Race team finds winning formula in court

Litigation over sponsorship deals is not such a common event, so the IPKat was delighted to have a chance to read up on the reality behind the glamour. The case he has just been looking at is 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 on 4 November 2009. This was an action by Force India for damages from Etihad, the cause of action being an alleged repudiatory breach of a sponsorship agreement.

Etihad, which ran a national airline, agreed to sponsor a Formula One motor racing team for three seasons. The agreement provided that Etihad's name would be integrated into the team name; the team would not enter into any arrangement that might conflict with Etihad's activities; Etihad would be the airline exclusively associated with the team; Etihad was obliged to pay the team a performance-related bonus; the team could choose to source another sponsor but, if it did so, Etihad was entitled to exercise a range of options including the option to terminate the sponsorship agreement. The agreement could also be terminated upon written notice by Etihad, if the team owner had committed a material breach which, though capable of remedy, had not been remedied within 10 business days.

Force India acquired the Formula One team. At this point one of the news owners, who had an interest in Kingfisher -- a company which owned and operated an airline -- changed the livery on the cars for winter testing to include Kingfisher's logo; it was disputed whether Etihad had consented to that change. Some three months after the acquisition, Force India emailed Etihad, proposing to amend the sponsorship fees. Etihad wrote back that it took the email to be notice of Force India's intention to exercise its right to source an alternative sponsor and that Etihad was accordingly terminating the agreement. According to Etihad, (i) Force India was in breach of the agreement by using the Kingfisher logo, changing the team name and using new livery. Its notice therefore constituted an acceptance of the antecedent repudiation of the agreement by Force India; (ii) Force India could not claim for the loss of a chance of obtaining bonus payments for the points scored in the second and third years of the agreement since, at the apparent date of Force India's acceptance of the repudiation, the possibility of such bonuses accruing to it was speculative.

Sir Charles Gray upheld Force India's claims.

* Force India had told Etihad that the Kingfisher logo would be on the car during testing. At that time, the only concern raised by Etihad was that the car livery should not include a reference to the Kingfisher airline.

* The limited use of the Kingfisher logo in the new livery was not a material breach by Force India of its obligations under the agreement. Even if it had been, such breaches were remediable: all Force India needed to do was to remove the Kingfisher logo for the rest of the winter testing. It was up to Etihad to give notice asking the breaches to be remedied (the same considerations applied to the change of team name).

* There was no evidence to show that the acquisition by Force India was specifically for the purpose of promoting the Kingfisher airline.

* It was hard to reconcile (i) the duty of Force India not to enter any deal that might be deemed to conflict with Etihad's activities and the provisions that Etihad would be the exclusive airline brand associate with the team, with (ii) the clauses enabling Force India to source or obtain and contract with another sponsor.

* From the date Force India took over the team till the date of the letter of termination from Etihad, the latter elected not to exercise any right it might otherwise have had to terminate the contract. The various breaches of contract relied upon had been waived by Etihad or acquiesced in by their conduct over that period.

* On this basis, Force India was entitled to damages for the wrongful termination of the agreement and for the bonus for coming one from last in the constructors' championship. Force India's team had gained points in the second and third seasons which, under the agreement would amount to a points bonus; this was recoverable by way of damages.

The IPKat thinks this is an example of a sponsor alternately taking too little interest and then too much interest in the activities of its chosen licensee. As ever, good faith, good planning and good day-to-day management are pretty well foolproof if you want to keep out of court. Merpel says, what good fortune, to pick up bonus points even for one from last in the constructors' championship ...

Formula One here

Formula Two here

Formula Three here

Formula 21 here