New Balance Athletics, Inc v The Liverpool Football Club and Athletic Grounds Ltd

An implied obligation of good faith may be breached by dishonesty or conduct lacking fidelity to the parties’ bargain. The question is whether reasonable and honest people would regard the conduct as commercially unacceptable, having regard to the contract and its context. An honest belief that a contractual matching obligation can be performed does not become bad faith merely because the grounds for that belief are unreasonable or imprudent. Recklessness, or indifference as to performance, may constitute bad faith. A matching right requires an offer no less favourable in respect of material, measurable and matchable terms. A term referring to marketing initiatives by athletes or influencers of the calibre of identified global superstars was sufficiently measurable, and omission of that qualification made the matching offer less favourable.

New Balance held a contractual right to match a third-party offer for the renewal of its sponsorship and replica-product agreement with Liverpool FC. Nike made an offer containing distribution and marketing obligations. New Balance notified Liverpool FC that it would enter into a new agreement and supplied its own offer.

Liverpool FC contended that New Balance had not acted in good faith in matching the distribution obligation and had failed to match the marketing obligation. New Balance argued that it had matched the distribution term in good faith and that the marketing term was not sufficiently measurable or matchable. The Commercial Court determined whether New Balance had validly matched Nike’s offer and was therefore entitled to renewal.

1. Distribution obligation. The implied obligation of good faith required conduct faithful to the parties’ bargain. Dishonesty would breach the obligation. However, an honest belief that the distribution obligation could be met would not constitute bad faith merely because the belief was careless, imprudent or based on unreasonable grounds. Recklessness or indifference as to whether the obligation could be met would be commercially unacceptable and would breach the obligation.
2. New Balance’s Senior Leadership Team had required a due diligence exercise before deciding to match Nike’s offer. The regional estimates were bold but were not shown to have been made recklessly. The use of footwear and lifestyle stores in Japan and China was permitted by the express contractual wording, which included running shoes and licensed products. The alleged errors concerning Brazil, North America and the unit-to-door ratio did not establish dishonesty or recklessness. New Balance had therefore matched the distribution obligation in good faith.
3. Marketing obligation. The relevant obligation required marketing initiatives featuring at least three non-football global superstar athletes or influencers of the calibre of specified individuals. That qualification was a material, measurable and matchable term. The calibre of the named individuals could be assessed by methods including social-media exposure and repeatable valuation methodologies. New Balance’s omission of the qualification made its offer less favourable to Liverpool FC.
4. Because the marketing obligation had not been matched, Liverpool FC was not obliged to enter into a new agreement with New Balance. It was unnecessary to consider specific performance. The separate Nike contract, being subject to a condition precedent concerning the matching process and automatic termination upon a valid match, was sufficient in the circumstances to amount to an agreement concluded within the relevant period.
5. The claim was dismissed.

First-instance decision. No appellate history was stated in the judgment.