SDI Retail Services Ltd v The Rangers Football Club Ltd

This matter first came before me on 13 December 2018 for the hearing of a CMC. One of the principal matters for determination at that hearing was the Claimant’s (“SDIR”) application to amend its Particulars of Claim in order to add two additional claims. I adjourned that application to allow the Defendant (“Rangers”) to submit further evidence of fact in response to that application.

The CMC had been listed pursuant to the order of Teare J. dated 24 October 2018. On that day Teare J. gave judgment in respect of those liability issues which were at that time in issue between the parties. These issues arose out of a Retail Operations, Distribution and IP Licence Agreement (“the Retail Agreement”) dated 21 June 2017. The Retail Agreement granted SDIR the exclusive right to operate and manage “the Retail Operations”, defined as the retail sale of Branded Products, Replica Kit and additional products at Rangers Ground and Megastore and on the Rangers Webstore, together with other non-exclusive rights. The main issue before Teare J. concerned the true construction of the Retail Agreement, and in particular whether Rangers was, in the circumstances of the case before him, free to do deals with third parties and, if they wished to do so, whether they were under a contractual obligation to give SDIR a right to match any third party offer (“matching rights”). The third party in question was LBJ Sports Apparel Limited t/a “Elite” (“Elite”). Teare J. found that Rangers had breached the Retail Agreement by entering into a separate agreement with Elite (“the Elite Agreement”) and in failing to provide SDIR with a Notice of Offer in respect of Elite’s offer. He also granted injunctive relief and ordered a CMC, the principal purpose of which was to address a timetable leading up to a hearing at which causation and the quantum of any damages to which SDIR was entitled were to be decided.

On 25 October 2018 SDIR was provided with two further agreements between Rangers and Elite, the “Elite Retail Units Agreement” dated 11 September 2018 and the “Elite/Hummel Agreement” dated 30 March 2018 (to which Hummel A/S was also a party). SDIR claims that Rangers was in further breach of the Retail Agreement by entering into those agreements and by failing to offer SDIR the opportunity to exercise its matching rights in relation to the offers made by Elite and Hummel.

On 30 November 2018 SDIR served draft Amended Particulars of Claim. The amendments added claims in respect of alleged breaches of both the Elite Retail Units Agreement and the Elite/Hummel agreement. Rangers has consented to those amendments made in respect of the Elite Retail Units Agreement. Rangers opposes the amendments made in respect of the Elite/Hummel Agreement on the grounds that these have no real prospect of success.

On 17 December 2018 I ordered a “Speedy Trial” of all remaining issues of liability and final declaratory and injunctive relief between the parties. This has been fixed to commence on 12 April 2019. The balance of all further issues in dispute, that is to say causation, loss and damage, have been stayed until judgment has been given in the Speedy Trial.

The hearing of the restored CMC took place on 11 January 2019. The two main issues for determination were:-

On 17 January 2019 I ruled on the Amendment Application and Elite’s Application in the following terms:-

I now give my reasons for those rulings.

SDIR’s application to amend is made under CPR 17. There is no issue between the parties as to the correct test to be applied when considering whether to grant permission to amend. An application to amend will be refused if it is clear that the proposed amendment has no prospect of success. The applicant must therefore show that the proposed amendment has a real prospect of success, that is to say a realistic as opposed to a fanciful prospect of success. A realistic claim is one that carries some degree of conviction and is more than merely arguable: see Global Asset Capital Inc v Aabar Block SARL [2017] 4 WLR 163 (CA) at [27], per Hamblen LJ. It is not appropriate to conduct a mini-trial of the merits when deciding an application to amend. As the Court of Appeal put it in Sabbagh v Khoury & Ors [2017] EWCA Civ 1120

“... 94. ... The purpose of the real prospect test is to exclude summarily cases that are fanciful or bound to fail: not to conduct an abbreviated form of trial on the basis of incomplete evidence”: see Standard Bank plc v Via Mat International Ltd [2013] EWCA Civ 490 per Moore-Bick LJ at [17] ...”

