12 November 2019 - Post by:Oliver Rule
[It’s rare for a contract case to be covered by talkSPORT, ESPN, or The Sun, nevermind one concerning good faith. But in case you’ve missed their coverage, with thanks to ardent LFC supporter Oli Rule, here’s Compact Contract’s take on New Balance v Liverpool. Or, as the court put it, “This is (another) dispute about football shirts” – Ed.]
The High Court found that New Balance had not matched Nike’s sponsorship offer to Liverpool. Although New Balance had acted in good faith, its counter-offer was less favourable to the Reds than Nike’s.
The dispute concerned the renewal of a sponsorship agreement between New Balance and Liverpool. Liverpool had received a competing offer from Nike with (1) a marketing obligation to make use of not less than three “non-football global superstar athletes and influencers of the calibre of LeBron James, Serena Williams, Drake” and (2) a distribution obligation in respect of “at least 6000 stores worldwide, 500 of which are Nike owned or controlled.” Under its terms, the sponsorship agreement would be renewed if New Balance’s offer was no less favourable than Nike’s “material, measurable and matchable terms”.
Liverpool argued that New Balance had breached its implied duty of good faith when matching Nike’s offer. The court agreed that if New Balance had known that it couldn’t meet the obligations, or had been reckless as to whether it could meet the obligations, reasonable and honest people would regard that as commercially unacceptable (see Bates v Post Office), and so the counter-offer would have been invalid. However, on the facts, there was no breach of good faith: indeed New Balance had carried out due diligence before deciding to put forward its offer.
Although New Balance also offered “global superstar athletes and influencers”, it omitted the references to specific stars. In the court’s view this omission made New Balance’s offer measurably less favourable to Liverpool and therefore wasn’t a valid “match” which would displace the Nike offer. This must be right as there seems little doubt that if New Balance had had, say, Roger Federer, Usain Bolt and Beyoncé to call upon they would have named them in the counter-offer.
The decision illustrates the limitations of these sorts of matching clauses given the ease with which, if they are not tightly drafted, competitors can make highly specific offers that are in practice unmatchable.