SDI Retail Services Ltd v The Rangers Football Club Ltd

The parties to this action, Sports Direct and Rangers Football Club (“Rangers”), are keen on litigation. They were before this court in 2017 in a dispute concerning the right to sell Rangers branded merchandise and replica football kits; see SDI Retail Services Limited v King and others [2017] EWHC 737 (Ch). That litigation led to a ‘Retail Operations, Distribution and IP License Agreement’ dated 21 June 2017 (“the Retail Agreement”), which grants the Claimant, an indirect subsidiary of Sports Direct International Plc, certain rights to manufacture, sell and distribute Rangers branded football kits and other merchandise. Disputes concerning that agreement brought the parties back before the court in July 2018. Notwithstanding the resolution of those disputes a further dispute arose in September 2018 and so the parties have returned to the court in October 2018. This latest action is being determined on an expedited basis, because it is the start of the football season and Rangers has a new “home strip”, demand for which is at its height. It is doubtful that the parties’ appetite for litigation will be satisfied by this latest action.

There are, in essence, two matters for the court to determine. The first concerns the true construction of the Retail Agreement, in particular whether in the circumstances of this case Rangers is free to do deals with third parties, and, if they wish to do so, whether they must give Sports Direct a right to match any third party offers. The second issue only arises if it is determined that Rangers has acted in breach of the Retail Agreement. That issue is whether or not Sports Direct is entitled to final injunctive relief against Rangers, restraining them from future breaches and requiring them to undo their existing breach.

The Retail Agreement arose out of the settlement of a previous dispute between the parties concerning a joint venture company, Rangers Retail Limited (“RRL”) which they formed in January 2015. Pursuant to an IP Licence and Rights Agreement dated 27 January 2015, Rangers granted RRL the exclusive right to sell Rangers branded merchandise and replica football kits. It was intended at that time that the joint venture would last many years; the 2015 Agreement was only terminable on 7 years’ notice.

Such co-operation was not to be. In May 2016, the parties fell out, and Rangers purported to terminate the 2015 Agreement for an alleged repudiatory breach. Sports Direct then brought a derivative action on behalf of RRL against Rangers and certain of its nominated directors of RRL. That claim, along with other related litigation, was settled in June 2017. As part of that settlement, it was agreed that RRL’s trading activities would cease, and a new agreement was reached between the parties concerning the manufacture, sale and distribution of Rangers branded merchandise.

The Retail Agreement is dated 21 June 2017. Recitals 1 and 2 record the history set out above. Recital 3 explains that “Rangers wishes to appoint SDIR to operate and manage the Retail Operations on an exclusive basis and SDIR wishes to accept such appointment. In relation to such appointment, Rangers also wishes to grant and SDIR wishes to receive: (a) the non-exclusive right to perform the Permitted Activities in relation to the Branded Products, replica Kit and Additional products; and (b) the non-exclusive right to manufacture (and/or have manufactured) the Branded Products. Rangers and SDIR shall co-operate with each other in relation to the Retail Operations on the terms of this Agreement.”

Clause 3 of the Retail Agreement provides (so far as is relevant) as follows:

The capitalised terms in those provisions are defined in clause 1 (so far as is relevant) as follows:

Clause 13 is headed ‘Assignment and Sub-contracting’. Clause 13.2 provides:

Schedule 3 to the Retail Agreement contains the ‘Commercial Terms’. These were expressly mentioned in clause 6 of the Retail Agreement as being the commercial terms to which the parties had agreed. Paragraph 1.1.4 provides

At the centre of the present dispute is Paragraph 5 of Schedule 3, which provides (so far as is relevant) as follows.

On 4 June 2018, Rangers informed Sports Direct that it had received an offer from a third party, now known to be the Elite Group (“Elite”), and offered Sports Direct the opportunity to match that right. There was then a dispute between the parties concerning the information required to serve a ‘Notice of Offer’ within paragraph 5.2 of Schedule 3 to the Retail Agreement. Litigation ensued; injunctive relief was granted to Sports Direct by this court, preventing Rangers from accepting the Third Party Offer whilst this dispute was on foot.

On 12 July 2018, Rangers served a new Notice of Offer. Sports Direct exercised its matching right in respect of this offer on 25 July 2018.

