Force India Formula One Team Ltd v Etihad Airways PJSC and Another
| Jurisdiction | England & Wales |
| Judge | SIR CHARLES GRAY,Sir Charles Gray |
| Judgment Date | 04 November 2009 |
| Neutral Citation | [2009] EWHC 2768 (QB) |
| Court | Queen's Bench Division |
| Date | 04 November 2009 |
| Docket Number | Case No: HQ08X01237 |
[2009] EWHC 2768 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Before: Sir Charles Gray
Sitting as a Judge of the High Court
Case No: HQ08X01237
Francis Tregear QC (instructed by Messrs Fladgate LLP) for the Claimant
Andrew Fulton (instructed by Messrs Denton Wilde Sapte) for the Defendants
Hearing dates:
Approved Judgment
Sir Charles Gray:
Overview
This action is about the financial sponsorship of a Formula One (“F1”) motor racing team. The cost of participating in the annual F1 World Championship, which involves competing in 18 or more races all over the world between March and October or November each year, is huge and no team can survive without substantial financial sponsorship. F1 teams are financially dependent on the receipt of income from sponsors and from television rights. A team may have several sponsors. In return for their money sponsors receive rights to branding space on the team's cars, drivers' suits and helmets and ancillary equipment and promotional material. The amount of branding space allotted to sponsors is dependent on the value to the team of the sponsorship provided. The benefit to the sponsor arises because F1 races are televised across the world so that the branding receives very valuable global coverage.
The dispute in the present case is between the owner of a F1 racing team and two of its commercial sponsors. The claim is for monies said to be due under the sponsorship agreement and for damages for its breach. The central question which arises for decision is whether the sponsorship agreement between the team and its sponsors was validly terminated by the sponsors or whether that purported termination itself amounted to a repudiatory breach of the agreement on the part of the sponsors.
The parties
The F1 team with which this action is concerned now races under the name “Force India”. The Claimant, Force India Formula One Limited (“Force India”), is the owner of the team. Force India acquired the team from a Dutch company named Spyker Cars NV (“Spyker”), which had owned it for a relatively short time. On Spyker's acquisition of the team the chassis name was changed to Spyker to reflect the change of ownership.
In October 2007 Spyker sold its shares to Force India which became the owner of the team, to which I will hereafter refer as “the Team”. The Team is now owned by a consortium of which the ultimate owners are a Dutch businessman, Mr Michiel Mol and Mr Vijay Mallya. The latter has substantial and diverse interests which include the United Breweries Group (“UB”). UB's interests include the Kingfisher brand which, amongst other things, owns and operates an airline named Kingfisher Airlines and produces and sells alcoholic beverages principally in India.
The two Defendants are companies incorporated in Abu Dhabi, namely Etihad Airways P.J.S.C. (“Etihad”) and Aldar Properties P.J.S.C. (“Aldar”). Etihad owns and operates the national airline of Abu Dhabi, which is described by its Chief Commercial Officer as “a relatively young company challenging the major airlines”. Aldar is a property development company, which is based in and operates in Abu Dhabi. Aldar was involved in the development of Abu Dhabi's new F1 racetrack where an inaugural grand prix is due to take place in November 2009.
The genesis of the contract between the parties
Mr Colin Kolles, the Team Principal, described the background to the contract which was entered into between the Team and Etihad and Aldar (to which I will hereafter refer compositely as “E/A”) as follows: he said that the Team had been sold to Spyker in the course of the 2006 season. The Team competed in three races that season under the Spyker name.
In early 2007 the Team, which was still operated and owned by Spyker, lacked a title sponsor for the forthcoming 2007 season. The first race was to take place in Australia in March 2007. The Team identified Etihad as a suitable potential sponsor. According to Mr Jamie Cunningham, who acted as the global account director for Etihad, they had spoken to several other teams about the possibility of sponsorship. Etihad appreciated that Spyker were in urgent need of sponsors. Mr Peter Baumgartner, Chief Commercial Officer of Etihad, saw the Team as a particularly suitable and exciting prospect. Etihad invited Aldar to join in any sponsorship arrangement in order to spread the exposure between the two companies. Accordingly a title sponsorship proposal was prepared on behalf of the Team and sent to E/A. According to that proposal E/A would pay to the Team a total amount of US $25 million in 2007 followed by US $27.5 million in 2008 and US $30 million in 2009.
