In a recent decision about good faith the court considered what “good faith” meant in the context of bidding for work.
In contention was whether the marketing and distribution part of New Balance's overall sponsorship renewal offer to Liverpool FC had been made in good faith. Under the original sponsorship agreement between New Balance and the Liverpool FC, the club was obliged to renew with New Balance if it matched Nike's competing offer.
Nike was keen to take over sponsorship from New Balance and its offer had included generous marketing and distribution terms. New Balance, therefore, included in its renewal offer a “matched” contractual promise to sell Liverpool FC branded goods in not less than 6000 stores globally, 500 of which would be New Balance owned or controlled, with the potential for sales in as many as 13000 stores. The club didn’t believe that this part of New Balance's renewal offer was genuine – it thought that New Balance couldn't deliver against this promise.
Had New Balance breached its obligation to make its renewal offer in good faith?
- Liverpool FC argued that good faith would be breached where New Balance did not reasonably believe that it could meet the distribution obligations.
- New Balance argued that it would only be in breach if it knew that could not meet the distribution obligations or it did not intend to meet them.
The Court commented that: “Ultimately, the question for the court is whether reasonable and honest people would regard the challenged conduct as commercially unacceptable."
It held that New Balance had matched the distribution element of Nike’s offer in good faith.
The fact that New Balance had undertaken an internal due diligence exercise before making its renewal offer was particularly helpful to the company. It had gathered information from its reps in various parts of the world as to number of outlets and sales projections. Noted the judge, "there is no evidence that they made estimates not caring whether they were feasible or not." The information that came back was, perhaps, optimistic (the local reps understood the reason that they were being asked) and the judge also commented that “Whether New Balance would in fact succeed in meeting the distribution obligation in the 2020/21 season is another matter.” But good faith had not been breached.
Although successful in its good faith argument, ultimately New Balance lost out on the renewal over its inability to contractually match Nike's ability to link Liverpool FC with certain named “global superstars”.
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