Following Sports Direct’s exercise of its matching right, Rangers’ then-solicitors sent a letter to Sports Direct, dated 26 July 2018, stating that “our client accepts that it may not enter into any contract in respect of any of the Offered Rights with any other party.” The letter continued: “For the avoidance of doubt this means that Rangers shall not now enter into an agreement with the third party that made the Third Party Offer in respect of the arrangements set out in the Third Party Offer notified to you on 12 July 2018.”

On 30 July 2018, before Phillips J, Sports Direct decided not to pursue the continuation of its injunction and certain issues of construction of the Retail Agreement were resolved by consent.

The parties have, since that time, sought to reach an agreement in respect of the matched offer, in accordance with paragraph 5.7. Such agreement has not been forthcoming, and is the subject of further dispute; before me, each party sought to characterise the other’s behaviour during these negotiations as unreasonable.

On 11 September 2018, Rangers entered into a new agreement with Elite (the “Elite Agreement”). Rangers did not, before entering into that agreement, first notify Sports Direct of Elite’s offer in accordance with the matching right provisions. Sports Direct only learned of the Elite Agreement on 25 September, after having seen a statement on Rangers’ website, describing Elite as “our new non-exclusive partners”, and providing a link to buy the new kit from a website run by Elite. That announcement on Rangers’ website in fact went live at 17:30 on 21 September, just 15 minutes after a letter was sent by Rangers’ solicitors to Sports Direct, which set out Rangers’ view that it “retains the right to grant non-exclusive rights on same or similar terms to those which will be granted pursuant to the Further Agreement with SDIR” (in respect of the matched July 2018 offer), but made no mention of the Elite Agreement which had been signed ten days earlier.

The full terms of the Elite Agreement were not before me, but I am told that it grants Elite a set of non-exclusive rights which duplicate, and do not exceed, the non-exclusive rights matched by Sports Direct in July 2018. I was told that there were 9 principal differences between it and the offer of Elite which Sports Direct had matched in July. The Elite Agreement made no mention of the exclusive rights which were included in the matched offer. The payment mechanism was different, the governing law was different, the reporting obligations were different and the payment dates were different. Significantly, the Elite Agreement contained a warranty by Rangers that it has “all necessary rights to grant [Elite] the rights in this Agreement”, and granted Elite an indemnity against suit by SDIR (which is specifically named) in relation to the agreement.

The questions of construction which arise are set out in an Order for Directions made by Andrew Baker J. on 3 October 2018 at paragraph 2. One question relates to paragraph 5.8 of Schedule 3 and the other relates to paragraph 5.2 of Schedule 3. The latter asks the question whether Sports Direct has a recurring (or “evergreen”) right during the currency of paragraph 5 of Schedule 3 to match any Third Party Offer made to Rangers during that period, even if Sports Direct has already matched an offer in respect of the relevant Offered Right(s) which are the subject of the Third Party Offer. If it does, then Rangers will have been in breach of that provision by failing to give Sports Direct the opportunity to match Elite’s offer of September 2018. A similar question is asked as to the scope of the prohibition on dealing with third parties imposed by paragraph 5.8.

The meaning of a contract is that which the words used by the parties would convey to a reasonable person with the background knowledge which was reasonably available to the parties at the time they made their contract. Neither party relied upon any particular background knowledge available to the parties when they made their contract. Thus the court must seek to construe the words used by the parties having regard to the contract as a whole, the context in which the agreement was made and its commercial purpose.

The submission made by Mr. Hossain QC on behalf of Sports Direct is that the language of paragraph 5.8 is clear. Where Sports Direct has exercised its matching right “Rangers shall not approach, solicit, tender for, negotiate with or enter into any agreement with that third party or any other third party in respect of the Third Party Offer and/or any of the Offered Rights (and, in each case, any connected commercial agreements if applicable) in respect of which the matching right is exercised.” It is submitted that Rangers’ deal with Elite in September 2018 was in breach of this clause. Mr. Hossain also submitted that the language of paragraph 5.2 is clear. When Rangers receives an offer from a third party in relation to any of the Offered Rights (a defined term) “Rangers shall provide [Sports Direct] with written notice of the terms of the Third Party Offer” so that Sports Direct has the opportunity to match the offer pursuant to paragraph 5.6. The offer from Elite which Rangers accepted in September 2018 was such an offer. Thus Ranger’s failure to give Sports Direct a right to match that offer was a breach of this clause also.