In the context of strike out and summary judgment applications, it is well established that if

The Retail Agreement contains the following relevant terms:

“... Recital 3

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."

Matching Right

From the date falling 6 months prior to the expiry of the Initial Term, Rangers may approach, solicit, tender for or enter into negotiations with a third party in relation to that third party providing any of the Offered Rights or all or any combination of the Offered Rights.

In the event that Rangers receives an offer from such a third party ( Third Party Offer ) to enter into an agreement with Rangers for any of the Offered Rights or all or any combination of the Offered Rights, Rangers shall provide SDIR with written notice ( Notice of Offer ) of the terms of the Third Party Offer […]

The Notice of Offer shall include whether the Third Party Offer is made for any of the Offered Rights or all or any combination of the Offered Rights (identifying which Offered Rights as applicable), in each case together with any connected commercial arrangements, and full details of:

Within 10 Business Days of SDIR's receipt of the Notice of Offer (or further information / clarification from Rangers, if requested), SDIR shall provide written notice to Rangers as to whether it is willing to match the Material Terms of the Third Party Offer in all material respects in relation to any of the Offered Rights or in relation to all or any combination of the Offered Rights (and, in each case, any connected commercial arrangements if applicable).

If SDIR is so willing, Rangers and SDIR shall enter into a further agreement on the same terms as this Agreement, save only as to any variation required to effect the Material Terms and whether such agreement shall relate to any of the Offered Rights or all or any combination of the Offered Rights (and, in each case, any connected commercial arrangements if applicable).

Should SDIR exercise its matching right in accordance with this paragraph, 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 the [sic.] any of the Offered Rights (and, in each case, any connected commercial arrangements if applicable) in respect of which the matching right is exercised. Should SDIR exercise its matching right in respect of some but not all of the Offered Rights, Rangers may enter into an agreement with that third party on the Material Terms set out in the Notice of Offer only in respect of the Offered Rights over which SDIR has not exercised its matching right only [sic.] . Should SDIR not exercise its matching right over any of the Offered Rights, Rangers may enter into an agreement with that third party on the Material Terms set out in the Notice of Offer.

Subject to paragraph 5.8, 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.

In the event that Rangers does not receive a Third Party Offer to enter into an agreement with Rangers for any or all of the Offered Rights within 30 days prior to expiry of the Initial Term, Rangers shall immediately notify SDIR in writing, and SDIR shall have the right to renew this Agreement on the same terms for the element(s) on which no offer has been received, save only that the Agreement will be renewed for 2 years from the expiry of the Term and:

Save as expressly permitted in this paragraph, Rangers shall not approach, solicit, tender for or enter into negotiations or any agreement with any third party in relation to any of the Offered Rights.

Notwithstanding any provision to the contrary this paragraph 5 shall continue in full force and effect for a period of 2 years from the expiry of the Term but that shall not prevent Rangers from the date falling 6 months prior to the expiry of that period approaching, soliciting, tendering for or entering into negotiations with any third party in relation to that third party providing any of the Offered Rights or all or any combination of the Offered Rights.

Nothing in this paragraph 5 shall prevent SDIR from approaching, tendering for, entering into negotiations with and/or making any offers to Rangers in respect of the Offered Rights, separately to the process set out in this paragraph 5 or independently of any Third Party Offer ...”

The Elite/Hummel Agreement provided, inter alia, that:-

SDIR contends that the Elite/Hummel agreement conferred rights upon Elite/Hummel that fall within the definition of “Permitted Activities” under the Retail Agreement such as to make them “Offered Rights” within the scope of paragraph 1.1.4 of Schedule 3. SDIR argues that although the right to manufacture was not a “Permitted Activity” for the purposes of the definition of “Offered Rights”, it was a “connected commercial arrangement” within Schedule 3, paragraph 5(6) of the Retail Agreement. SDIR asserts that Rangers failed to provide a Notice of Offer to SDIR in respect of the proposed Elite/Hummel agreement in breach of paragraphs 5.2 and 5.11 of Schedule 3.

