Earlier this week, Arsenal and Matthew Reed faced each other in the Chancery Division once again, this time before Judge Pelling QC. This time, though, the boot was on the other foot since the claimant was not Arsenal but Mr Reed. How could this possibly be? Let the IPKat explain.
After the Court of Appeal ruled against Reed in 2003, he sought permission to appeal to the House of Lords (now rebranded the Supreme Court). At this point Arsenal, no doubt fatigued by the number of fixtures they faced that year, settled the proceedings by agreeing a consent order with Reed which (i) required Reed to stop infringing but (ii) imposed, under clause 7, a duty on Arsenal to use its reasonable endeavours to supply Reed with legitimate goods at prices that were comparable to the lowest prices offered to other market traders.
A happy ending was now in sight, and Reed happily purchased goods both from Arsenal and from its third party licensees until 2011. In that fateful year, however, Arsenal decided to revise its business model on the basis that supplying goods to market traders and other retailers itself was uneconomic because of the credit risk and administrative burden. In 2012 it therefore withdrew entirely from the wholesale market and no longer sold anything to market traders, who were told that they could obtain products from Arsenal's official licensees instead. Evidently much miffed, Reed claimed that the refusal to supply him was a breach of clause 7. He therefore went to court in search of a declaration to that effect, an inquiry as to damages and a mandatory injunction.
Judge Pelling QC, in an extempore ruling noted by subscription service Lawtel, dismissed Reed's application.
* Taken in its context, in which market traders purchased goods both from Arsenal and from licensees, clause 7 did not oblige Arsenal to continue to supply Reed with its merchandise indefinitely, the key feature of that clause being its mechanism for setting a price that did not discriminate against Reed in the aftermath of the previous proceedings.
* The consent order was, to all intents and purposes, no different from a commercial contract and should be construed in the same way.
* The consent order settled litigation which had lasted a long time and engendered a degree of bad feeling [True, says Merpel, but what does that have to do with the construction of its terms? and now the consent order has itself engendered a degree of bad feeling, which is why it is now being not-so-merrily litigated].
* A factor behind Arsenal's agreement to settle was the fact that Reed was not good for the costs already incurred [Laddie J noted Mr Reed's reluctance to disclose the financial details of his business, but calculated that he had sold around half a million pounds worth of Arsenal memorabilia].
* The proposal for the settlement came from Reed, who was concerned that he should not be discriminated against by comparison with other market traders [How relevant is this? Are we now applying the doctrine of interpretation of contract terms contra proferentem from situations in which one party lays down the terms to situations in which he proposes that there should be such terms?].
* If Arsenal decided no longer to sell to market traders, there was no breach of clause 7 since that clause did not contain any express provision that it would last indefinitely and there was no obligation to continue to supply the wholesale market, or Reed in particular, if there were justifiable commercial reasons for not doing so: . The purpose of the clause was to protect Reed from price discrimination -- and there could be no such discrimination by Arsenal if it was no longer in the wholesale market.
* Arsenal's obligation to use reasonable endeavours only applied to such matters as the delivery times and quantities of any supplies actually undertaken.
This Kat has nurtured a lifetime's suspicion and distrust of "reasonable endeavours" obligations, which he feels to be a recipe for uncertainty and an invitation to litigate. While he has no sympathy for trade mark infringers and is a firm believer in the virtues of negotiated settlements, he can't help wondering whether, had he known the contract would be interpreted in this manner, Matthew Reed might have been a little more reluctant to seek permission to appeal.
Merpel wonders if this decision is a good omen for Arsenal, who have not won any competitions for rather a long while and whose manager has been stigmatised as a "specialist in failure".
Selling a dummy here
Buying a dummy here