Sports Direct 0 - Newcastle United 1: First leg injunction defeat

29 April 2024

Sports Direct has failed to persuade the Competition Appeal Tribunal (the Tribunal) that Newcastle United should supply it with replica football kit on an interim basis until final judgment of Sports Direct’s abuse of dominance claim against the club.

The Application

On 14 March 2024, Sports Retail Limited (Sports Direct) issued a claim in the Competition Appeal Tribunal alleging that Newcastle Football Company Limited and Newcastle United Limited (Newcastle United) breached competition law by failing to continue to supply Sports Direct with the club’s replica football kit for the 2024/2025 season.

Sports Direct alleges that Newcastle United:

  1. abused its dominant position in the market (in breach of Chapter II Competition Act 1998); and
  2. entered into anti-competitive arrangements with JD Sports Fashion plc (JD Sports) (in breach of Chapter I Competition Act 1998).

Pending the full trial, Sports Direct applied for an interim mandatory injunction obliging Newcastle United to supply it with replica kit.

Relevant facts

By way of background:

  • Newcastle United had previously licensed the manufacture and distribution of its replica kit to Castore, who then supplied Sports Direct with the replica kit;
  • Newcastle United’s agreement with Castore terminates at the end of the 2023/24 football season. The club has licensed Adidas as its new exclusive manufacturer of replica kit, which will also hold certain distribution and retail rights (broadly for online sales generally and physical sales outside the UK);
  • Newcastle United has also entered into an exclusive arrangement with JD Sports for the right to sell the replica kit online and (subject to the rights of Newcastle United) exclusively in the UK; and
  • as a result, Sports Direct was excluded from the new distribution and supply arrangements.

Test for interim injunctions

The Tribunal has the power to grant injunctions in all cases where it appears just and convenient to do so (applying the same principles as the High Court). Therefore, the Tribunal considered the usual four conditions in deciding whether to exercise the discretion to grant an injunction:

  • Condition one: whether there was a serious issue to be tried;
  • Condition two: whether damages would suffice as an adequate remedy for the applicant (in this case, Sports Direct) if the injunction were not granted but the applicant subsequently succeeded at trial;
  • Condition three: whether an undertaking in damages would adequately protect the respondent (in this case, Newcastle United) in the event of the interim injunction being “wrongly” granted; and
  • Condition four: if condition two is met but condition three is not, then with regard to all the relevant facts of the case, the court must consider the balance of convenience in deciding whether to grant or refuse the interim relief.

The Tribunal’s conclusion was that condition one had not been met. This meant that the interim injunction should be refused and there was no need to consider conditions two to four, though having heard argument, it made some comments on what it would have found on these points.

No serious issue to be tried

As a starting point, the Tribunal noted that a refusal by a dominant undertaking to supply another undertaking does not give rise to an arguable case of abuse of dominance without some further allegation or averment.

However, where a dominant undertaking unilaterally changes an established market structure, it is permissible to take “a long hard look at that unilateral change” to see whether it is abusive. Whether the change amounts to an abuse or arguable abuse of dominance will depend on a number of factors.

The Tribunal suggested that factors likely to be material to such an assessment, included:

  1. the reason for the change;
  2. whether external circumstances beyond the dominant undertaking’s control played a part;
  3. how much notice was given;
  4. the extent to which undertakings supplied by the dominant undertaking have an expectation of continuity;
  5. the length of the supply chain; and
  6. the harm that may occur as a result of the change.

Turning to the facts of the case, for the purpose of deciding the interim application, the Tribunal was prepared to assume that Newcastle United was dominant in the market for Newcastle United replica kit (noting that this is disputed in the main proceedings, and final determination of this issue was a matter for trial).

Sports Direct’s claim was that it was an abuse of dominance for Newcastle United to unilaterally change the manner in which it supplies its replica kit to the market, if that change involves ceasing to supply a single (previously supplied) undertaking (i.e Sports Direct).

The Tribunal held that this proposition was not arguable because Sports Direct did not have a reasonable or legitimate expectation of continuity of supply of the replica kit from Newcastle United.

In fact, the Tribunal considered that to suggest that there was some obligation on Newcastle United and Adidas to ensure that a supply to Sports Direct be maintained over time would represent a significant fetter on competition, not an enhancement of it. The Tribunal therefore concluded that there was no arguable abuse of dominance claim.

Absent an arguable claim in relation to abuse of dominance (in breach of Chapter II Competition Act 1998), the Tribunal could not identify any arguable claim in relation to the arrangements with Adidas and JD Sports also alleged to be improperly collusive and anti-competitive (in breach of Chapter I Competition Act 1998).

Other conditions for injunctive relief

The Tribunal said that if condition one had not been met, it would ultimately have needed to consider the balance of convenience in condition four, and that this would also have led it not to have granted injunctive relief. 

Based on the arguments it had heard, the Tribunal recognised that damages were not likely to be an adequate remedy for some aspects of Sports Direct’s claim, as it had claimed loss of profit on repeat business which was potentially material and unquantifiable.  However, it also considered that the cross-undertaking in damages would not adequately protect Newcastle United in the event that a final injunction was refused at trial, as the mandatory injunction would be a significant interference with the Newcastle United’s endeavours to restructure its replica kit business causing very real and unquantifiable damage.

This would have left a challenging balancing exercise, but ultimately the Tribunal considered that the balance of convenience would have favoured refusing the injunction.

Next steps

Having refused the application for interim injunctive relief, the Tribunal stressed that a quick resolution of the claim was necessary. The Tribunal directed the parties to urgently seek to agree directions for a speedy trial. An application to the Tribunal to appeal the injunction decision was refused.

Read the judgment Retail Limited v Newcastle United Football Company Limited and Newcastle United Limited [2024] CAT 24