The submission made by Mr. Hofmeyr QC on behalf of Rangers is that Sports Direct, having matched an offer in relation to one or more of the Offered Rights, is not entitled to another right to match an offer in relation to the same Offered Right. Thus, as he put the matter in his oral submissions, the dispute is not about what the words of paragraphs 5.8 and 5.2 mean but as to when they apply. Mr. Hofmeyr’s submission was complex, there being no particular provision which said in terms that Sports Direct, having matched an offer, was not entitled to do so again in relation to the same Offered Right. His submission involved eight elements. The first six concerned the overall purpose of the Retail Agreement, the definition of Offered Rights, the nature of the matching right conferred on Sports Direct, the effect of exercise of the matching right and the question whether that right can be exercised multiple times. The seventh and eighth concerned the commercial consequences of the rival constructions. It will be necessary to comment upon each of those steps in Mr. Hofmeyr’s sustained and carefully constructed argument, which was spread over some 30 pages.

Mr. Hofmeyr first submitted that the overall purpose of the Retail Agreement was to grant Sports Direct a licence to exercise certain rights in relation to Rangers merchandise, some of which rights were exclusive and some of which were non-exclusive. That is true and is apparent from the third recital, clause 3 and clause 13.2. However, Schedule 3 paragraph 5 provided for a possible continuation of the relationship between Rangers and Sports Direct after the initial term on the basis of terms offered by third parties which Sports Direct had matched (a procedure labelled as “replacement” by Mr. Hofmeyr, to be contrasted with renewal – where no offers are received from third parties and Sports Direct elects to renew on the existing terms– and with termination – where the option to renew is not exercised). Whereas clause 3 of the Retail Agreement identifies the “Rangers Rights” which are granted to Sports Direct (some of which are exclusive and others of which are non-exclusive) paragraph 5 of Schedule 3, which deals with matching rights, does not use that definition of “Rangers Rights”; it uses a different definition of Offered Rights, which are not described as exclusive or non-exclusive. Thus, when construing paragraph 5 of Schedule 3 caution must be exercised before reading into it the division of Rangers Rights during the initial period of the Retail Agreement into exclusive and non-exclusive agreement.

The matching right provisions of paragraph 5 appear to be concerned with the terms on which Rangers and Sports Direct might do business after the expiry of the initial period. That is suggested by paragraph 5.1, which permits Rangers to approach third parties in relation to the Offered Rights from 6 months before expiry of the initial term of the contract. Depending upon the terms of the third party offer which Sports Direct matches pursuant to paragraph 5.6 and the further agreement entered into pursuant to paragraph 5.7, business might be done between the parties after the expiry of the initial period on a different basis from that contemplated and provided for in the Retail Agreement. Paragraph 5.7 provides that the further agreement between Rangers and Sports Direct will be on the same terms as the Retail Agreement save only as to any variation required to effect the Material terms of the matched offer. Thus there is a limit to the extent to which the commercial purpose of the initial period of the agreement can be used to interpret the provisions relating to the matching rights which determine the basis upon which business may be conducted by the parties after the initial period of the agreement.

Mr. Hofmeyr next observed that the definition of Offered Right in paragraph 1.1.4 of Schedule 3 is in the singular. It is true that the title is “Offered Right”, but the definition refers to “each of the following rights (in whole or in part)” and three different rights are then listed. In those circumstances I do not consider that much, if any, weight can be given to the title being in the singular. Mr. Hofmeyr made a similar submission in relation to the heading of paragraph 5 which he observed was “Matching Right” in the singular, which use is repeated in the text of paragraph 5. That observation is correct, but I do not consider the point is of much, if any, weight. There is of course only one opportunity to match an offer when it is notified to Sports Direct. If Sports Direct elects not to match the offer, it cannot change its mind. That however is different from saying that a right to match an offer cannot arise once an earlier offer has been matched.

