Stichd Sportmerchandsing BV v Geoffrey Paul Rowley
| Jurisdiction | England & Wales |
| Judge | Richard Farnhill |
| Judgment Date | 14 April 2022 |
| Neutral Citation | [2022] EWHC 933 (Ch) |
| Docket Number | Case No: CR-2020-004040 |
| Court | Chancery Division |
[2022] EWHC 933 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Richard Farnhill
(sitting as a Deputy Judge of the Chancery Division)
Case No: CR-2020-004040
In the matter of Force India Formula One Team Limited (In Creditors' Voluntary Liquidation and In the matter of The Insolvency Act 1986)
Mr Jamie Muir Wood (instructed by Willans LLP) for the Applicant
Ms Lottie Pyper (instructed by Mishcon de Reya LLP) for the Respondents
APPROVED JUDGMENT
Richard Farnhill (sitting as Deputy High Court Judge for the Chancery Division):
Background
This dispute concerns the implication of a term into an agreement dated 22 October 2014 (the Agreement), originally between Brandon AB ( Brandon) and Force India Formula One Team Limited ( Force India). On 28 August 2017 the rights and obligations under the Agreement were transferred to the Applicant ( Stichd).
At the time the Agreement was entered into and at the time it was transferred to Stichd, Force India owned and operated the Force India Formula One Team (the Team). Under the Agreement Brandon, and subsequently Stichd, were required to produce the Team Uniform and had the exclusive right to manufacture Products branded with Trade Marks (all as defined in the Agreement) connected with the Team.
The term of the Agreement was from 22 October 2014 to 31 December 2019. However, during the Term Force India encountered financial difficulties that rendered it both cash flow and balance sheet insolvent. The Joint Administrators (who in due course became the Joint Liquidators) were appointed on 27 July 2018.
Following a tender process the Joint Administrators received five offers to purchase the Team. Four were to purchase Force India's business and assets; the fifth, from Racing Point UK Ltd ( Racing Point), was an offer to purchase the shares in Force India provided completion could be achieved within a specified timeframe, with a fall back of purchasing the business and assets of the Team if completion could not be so achieved.
The Joint Administrators accepted Racing Point's offer on the basis that it was the only one that allowed the possibility of Force India surviving as a going concern. In fact, necessary shareholder consents were not obtained in time and so the asset sale went ahead, completing on 16 August 2018. Racing Point paid cash consideration of £90 million and assumed certain pension liabilities of around £2 million. No attempt was made by Force India to novate the Agreement to Racing Point.
Stichd contends that the sale to Racing Point breached an implied term of the Agreement. At the hearing before me Mr Muir Wood confirmed that Stichd based its case on the form of implied term first put forward in the proof of debt filed on 6 August 2019:
[Force India] would continue to operate [the Team] in respect of which the counter-party (initially Brandon AB and subsequently BSM [now Stichd]) was granted rights under the Agreement and would not transfer the right to operate [the Team] to any entity other than one within the Force India Group (as defined in the Agreement).
Mr Muir Wood suggested in his written submissions that this could be further refined by adding “ without seeking the agreement of Stichd to assign the Agreement to such an entity.” That suggestion was ultimately abandoned in the course of oral argument, however.
Similarly, Stichd did not maintain the alternative formulation of its claim that it had advanced in correspondence with the Joint Liquidators and in evidence. This was first put forward in a letter of 28 September 2020 from Stichd's solicitors, Willans LLP, to Mishcon de Reya LLP, who were acting for the Joint Liquidators. It was repeated in the witness statement of Mr Harkess, Stichd's Managing Director, in the following form:
For the term of the Agreement, as defined in the Agreement [Force India] would not take any steps to affect its entitlement to license the Trade Marks to [Stichd].