A meeting took place in Abu Dubai on 4 February 2007. It was attended by Mr James Hogan, the Chief Executive Officer of Etihad. According to Mr Kolles, Mr Hogan expressed interest in sponsoring the Team but said that the price was too high. Mr Kolles agreed to reconsider the proposal. At a subsequent meeting in mid-February 2007, Mr Kolles agreed to a lower basic fee provided that the Team would receive substantial bonus payments in addition. It was agreed that E/A should pay, in addition to the basic fee, a Constructors Championship bonus and a points bonus for each point scored in the season.
Heads of Agreement were prepared on behalf of E/A. Their initial proposal for the sponsorship fee was US $8 million for 2007, US $10 million for 2008 and US $12 million for 2009. However, at a meeting on 25 February 2007 Etihad announced that the proposed sponsorship fee would have to be reduced for those three years to US$5 million, US$6 million and US$9 million respectively. Mr Cunningham gave evidence that because the deal was being negotiated at the last minute, E/A were able to negotiate a favourable deal.
Mr Kolles gave evidence that he was taken aback by the reduction in the proposal but that, since there were no other potential title sponsors, it was better to accept Etihad's offer than to have nothing. Accordingly it was agreed that the sponsorship contract would be drawn up by Etihad's legal department. The full contract was eventually signed on 16 April 2007 by which time the 2007 racing season was well under way.
Material terms of the contract
Heads of Agreement between the Team (still owned by Spyker) and E/A were signed on 13 March 2007, very shortly before the Australian Grand Prix. The full contract is dated 12 April 2007 and was signed on 16 April 2007. The terms are self-evidently important to the issues which I have to decide. I will therefore set out what appear to me to be the material terms:
1 Interpretation, General remarks
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1.3 SPYKER hereby appoints the Sponsors as the main team sponsors of SPYKER from the Commencement Date until 31 December 2009, upon the terms and conditions set out below.
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3 Spyker's obligations and rights
3.1 SPYKER undertakes and warrants to the Sponsors that it will not during the Term enter into any sponsorship, marketing or advertising arrangement which may be deemed by the Sponsors to be in conflict with the respective main activities of the Sponsors.
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3.2.4 ETIHAD would be official airline associated with SPYKER and be the sole & exclusive airline brand to be associated with the SPYKER. ETIHAD will have 1 or 2 ETIHAD airline crew shielding the drivers with branded umbrellas on the grid prior to a maximum of six Races.
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4 Sponsorship licences and Naming rights
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4.6 Subject to the Sponsors' due payment of the Fee in accordance with Clause 16, SPYKER undertakes and warrants that it will ensure that the Team Name is integrated in the beginning of the name of the Team during the years 2007, 2008 and 2009 subject to FOM and FIA regulations and instructions. Further, SPYKER undertakes the obligation to use the integrated name whenever referring to the Team in any written or oral press communication of the Team. The Sponsors warrant that the use of the names does not infringe any third party rights. The Sponsor shall indemnify SPYKER from any loss, costs (including legal fees and expenses), liabilities or claims suffered as a result of such use by SPYKER of the Sponsors' names. Each Sponsor's name will be in a form approved by the relevant Sponsor in advance.
4.7 There will be no major livery changes in 2007 to those detailed in Appendix 4, 5 and 6 of this Agreement. In respect of the 2008 Season and 2009 Season, the Sponsors shall have the right to decide and approve the livery of the Cars, Race Driver and Mechanics' racesuits, and Team Shirts.
5 Sponsor Options
5.1 SPYKER has the right to source an alternative Team sponsor for the years 2008 and/or 2009 with the naming and livery rights as mentioned in 4.6 and 4.7 above, enabling an alternative sponsor to become the main Team sponsor. In the event that SPYKER is able to demonstrate via e-mail and courier to the Sponsors an irrevocable and enforceable written commitment covering the remainder of the Team and encompassing the rights to become the main Team sponsor from an alternative potential sponsor on the potential sponsor's company letterhead before either 31 January 2008 for the 2008 Season or in the case of the 2009 Season by 31 January 2009 and if in either event the commitment is greater than combined payment obligations detailed in Clauses 16.1 and 16.3 of this Agreement to be paid by the Sponsors, (i.e. the basic payment obligations, excluding the points bonus but including the F1 Constructors Final Championship...
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Parbulk II A/S (Arbitration Claimant) v Heritage Maritime Ltd SA (Arbitration Defendant)
...by a second reason that was not given at the time, provided that the consequences of termination are not inconsistent (see Force India Formula One Team v Etihad [2011] ETMR 10 per Rix LJ at 113–117, Stocznia Gdynia v Gearbulk [2009] 1 Lloyd's Rep. 461 at 472, 44 per Moore-Bick LJ, Dalkia ......
- Force India Formula One Team Ltd v Etihad Airways PJSC and Another