Mr. Hofmeyr submitted that paragraph 1.1.4 did not purport to contradict the bifurcated scheme of the Retail Agreement which provides for the grant of exclusive and non-exclusive rights. However, as I have already observed, the definition of “Offered Right” is different from the definition of “Rangers Rights”. The former is not divided into exclusive and non-exclusive rights. Whether they are or not exclusive will depend upon the terms of the third party offer which is matched.

Mr. Hofmeyr’s third submission was that the matching right provisions in paragraph 5 are concerned with the acquisition by Sports Direct of rights the content of which are set out in paragraph 1.1.4 (which contains the definition of ‘Offered Right’). Whilst a third party offer to which the matching right provisions apply must be in relation to one or more of the Offered Rights as defined, the content of the right acquired by matching (for example, whether it is an exclusive or a non-exclusive right), and the terms upon which it may be exercised, will depend upon the terms of the offer which is matched. Paragraph 5.7 provides that the further agreement between Rangers and Sports Direct will be on the same terms as the Retail Agreement save only as to any variation required to effect the Material terms of the matched offer.

Next, Mr. Hofmeyr submitted that it was a condition of the matching right that Sports Direct must match the terms of the third party offer so that Rangers was in no worse a position than it would have been had it accepted the third party’s offer. That appears to be so.

Mr. Hofmeyr’s fifth point was that the prohibition in paragraph 5.8 “does not purport to prevent the grant of a non-exclusive right to a third party which has the same content as an Offered Right already acquired by Sports Direct.” This submission goes to the heart of the dispute between the parties. So does his related sixth point, which is that the matching right cannot be exercised multiple times in relation to the same Offered Right, and that it would be “nonsensical and uncommercial for paragraph 5 to so provide.” This is also the subject of his seventh and eight points. I shall therefore approach these points together. Mr. Hossain submitted that Mr. Hofmeyr never explained how the words used in paragraphs 5.2 and 5.8 were to “to be read or glossed” to produce the result for which he contends.

The prohibition in paragraph 5.8 is not to “approach, solicit, tender for, negotiate with or enter into any agreement with that third party or any other third party in respect of the Third Party Offer and/or any of the Offered Rights … in respect of which the matching right is exercised.” It is to be noted that the prohibition is on dealing not only with the third party who has made the matched offer but also on dealing with any other third party. It is also to be noted that the prohibition is in respect of not only the Third Party Offer but also in respect of “any of the Offered Rights …in respect of which the matching right is exercised.” I have difficulty in understanding why Mr. Hofmeyr submitted that the prohibition “does not purport to prevent the grant of a non-exclusive right to a third party which has the same content as an Offered Right acquired by Sports Direct”. It seems to me that the circumstance that the prohibition applies to “any other third party” and is “in respect of any of the Offered Rights … in respect of which the matching right is exercised” indicates that the prohibition is of wide not narrow compass. I am unable to discern in paragraph 5.8, read as part of and in the context of the Retail Agreement as a whole, any words which have the effect that there is no prohibition of the grant of a non-exclusive right to a third party which has the same content as an Offered Right acquired by Sports Direct. Mr. Hofmeyr relied upon the words “in respect of which the matching right is exercised” but they govern the Offered Rights in respect of which the prohibition applies and in any event do not appear to support the meaning for which Mr. Hofmeyr contends.

Of course where Sports Direct obtains a non-exclusive licence the nature of the right expressly contemplates that others may be given a non-exclusive licence to the same effect. That is contemplated by the express words of clause 13.2.2. But the question is whether paragraph 5.8 restricts Rangers’ ability to grant such a right. The terms of that paragraph appear to do so. If an offer is made with regard to any of the Offered Rights (as defined), and Sports Direct matches that offer, then the prohibition provided by paragraph 5.8 comes into effect, and Rangers is thereupon prohibited from approaching the third party or any other third party with regard to the Offered Right in respect of which the matching right has been exercised. But if Sports Direct elected not to exercise its matching right then Rangers is, on the terms of paragraph 5.8, at liberty to grant a further non-exclusive right to a third party.

There are also no words in paragraph 5.2 excluding Rangers’ duty to provide Sports Direct with notice of a third party’s offer where Sports Direct has matched an earlier offer and there is, in my judgment, nothing in the rest of the Retail Agreement read as a whole which requires paragraph 5.2 to be read a subject to such a limitation.