Mr Muir Wood noted that the version of the implied term set out in the proof of debt had never been formally amended or abandoned and argued that I should view the alternative formulation as an attempt, by Stichd, to persuade the Joint Liquidators to accept the proof of debt. I reject that submission. The alternative formulation was plainly set out as, and intended to be understood as, a term to be implied into the Agreement. Mr Harkess, in his first witness statement, could not have been clearer on that point. Moreover, the alternative formulation is different in substance from the term proposed in the proof of debt. That provision dealt with the ownership of the Team; the alternative formulation dealt with the exploitation of the associated intellectual property rights. Like the refinement advanced in Mr Muir Wood's written submissions, the alternative term was abandoned.
The Joint Liquidators' primary position was that no implied term was required in the agreement. In the course of oral argument Ms Pyper accepted, however, that certain provisions of the Agreement concerning Stichd's access to the Team facilities for marketing purposes and at race weekends (clauses 17 – 20 described below) could not be performed following disposal of the Team. To address that she proposed the following implied term:
Clauses 17 – 20 only operate insofar as Force India continues to operate a Formula One team.
She also advanced an alternative case on the term I should imply were I to reject the Joint Liquidators' primary case and conclude that some further term was necessary for the operation of the Agreement as a whole. Effectively this would involve Stichd's proposed term subject to a caveat:
[Force India] would continue to operate [the Team] in respect of which the counter-party (initially Brandon AB and subsequently BSM [now Stichd]) was granted rights under the Agreement and would not transfer the right to operate [the Team] to any entity other than one within the Force India Group (as defined in the Agreement) insofar as Force India is not prevented from operating a Formula One team due to circumstances outside its control.
The purpose of this trial was to determine whether a term or terms should be implied into the Agreement and, if so, whether there was a breach. To the extent that a term is implied and was breached, quantum will be determined at a future hearing.
The witnesses
I heard, quite briefly, from two witnesses. As I have noted, Mr Harkess is the Managing Director of Stichd, a position he has held since 1 June 2016. He was therefore involved during the operation of the Agreement and the events that led to this claim, but was not involved in the negotiation or entering into of the Agreement. Mr Rowley is one of the Joint Liquidators of Force India and leads on most matters in the liquidation. Again, he was not involved in the negotiation of the Agreement.
I was grateful to Mr Harkess and Mr Rowley. Both gave clear, concise, straightforward answers and were obviously trying to help the court. However, this aspect of the parties' dispute is focussed on the time of formation of the Agreement, when neither Mr Harkess nor Mr Rowley were involved. Inevitably, therefore, their evidence was not central to the analysis, which turns on the legal test for implication and the express terms of the Agreement.
The test for the implication of terms
In all cases regarding the implication of terms it is necessary to analyse the relevant express terms of the contract. In this case, however, there was some dispute between the parties over the nature of the Agreement and which terms of it were relevant. It is therefore helpful to start with the legal test, from which the identification of the relevant terms can then follow.
Both parties recognised that the leading case on implication is the judgment of Lord Neuberger in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72; [2016] A.C. 742. Both framed their submissions by reference to the distillation of Lord Neuberger's analysis set out by Carr LJ in Yoo Design Services Limited v Iliv Realty Pte Limited [2021] EWCA Civ 560 at [51]:
i) A term will not be implied unless, on an objective assessment of the terms of the contract, it is necessary to give business efficacy to the contract and/or on the basis of the obviousness test;
ii) The business efficacy and the obviousness tests are alternative tests. However, it will be a rare (or unusual) case where one, but not the other, is satisfied;
iii) The business efficacy test will only be satisfied if, without the term, the contract would lack commercial or practical coherence. Its application involves a value judgment;
iv) The obviousness test will only be met when the implied term is so obvious that it goes without saying. It needs to be obvious not only that a term is to be implied, but precisely what that term (which must be capable of clear expression) is. It is vital to formulate the question to be posed by the officious bystander with the utmost care;
v) A term will not be implied if it is inconsistent with an express term of the contract;
vi) The implication of a term is not critically dependent on proof of an actual intention of the parties. If one is approaching the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time;
vii) The question is to be assessed at the time that the contract...
To continue reading
Request your trial