Rangers contends that SDIR’s proposed amendments are misconceived. Rangers argues that the Retail Agreement is concerned simply with retail rights and does not encompass the right to manufacture Replica Kit or other Rangers products nor the right to supply such products on a wholesale basis. Rangers submits that this is clear from the wording of the Retail Agreement and relies also upon the relevant factual matrix as set out in their evidence (principally in the 7^th witness statement of James Don Blair).

Both parties referred me to a number of recent Supreme Court cases on the construction of commercial contracts, and in particular the judgments of Lord Neuberger in Arnold v Britton [2015] UKSC 36 at [15] and of Lord Hodge in Wood v Capita Insurance Services Limited [2017] UKSC 24 at [10-12]. I am familiar with these and have kept the relevant principles well in mind.

SDIR submits that the natural and ordinary meaning of the words in the Retail Agreement supports their construction. Rangers disagrees, contending that the language in dispute does not support SDIR’s construction and that the factual matrix is in any event fatal to that construction. In particular, Rangers argues that it was always the intention of the parties to draw a clear distinction between manufacturing and wholesale activities on the one hand and retail activities on the other, and that the Retail Agreement did just this.

Both parties presented their respective cases very well, and there was much to argue about. By the end of the argument I had formed the firm conclusion that SDIR’s proposed amendments were neither fanciful nor bound to fail; in other words, that they had real prospects of success within the meaning of the applicable case law.

I am not going to give detailed reasons for my decision because, having reached the conclusion that I did, I do not think it right for me to do so. I was not satisfied that I had before me all of the material necessary to enable me to decide the construction question. The arguments (together with any relevant matrix evidence) will need to be considered in greater detail at the

For the avoidance of doubt, I should make clear that I have not formed any provisional, let alone final, view on the merits of the claims arising out Elite/Hummel Agreement. Both parties have everything to play for at the Speedy Trial.

Elite applied to participate in the Speedy Trial in order to adduce factual evidence and make submissions on the issue of final injunctive relief and to cross-examine SDIR’s witnesses on issues going to the appropriateness or otherwise of final injunctive relief. Elite submits that it will suffer very significant financial losses if SDIR is successful at trial and the court grants injunctive relief. I am for present purposes prepared to accept that this may well be so.

It is important to note from the outset that Elite has not applied to be made a party to these proceedings, although SDIR was prepared to consent to its participation as a party. During the course of his oral submissions Mr Hubbard, who appeared for Elite, initially resisted the suggestion that Elite should give any disclosure beyond those documents upon which it wished to rely in support of its position. He subsequently offered to give some limited disclosure. I found this all to be highly unsatisfactory. It seemed to me that Elite wants to have all the advantages of being a party without any of the disadvantages. It would not, in my judgment, be right for Elite to be permitted to tender its own witnesses for cross-examination or to crossexamine SDIR’s witnesses without first giving disclosure of all those documents relevant to the issue of the appropriateness of injunctive relief. As Mr Hossain pointed out in argument, such disclosure could well extend beyond documents simply going to financial loss to those concerned with Elite’s awareness of the Retail Agreement and foreseeability.

As set out in my Ruling, should Elite wish to participate in these proceedings then it must apply to become a party pursuant to Part 19.2. Subject to the agreement of appropriate terms I am minded to accede to such an application.

The final matter upon which I am asked to rule is upon the parties’ Cost Budgets for the Speedy Trial. SDIR has agreed Rangers’ costs budget. I approve that costs’ budget in the sums agreed. Rangers takes issue with SDIR’s costs budget which is over 60% higher than Rangers’.

I have carefully considered SDIR’s costs budget, together with Rangers’ offers in respect thereof and their written submissions. I also have well in mind the complexity of this case (I do not regard it as complex), the fact that SDIR will carry a greater burden than Rangers (but not much greater), the fact that much of the argument has already been deployed in this application, and that this is not a case in which I would expect SDIR’s costs to be significantly disproportionate to Rangers’. I have concluded that the total costs budget assessment in respect of SDIR’s costs to the conclusion of the Speedy Trial should be £405,155, calculated as follows:-

The parties should seek to agree a draft order reflecting my findings above together with the other directions that I gave at the hearing.