Mr. Hofmeyr submitted that to require matching on a repeated basis would be nonsensical and uncommercial because its only purpose would be to enable Sports Direct to block the grant of non-exclusive rights to third parties and thus exercise exclusivity over a right where it did not have exclusivity under the Retail Agreement and would not have exclusivity under the further agreement.

In response, Mr. Hossain submitted that there was a sound commercial reason for Sports Direct to have the ability to obtain non-exclusive rights on a repeated basis, namely, to benefit from terms of a further offer if they were more advantageous, particularly if the subsequent offer came from the very party who had made the first offer. By contrast, if Sports Direct had only one matching right, its competitive position would be seriously undermined by Rangers’ ability to grant further rights to a third party on more favourable terms than those granted to Sports Direct, immediately after Sports Direct had used up its opportunity to match.

Mr. Hofmeyr said that it makes no sense to complain of competition when a right is obtained on a non-exclusive basis. But I think it does make sense. By matching an offer, Sports Direct is agreeing to trade on the same terms as a potential competitor. If that potential competitor then offers to trade on more favourable terms, it does not appear to me uncommercial to allow Sports Direct to trade on those same terms. If the third party can change its mind as to the terms upon which it offers to trade, it does not appear to me uncommercial to allow Sports Direct to match the changed bid. There appeared to me to be force in Mr. Hossain’s submission that the aim of this part of the agreement was to ensure that Sports Direct can contract on the best terms that Rangers is offering to third parties. This does not appear to me to be analogous to a case of “buyer’s regret” as suggested by Mr. Hofmeyr.

Mr. Hofmeyr suggested that Mr Hossain’s construction of the scheme would be unworkable. He asked, rhetorically: “if Sports Direct has matched two (differing) offers and sells a replica shirt, which contractual provisions apply?”. If a further agreement were reached its provisions would, I suspect, make clear that the earlier agreement was no longer of effect. But if it did not then Mr. Hossain’s answer was that Sports Direct would nominate the agreement under which it was acting. It is difficult to evaluate how practical this would be without having a full understanding of how this retail business works. Suffice it to say that I am not persuaded that the construction advanced by Mr. Hossain would be nonsensical, uncommercial or impractical.

Paragraph 5.9 appears to me to be consistent with the construction for which Sports Direct contends, because it states in terms that “any new or amended offer or indication of interest from a third party in respect of any of the Offered Rights shall be a separate Third Party Offer and the terms of this paragraph 5 shall apply”.

However, paragraph 5.9 is expressly stated to be “subject to paragraph 5.8”. Mr. Hofmeyr submitted that the effect of “subject to paragraph 5.8” was that if a matching right had been exercised, paragraph 5.9 did not apply.

In considering this submission it is necessary to bear in mind that, although paragraph 5.8 applies where an offer has been matched, the effect of that paragraph is to impose a prohibition upon Rangers’ ability to deal with third parties. Paragraph 5.9 contemplates that Rangers might receive a new or amended offer from a third party. By making paragraph 5.9 subject to paragraph 5.8, the parties are making clear that Rangers cannot negotiate with that third party in respect of the new or amended offer if some other offer has been matched. I therefore consider paragraph 5.9 to be an express recognition that there can be multiple matching rights.

Thus, for the duration of the prohibition imposed by paragraph 5.8, Sports Direct is able to block negotiations with third parties and, as a result, render its matched right in practical terms exclusive. However, Mr. Hossain did not claim an unending exclusivity. He submitted that in so far as exclusivity is brought about by the operation of paragraph 5.8 it is exclusivity of a limited duration, namely, whilst the mechanics of the further agreement required by clause 5.7 are gone through. That, he says, is the result of reading clauses 5.7 and 5.8 together. Mr. Hossain accepts that if a non-exclusive offer is matched and an agreement giving effect to that matched offer is reached, then the prohibition in paragraph 5.8 will cease. It is true that it will come into effect again in the event that a further offer is matched, but Sports Direct may not match a further offer if it is not in its interests to do so (in which event the prohibition in paragraph 5.8 would not come into effect).

