- Compact Contract
Restraint of Trade: Nothing retro about restrictive covenants as retailer gets shirty over losses
09 April 2021
Following breach of a restrictive covenant, Score Draw applied to the court for damages and injunctive relief claiming PNH’s breach had caused Liverpool FC’s refusal to renew a retail licence: Score Draw v PNH International.
Score Draw were a licensed retailer of retro football shirts for Liverpool FC. The shirts were sourced from PNH, who had a shareholders agreement with Score Draw following a debt-for-equity swap in 2013. A clause in this agreement contained a restrictive covenant preventing PNH from soliciting or accepting custom from “Restricted Persons” in relation to “Restricted Products”. Liverpool FC and the retro shirts each fell into these classes.
In March 2016 the football club began ordering directly from PNH – a result of PNH’s refusal to supply Score Draw following cash flow issues with Score Draw. Due to this direct supply chain the club did not renew its licence with Score Draw, which was due to expire in May 2016.
Score Draw argued that PNH had breached the covenant and that damages for revenues lost by the non-renewal of the licence were a fair restitution. PNH did not believe that such damages were acceptable; claiming that any interpretation that the covenant could be breached post licence expiry was an unfair restraint of trade.
The court sided with Score Draw stating that the substantial goodwill they had developed was at clear risk from PNH’s intimate knowledge of their business. In accepting direct orders, PNH had interfered in Score Draws relationship with the club. It was not unjust to conclude that Score Draw stood a substantial chance of a license renewal had the covenant not been breached. The court placed emphasis on the fact the covenant was freely entered into by the equal strength parties, a point to be considered for such agreements moving forward.