitled to do so under the terms of the Agreement.  Rangers claimed that, having matched the earlier offer, Sports Direct was not entitled to match a second offer.  In other words, Sports Direct's matching right could not be exercised multiple times.

The issues in dispute which the Court had to determine were: (1) Under the terms of the Agreement, can Rangers enter into non-exclusive deals with third parties and, if so, whether Sports Direct has a right to match an offer made to Rangers by a third party; and (2) if Rangers breach the Agreement, is Sports Direct entitled to final injunctive relief restraining future breaches and also requiring Rangers to undo any existing breach?

The Judgment

Mr Justice Teare held that Sports Direct had obtained a very beneficial right to match offers made by third parties.  This right was to last 2 years.  This was the most natural interpretation of the relevant clauses and made commercial sense for both parties.  Rangers' construction (that Sports Direct were not permitted to match multiple offers) required a more convoluted reading of the provisions.  It was held that Rangers are prohibited from granting rights to third parties where Sports Direct has matched that offer.

Rangers had accepted that, if their case failed, their submissions on injunctive relief fell away because the obligation under the Agreement was negative (i.e. not to do something).  However, they disputed the grant of a "mandatory injunction": an injunction compelling Rangers to do something.

Mr Justice Teare held that a mandatory injunction to undo a breach is subject to a balance of convenience.  It will not be granted where the prejudice in restoring the original position heavily outweighs the advantage derived from restoration.

On the facts, Rangers had written to Sports Direct stating it would not enter into the originally matched agreement with Elite, but subsequently entered into a varied agreement with Elite.  They did so with their eyes open, fully aware that Sports Direct would likely object.  Whilst Rangers may be exposed to a claim by Elite, that is because of the action it took.  A mandatory injunction was granted.

Comment

The case highlights the difficulties which can arise where the relationship between parties to a licensing agreement breaks down.  Sports Direct and Rangers have been engaged in litigation over various issues for several years now.  This case dealt with the latest dispute over an agreement that was entered into on the back of previous litigation.  As such, there is an argument that a clean break between the parties would have been more constructive.

The case shines a light of construction of contractual provisions and the importance of clarity and commercial efficacy in drafting.  It also provides a clear summary of the circumstances in which a Court is willing to grant a mandatory injunction in relation to contractual breaches.  Such injunctions are common in intellectual property proceedings (e.g. orders for delivery up or destruction).  Whether we will see further disputes between Sports Direct and Rangers, only time will tell.

If you would like to know more about this topic, please contact James Corlett (james.corlett@fieldfisher.com) or your usual contact in Fieldfisher's Brand Development Team.

Co-authored by Josh Marshall.

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