It seems clear that Sports Direct has obtained from paragraph 5 of Schedule 3 a very beneficial right to match offers by third parties, which right was agreed to last for two years from the expiry of the initial term; see paragraph 5.14. Thereafter the matching provisions of paragraph 5 cease to be effective. It may be that Rangers would prefer not to be as limited in their ability to deal with third parties as they are by paragraph 5 of Schedule 3, but I am unable to accept that the commercial consequences are so extreme that the meaning which paragraph 5, read in the context of the whole of the Retail Agreement, would convey to a reasonable person cannot be the meaning which Mr. Hossain has contended for.

For the reasons set out above I answer the two questions posed by paragraph 2 of the Order for Directions dated 3 October 2018 in the affirmative. The prohibition imposed on Rangers by paragraph 5.8 and the obligation imposed on Rangers by paragraph 5.2 apply where Sports Direct has already exercised its matching right.

The injunctions sought by Sports Direct are as follows:

The court has jurisdiction to grant final injunctive relief under section 37(1) of the Senior Courts Act 1981 where “it appears to the court to be just and convenient to do so”.

For Sports Direct Mr. Hossain submitted that when a court is concerned with final as opposed to interlocutory relief an injunction directed at restraining or undoing a breach of a negative covenant (as in this case) the claimant is prima facie entitled to such an injunction. It will only be refused when to grant the order would be unjust or unconscionable.

For Rangers, Mr Hofmeyr submitted in his Skeleton Argument that injunctive relief should be refused where damages were an adequate remedy. However, in his oral submissions he told me that he had instructions to offer an undertaking in the terms of the first two injunctions in the event that his submissions as to construction failed (as they have) but submitted that the third (undoing) injunction should be refused for several reasons.

In these circumstances it is necessary to refer to the principles which govern the grant of injunctive relief when it is sought on a final basis. The law concerning the grant of a final injunction to restrain a breach of restrictive covenant is described in Chitty on Contracts (32^nd ed, 2015) at [27-065], in the following terms:

“Where a contract is negative in nature, or contains an express negative stipulation, breach of it may be restrained by injunction. In such cases an injunction is normally granted as a matter of course, so that the fact that “damages would be an adequate remedy … is not generally a relevant consideration where the injunction restrains the breach of a negative covenant.” But as the remedy is an equitable one, it is in principle a discretionary remedy and it may be refused on the ground that its award would cause such “particular hardship” to the defendant as to be oppressive to him. An injunction would not be “oppressive” merely because observance of the contract was burdensome to the defendantor because its breach would cause little or no prejudice to the claimant, for, in deciding whether to restrain breach of a negative stipulation, the court is not normally concerned with “‘the balance of convenience or inconvenience”. This rule, however, applies only to a prohibitory injunction restraining a defendant from future breaches. If the defendant has already broken his contract (e.g. by fencing land that he promised to leave open) he may be ordered by a mandatory injunction actually to undo the breach. Such an order is subject to a “balance of convenience” test, and may, accordingly, be refused if the prejudice suffered by the defendant in having to restore the original position heavily outweighs the advantage that will be derived from such restoration by the claimant. On the other hand, the court will also, in applying the balance of convenience test, take account of the nature of the breach. […]”

The principle that a claimant is prima facie entitled to a prohibitory injunction to restrain future breaches of restrictive covenant is reflected in the following three cases. The first is the influential statement of Lord Cairns LC in Doherty v Allman (1878) 3 App Cas 708, 720:

“If parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contract between the parties. It is not then a question of the balance of convenience or inconvenience, or of the amount of damage or of injury—it is the specific performance, by the Court, of that negative bargain which the parties have made, with their eyes open, between themselves.”

The second is the statement of Colman J in Insurance Co v Lloyd’s Syndicate [1995] 1 Lloyd’s Rep 272, 277, that cases refusing an injunction are:

“exceptional cases where the granting of an injunction would be so prejudicial to a defendant and cause him such hardship that it would be unconscionable for the plaintiff to be given injunctive relief if he could not prove damage.”

