Next lap in Force India v Etihad dispute

After watching the Brazilian GP today, this Kat feels just in the right mood for the following case on Formula One, sponsorship agreements and rebranding.

Almost one year ago, the IPKat reported on Force India Formula One Team Ltd v Etihad Airways PJSC and Aldar Properties PJSC [2009] EWHC 2768 (QB), a Queen's Bench (England and Wales) decision of Sir Charles Gray (see the IPKat earlier post here). This was an action regarding an alleged repudiatory breach of a sponsorship agreement brought by racing team Force India for damages from its sponsor Etihad.

While the racing team appeared to have found a winning formula at first instance, the cards have turned one year on with the sponsor's appeal being allowed by the Court of Appeal as the IPKat's learned friend Patricia Edwards reports:

Force India may have ended the 2009 Formula 1 season on a legal high, but 11 months later they have been stripped of their victory. In a firm judgment delving unusually deep into the factual quagmire, the Court of Appeal has overturned the first instance decision in Force India Formula One Team Limited v (1) Etihad Airways, (2) Aldar Properties [2010] EWCA Civ 1051 (see here).

Sir Charles Gray had held that the defendant sponsors had repudiated an agreement to sponsor the claimant’s Formula 1 team, by purporting to terminate it for breaches by the team. Although the team had made substantial changes to its branding (including changing its name from Etihad Aldar Spyker F1 Team to Force India), the judge found that there were no irremediable breaches and the sponsors had in any event known about these changes and consented to them.

Rix LJ (with whom Patten LJ and Sir Mark Waller agreed) interpreted both the factual and legal position somewhat differently. He emphasised the reality of the team’s rebranding strategy, which he described as “imaginative and brilliant” but “simply inconsistent with the sponsors’ vital rights”. Just a few months into the three year sponsorship agreement, the team was acquired by Dr Vijay Mallya, an Indian billionaire. He had a clear strategy to associate the team with India and with his airline (Kingfisher Airlines) regardless of the impact on the sponsors who, apparently, he thought were paying too little for their rights.

Despite the “series of strong findings made by the judge after a substantial trial”, the Court of Appeal openly reached its conclusion, that the sponsors were entitled to terminate, on the basis of a mixture of fact and law.

• The changes in team name and branding amounted to “a series of repeated, or continuing, breaches which were sooner or later but ultimately repudiatory”.
• The breaches were not remediable under the terms of the contract. They were analogous with the publication of confidential information or the publishing of advertising matter not containing a party’s name; “a proper marketing campaign is, generally speaking, all of a piece ... the marketing genie cannot be put back into the bottle”.
• In any event, although the judge at first instance did not address the point, it was “perfectly clear from all that happened that [the claimant] would not have been willing” to reverse its new branding if asked.
• The sponsors were entitled to accept the irremediable repudiatory breach at common law, irrespective of the termination provisions in Clause 21 of the agreement which applied only to material but remediable breaches.

The sponsors had not affirmed the contract. Although the judge found that “by their course of conduct over the months” the sponsors had elected not to exercise any right to terminate, the judge was thinking “of a contractual termination”, he was not thinking of the conduct as repudiatory.

• While delay might sometimes give rise to affirmation, there was no lengthy or unjustified delay in this case, and many of the relevant events occurred during the winter break between two racing seasons.

Not only did Force India lose its damages award of just over $5m, the Court of Appeal also reversed the decision that it was entitled to a $0.5m contractual bonus for coming one from last in the 2007 Constructors’ Championship. It considered that McLaren’s disqualification, which led to it being listed in the eleventh and final place by default, did not mean that Force India had in reality ended up any higher than last by being listed in tenth place.

* Driving with 77 cats in 2 cars - see here.
* Rambo, the taxi cat - see here.