The third is the decision of the Court of Appeal in Araci v Fallon [2011] EWCA Civ 668. In that case, the defendant jockey had agreed not to ride a rival horse in the Epsom Derby, having been asked by the claimant horse-owner to ride the claimant’s horse. In breach of that covenant, the defendant agreed to ride a third party’s horse. On the morning of the race, the Court of Appeal granted the claimant an injunction restraining the defendant from so doing. (Although there had been no trial the appeal was considered on the basis that there had been a breach; see paragraph 30 per Jackson LJ and paragraph 69 per Elias LJ.) At [61], Jackson LJ said:

“I quite accept that the grant of an injunction would be a grievous blow for the defendant, but that would not be oppressive or unjust. The defendant has voluntarily entered into a contract for a substantial reward, which prohibits him from riding Recital this afternoon. The defendant has brought this present predicament upon himself by his own deliberate and cynical disregard of a contract recently entered into.”

Although Chitty states that in the case of final mandatory injunctions the test is the “balance of convenience” I am confident that this phrase is not used in the sense in which it is used when an interlocutory injunction is sought. Rather, as Chitty says in terms, it permits an assessment of the prejudice which would be caused by the injunction, whether it “heavily outweighs” the advantage to the claimant. If it does so then the grant of the injunction may be oppressive or unjust. It may well be easier to establish that in the case of a mandatory injunction than in the case of a prohibitory injunction. But one must be careful not to place too much weight on the formal distinction between mandatory and prohibitory injunctions. Lord Hoffmann said in National Commercial Bank Jamaica Limited v Olint Corpn Ltd [2009] UKPC 16, at [20], that “arguments over whether the injunction should be classified as prohibitive or mandatory are barren: see Films Rover [1987] 1 WLR 670, 680. What matters is what the practical consequences of the actual injunction are likely to be.” That was said in the context of an interim injunction but I consider that, in exercising its discretion to grant or refuse a final injunction, the court should similarly look to the substance of the injunction sought rather than its form.

When a court is called upon to grant a final injunction to enforce a contractual prohibition, it has ex hypothesi already determined the dispute in the applicant’s favour. In those circumstances, in my judgment, an injunction – whether mandatory or prohibitory in form – will usually be granted but may be refused where it would be unjust or unconscionable. Thus is Wakeham v Wood (1982) 43 P. & C.R. 40, the court granted an injunction requiring the defendant to demolish a building blocking the claimant’s sea view, which had been built in breach of restrictive covenant. Waller LJ said at pp.43-44:

“The authorities show that in the case of express negative covenants, that is where an agreement has been made that a particular thing is not to be done an injunction will be granted to restrain a breach. And where a defendant commits a breach of a negative covenant with his eyes open and after notice the court will grant a mandatory order, although there is and must be some limitation to this practice: e.g. see per Astbury J. in Sharp v. Harrison …”

In Sharp v Harrison [1922] 1 Ch. 502 Astbury J quoted with approval at p.510 a passage in Kerr on Injunctions which said that a mandatory injunction may be refused if it would be

“out of all proportion to the requirements of the case, and would operate with extreme harshness on the defendant.”

It is in the light of those principles that the court must decide whether to grant the injunctions sought in the exercise of its discretion pursuant to section 37(1) of the Senior Court Act 1981.

Ordinarily, it would be appropriate for this Court to accept Rangers’ undertakings in the terms of the first and second injunctions sought, so rendering it unnecessary to grant those injunctions. However, I am persuaded that the circumstances of this case make it appropriate to grant the injunctions. As noted above (see paragraph 13) Rangers accepted by letter dated 26 July 2018 that it could not “now enter into an agreement with the third party that made the Third Party Offer in respect of the arrangements set out in the Third Party Offer notified to you on 12 July 2018.” It seems likely that it was in the light of that letter that Sports Direct decided not to press for the continuation of an injunction on 30 July 2018. Yet on 11 September 2018 Rangers entered into the Elite Agreement (see paragraph 16 above). That unheralded change of mind makes it just to grant the injunctions sought.

The third injunction was the subject of most argument, since it requires Rangers to take positive steps in respect of the Elite Agreement (the “undoing” injunction).

For Sports Direct, Mr Hossain submitted that the injunction should be granted because Rangers’ breach had caused harm to Sports Direct, Rangers had entered into the Elite Agreement “with its eyes open” and Rangers had done so without notice to Sports Direct notwithstanding the terms of its 26 July letter. If relevant, he submitted that damages would not be an adequate remedy for Sports Direct, for (in short summary) four reasons: (i) the grant of an injunction will incentivise Rangers to reach a further agreement with Sports Direct in respect of the matched July offer; (ii) Sports Direct’s damages may be difficult to assess; (iii) Sport’s Direct’s damages may exceed the £1m cap in clause 16.3 of the Retail Agreement or be excluded as “indirect or consequential loss” under clause 16.2 of the Retail Agreement (relying for this submission upon AB v CD [2014] EWCA Civ 229); (iv) Rangers may not be in a financial position to meet a substantial damages award.

For Rangers, Mr. Hofmeyr submitted that the injunction should not be granted because, prior to this dispute, Sports Direct had permitted Rangers to grant non-exclusive rights to third parties, and Rangers had entered into the Elite Agreement in circumstances where Sports Direct had been dilatory in reaching the further agreement consequential upon the matching offer. Rangers wished to make merchandise available to its supporters notwithstanding the deadlock between Sports Direct and Rangers. Mr. Hofmeyr submitted that the effect of the injunction would be to force Rangers to repudiate the Elite Agreement but would be unlikely to achieve anything because Elite may not accept the repudiation as terminating the agreement. Finally he submitted that damages would be an adequate remedy for Sports Direct. In that regard, he submitted that Sports Direct’s losses are purely pecuniary, that they would in fact not be difficult to assess, that they are unlikely to reach the contractual £1m cap, and that Rangers is in a healthy financial position and will be able to meet any award of damages.

Given the circumstances in which Rangers entered into the Elite Agreement, namely, without giving any notice of their intention to do so notwithstanding their letter of 26 July 2008 and with their “eyes open” I consider there to be a cogent case for a mandatory “undoing” injunction. I do not consider that any of the circumstances relied upon by Mr. Hofmeyr explain or justify Rangers’ conduct. In particular, the suggestion that the Elite Agreement was necessary to ensure that supporters could buy merchandise is hollow in circumstances where Sports Direct had offered to sell replica kit without prejudice to the dispute between the parties.

With regard to the Elite Agreement Mr. Hofmeyr accepted in argument that the court is not prevented from granting an injunction solely because a third party’s contractual rights may be harmed. In the Araci case, the Court of Appeal ordered the defendant jockey, in effect, to breach his agreement with a third party horse-owner on the morning of the Derby in which he was due to race. At [74], Elias LJ said that “The adverse effect of the injunction on the [third party] owners is unfortunate, but innocent third parties are often prejudiced when injunctions are granted to enforce lawful covenants restricting a person’s freedom to work.” In the present case, I consider that the terms of the Elite Agreement make clear that both Rangers and Elite entered into that contract fully aware of the risk that Sports Direct would object to it. Moreover, by the warranties contained in it, the Elite Agreement provides a clear mechanism for protecting Elite in these circumstances. Whilst it cannot be known how Elite will react to a repudiation of the agreement by Rangers it appears to me to be unlikely that the injunction would achieve nothing.

There is a risk that damages may not be an adequate remedy having regard to the cap on damages and the exclusion of consequential losses. But more significantly, in my judgment, this is not a case where it can be said that the grant would be out of all proportion to the requirements of the case or that the order would operate with extreme (or any) harshness on Rangers. It will be exposed to a claim by Elite but that is because of action taken by Rangers with its eyes open to the risk, as the indemnity provisions of the Elite Agreement make clear.

For these reasons I have concluded that Sports Direct is entitled to the “undoing” injunction. However, it is necessary to consider its terms. It is well established that an injunction, especially a mandatory injunction, must be in clear and precise terms (see e.g. Redland Bricks v Morris [1970] AC 652, 666). In this regard, I consider the terms of the third injunction set out above to be insufficiently precise.

Accordingly, I grant Sports Direct a third injunction on the following terms:

“Rangers shall:

(1)

not perform the Elite Agreement;

(2)

not assist Elite to perform the Elite Agreement; and

(3)

inform Elite that it will not perform the Elite Agreement.”

Since the form of that injunction is different from the form in which it was sought the parties may, if they wish, make observations on its drafting when judgment is handed down.

My understanding, from paragraph 149 of Mr. Hofmeyr’s Skeleton Argument, is that damages are not to be determined at this hearing but that direction may be given for their determination. I request the parties to agree the necessary directions.

In summary: