Force India Formula One Team Ltd v Etihad Airways PJSC & Anor [2009] EWHC 2768 (QB)

[2009] EWHC 2768 (QB)

Case No HQ08X01237

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 4 November 2009

Before

SIR CHARLES GRAY

Sitting as a Judge of the High Court

Between

FORCE INDIA FORMULA ONE TEAM LIMITEDClaimant

ETIHAD AIRWAYS P.J.S.C.Defendant

ALDAR PROPERTIES P.J.S.C.Defendant

Francis Tregear QC (instructed by Messrs Fladgate LLP) for Claimant

Andrew Fulton (instructed by Messrs Denton Wilde Sapte) for Defendants

Hearing Hearing dates:

Judgment

Sir Charles Gray :

[1]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.

[2]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

[3]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.

[4]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.

[5]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

[6]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.

[7]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.

[8]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.

[9]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.

[10]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

[11]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 … 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. … 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. … 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. … 4 Sponsorship licences and Naming rights … 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 Clauses16.1 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 position bonus), then the Sponsors shall have three options which they must consider jointly:16.1.1 ETIHAD’s basic payment obligations: (a) The amount of US$ 3,000,000 – (US Dollars three million) for the race season 2007 to be received by SPYKER on the dates set out in Schedule 2; (b) The amount of US$ 3,600,000 – (US Dollars three million, six hundred thousand) for the race season 2008 to be received by SPYKER on the dates set out in Schedule 2;

16.1.2 ALDAR’s basic payment obligations: (a) The amount of US$ 2,000,000 – (US Dollars two million) for the race season 2007 to be received by SPYKER on the dates set out in Schedule 2; (b) The amount of US$ 2,400,000 – (US Dollars two million four hundred thousand) for the race season 2008 to be received by SPYKER on the dates set out in Schedule 2; (c) The amount of US$ 3,600,000 – (US Dollars three million six hundred thousand) for the race season 2009 to be received by SPYKER on the dates set out in Schedule 2. 16.2 The Sponsors will pay respectively in each year of the Term a World Championship points bonus, to be calculated in November of the relevant season and payable, on receipt of a suitable invoice from SPYKER, no later than 01 December of the respective year. The bonus to be calculated as follows:

5.1.1 Option

a. A. The Sponsors shall have the right to match this commitment. For avoidance of doubt matching this commitment shall mean the Sponsors paying the difference between the amount due in the relevant year as detailed in Clause 16.1 of this Agreement plus the F1 Constructors Final Championship position bonus due under Clause 16.3, and the commitment offered by the potential sponsor. For the avoidance of doubt the potential sponsor’s commitment shall not include any potential performance bonus.

5.1.2 Option

b. B. The Sponsors shall agree to continue as the main presenting sponsor of the Team as per this Agreement with the exception that:

(a) the points bonus payment obligations detailed in Clause

16.2 of this Agreement shall be reduced by 25% for each Sponsor; and16.2.1 ETIHAD’s payment obligations regarding points bonus (a) 2007 US$ 60,000 (US Dollars sixty thousand) per point scored by SPYKER up to a maximum of US$ 480,000 (US Dollars four hundred and eighty thousand); (b) 2008 US$ 60,000 (US Dollars sixty thousand) per point scored by SPYKER up to a maximum of US$ 720,000 (US Dollars seven hundred and twenty thousand); (c) 2009 US$ 60,000 (US Dollars sixty thousand) per point scored by SPYKER up to a maximum of US$ 900,000 (US Dollars nine hundred thousand);

16.2.2 ALDAR’s payment obligations regarding points bonus: (a) 2007 US$ 40,000 (US Dollars forty thousand) per point scored by SPYKER up to a maximum of US$ 480,000 (US Dollars four hundred and eighty thousand) (b) 2008 US$ 40,000 (US Dollars forty thousand) per point scored by SPYKER up to a maximum of US$ 720,000 (US Dollars seven hundred and twenty thousand); (c) 2009 US$ 40,000 (US Dollars forty thousand) per point scored by SPYKER up to a maximum of US$ 900,000 (US Dollars nine hundred thousand); 16.3 The Sponsor will pay in respect of race seasons 2007 and 2008 a Constructors’ Championship bonus which will be payable on 01 January of the following year and determined by the finishing position of SPYKER in the FIA Formula 1 Constructors’ Championship equal to US$ 500,000 for each position gained by SPYKER in the previous year’s Constructors’ Championship ETIHAD’s obligation: US$ 300,000 (US Dollars three hundred thousand) and ALDAR’s obligation: US$ 200,000 (US Dollars two hundred thousand) respectively for each position gained by SPYKER in the previous year’s Constructors Championship.

(b) the F1 Constructors Championship position bonus detailed in Clause

16.3 shall no longer apply. In the event that the Sponsors exercise this Option B, SPYKER may request that the Sponsors receive alternative branding assets to those described in Clause 6 and detailed in Appendix 4, 5 and 6 of this Agreement always on the understanding that the value of the branding shall be of no less value than the original branding package. The Sponsors shall not unreasonably withhold or delay their acceptance of an alternative branding proposed by SPYKER.16.3.1 ETIHAD’s obligation regarding the Constructors’ Championship bonus is to pay US$ 300,000 (US Dollars three hundred thousand) for each position gained by SPYKER in the previous year’s Constructors’ Championship. By way of example, ETIHAD will be obliged to pay the following bonuses in the circumstances set out below: (a) US$ 300,000 (US Dollars three hundred thousand) if SPYKER is placed in the penultimate position in the Constructors’ Championship; or (b) US$ 600,000 (US Dollars six hundred thousand) if SPYKER gain one further position higher in the Constructors’ Championship; or (c) US$ 900,000 (US Dollars nine hundred thousand) if SPYKER gain two further positions higher in the Constructors’ Championship etc; up to a maximum of US$ 1,980,000 (US Dollars one million, nine hundred and eighty thousand) in the event of there being 12 participants in the Championship or US$ 1,800,000 (US Dollars one million, eight hundred thousand) in the event of there being 11 participants, unless a valid prize indemnity policy/hedge is sourced by the first Race of the season.

16.3.2 ALDAR’s obligation regarding the Constructors’ Championship bonus is to pay US$ 200,000 (US Dollars two hundred thousand) for each position gained by SPYKER in the previous year’s Constructors’ Championship. By way of example, ALDAR will be obliged to pay the following bonuses in the circumstances set out below: (a) US$ 200,000 (US Dollars two hundred thousand) if SPYKER is placed in the penultimate position in the Constructors’ Championship; or (b) US$ 400,000 (US Dollars four hundred thousand) if SPYKER gain one further position higher in the Constructors’ Championships; or (c) US$ 600,000 (US Dollars six hundred thousand) if SPYKER gain two further positions higher in the Constructors’ Championships etc; up to a maximum of US$ 1,320,000 (US Dollars one million, three hundred and twenty thousand) in the event of there being 12 participants in the Championship or US$ 1,200,000 (US Dollars one million, two hundred thousand) in the event of there being 11 participants, unless a valid prize indemnity policy/hedge is sourced by the first Race of the season.

16.3.3 No bonus will be payable by either Sponsor if SPYKER is placed last in the Constructors’ Championship. … 21 Term and termination

5.1.3 Option

c. C. The Sponsors shall have the right to terminate this Agreement with immediate effect without any liability for payments relating to the remaining duration of the Agreement and thereby permit SPYKER to conclude an agreement with the potential sponsor in the terms of such commitment or other similar terms more favourable to SPYKER provided that, if SPYKER does not conclude such legally binding agreement within 10 (ten) business days after the date of the notice from the Sponsors referred to at Clause 5.1.5, this Agreement shall remain in force. For the avoidance of doubt, in relation to this Clause 5, “business days” refers to working days in the UAE, which are from Sunday to Thursday. … 5.1.5 In each year of the Term the Sponsors shall inform SPYKER by e-mail as early as practical and in due course of the name of the Team they request as the Team name bearing in mind always the requirements of the FOM and FIA in this respect as notified to the Sponsors by SPYKER. … 12 Team Sponsors 12.1 Nothing in this Agreement will prevent SPYKER from obtaining or contracting with potential and actual Team Sponsors providing that the Sponsors have the right to approve all Team Sponsors, such approval not to be unreasonably withheld or delayed and not to restrict the performance capabilities of the Team. SPYKER hereby acknowledges that tobacco and pornography agreements are unlikely to be approved and gambling and alcohol related sponsor agreements will only be considered favourably if they entail no branding on the Cars or Drivers. … 16 Fees 16.1 In consideration of SPYKER’s obligations, subject to the terms of this Agreement and upon receipt of the appropriate invoice, the Sponsors will have respectively the following basic payment obligations to SPYKER:

(c) The amount of US$ 5,400,000 – (US Dollars five million four hundred thousand) for the race season 2009 to be received by SPYKER on the dates set out in Schedule 2.

21.1 This Agreement is for the Term. It is agreed that this Agreement shall become effective and binding upon signing.

21.2 Termination by SPYKER:21.2.1 SPYKER may terminate this Agreement with immediate effect on the giving of written notice to both Sponsors on the happening of any of the following events by or in relation to one Sponsor (the defaulting Sponsor): (a) the Defaulting Sponsor has committed any material breach of this Agreement which, if capable of remedy, has not been remedied by whomsoever within ten (10) Business Days of receipt of written notice giving particulars of the breach and requiring its remedy; (b) an order is made or an effective resolution is passed for the liquidation, winding up or dissolution of the Defaulting Sponsor and such order or resolution is not cancelled within 1 (one) month; (c) an encumbrancer takes possession or a receiver is appointed over all or any part of the assets or undertaking of the Defaulting Sponsor; or

21.2.2 Subject to Clause 21.2.3, if the Agreement is terminated in accordance with Clause 21.2, all rights and obligations between SPYKER and the Defaulting Sponsor will cease immediately, except for those provisions expressly stated to survive termination of this Agreement.

(d) the Defaulting Sponsor becomes insolvent, enters into a voluntary arrangement with any of its creditors and is unable to pay its debts or admits in writing its inability to pay its debts as they fall due; or in accordance with Clause 19.

21.3 Termination by the Sponsors: 21.3.1 The Sponsors may terminate this Agreement with immediate effect on the giving of written notice to SPYKER at any time on the happening of any of the following events by or in relation to the other party: (a) SPYKER has committed any material breach of this Agreement which, if capable of remedy, has not been remedied within ten (10) Business Days of receipt of written notice giving particulars of the breach and requiring its remedy; (b) an order is made or an effective resolution is passed for the liquidation, winding up or dissolution of SPYKER and such order or resolution is not cancelled within one month; (c) an encumbrancer takes possession or a receiver is appointed over all or any part of the assets or undertaking of SPYKER; (d) SPYKER becomes insolvent, enters into a voluntary arrangement with any of its creditors and is unable to pay its debts or admits in writing its inability to pay its debts as they fall due; or

(e) under the provisions of Clauses 19, 5.1.3 (and 5.1.4.) … 24.2 No parties will be affected by any delay or failure in exercising or any partial exercising of its rights under this Agreement unless he has signed an express written waiver or release. Schedule 1 – Definitions and Interpretation – (Clause 1) … Default A material breach of any material obligation of this Agreement by the Defaulting Party which if the breach is capable of remedy the Defaulting Party has failed to remedy within five Business Days after receipt of a notice from the initiating party giving full particulars of the breach. … Team The Formula One motor racing team owned and managed by SPYKER. Team Name Etihad Aldar Spyker F1 Team (a) the points bonus payment obligations detailed in Clause 16.2 of this Agreement shall be reduced by 25% for each Sponsor; and (b) the F1 Constructors Championship position bonus detailed in Clause 16.3 shall no longer apply. In the event that the Sponsors exercise this Option B, SPYKER may request that the Sponsors receive alternative branding assets to those described in Clause 6 and detailed in Appendix 4, 5 and 6 of this Agreement always on the understanding that the value of the branding shall be of no less value than the original branding package. The Sponsors shall not unreasonably withhold or delay their acceptance of an alternative branding proposed by SPYKER. (a) The amount of US$ 3,000,000 – (US Dollars three million) for the race season 2007 to be received by SPYKER on the dates set out in Schedule 2; (b) The amount of US$ 3,600,000 – (US Dollars three million, six hundred thousand) for the race season 2008 to be received by SPYKER on the dates set out in Schedule 2; (c) The amount of US$ 5,400,000 – (US Dollars five million four hundred thousand) for the race season 2009 to be received by SPYKER on the dates set out in Schedule 2. (a) The amount of US$ 2,000,000 – (US Dollars two million) for the race season 2007 to be received by SPYKER on the dates set out in Schedule 2; (b) The amount of US$ 2,400,000 – (US Dollars two million four hundred thousand) for the race season 2008 to be received by SPYKER on the dates set out in Schedule 2; (c) The amount of US$ 3,600,000 – (US Dollars three million six hundred thousand) for the race season 2009 to be received by SPYKER on the dates set out in Schedule 2. (a) 2007 US$ 60,000 (US Dollars sixty thousand) per point scored by SPYKER up to a maximum of US$ 480,000 (US Dollars four hundred and eighty thousand); (b) 2008 US$ 60,000 (US Dollars sixty thousand) per point scored by SPYKER up to a maximum of US$ 720,000 (US Dollars seven hundred and twenty thousand); (c) 2009 US$ 60,000 (US Dollars sixty thousand) per point scored by SPYKER up to a maximum of US$ 900,000 (US Dollars nine hundred thousand); (a) 2007 US$ 40,000 (US Dollars forty thousand) per point scored by SPYKER up to a maximum of US$ 480,000 (US Dollars four hundred and eighty thousand) (b) 2008 US$ 40,000 (US Dollars forty thousand) per point scored by SPYKER up to a maximum of US$ 720,000 (US Dollars seven hundred and twenty thousand); (c) 2009 US$ 40,000 (US Dollars forty thousand) per point scored by SPYKER up to a maximum of US$ 900,000 (US Dollars nine hundred thousand); (a) US$ 300,000 (US Dollars three hundred thousand) if SPYKER is placed in the penultimate position in the Constructors’ Championship; or (b) US$ 600,000 (US Dollars six hundred thousand) if SPYKER gain one further position higher in the Constructors’ Championship; or (c) US$ 900,000 (US Dollars nine hundred thousand) if SPYKER gain two further positions higher in the Constructors’ Championship etc; up to a maximum of US$ 1,980,000 (US Dollars one million, nine hundred and eighty thousand) in the event of there being 12 participants in the Championship or US$ 1,800,000 (US Dollars one million, eight hundred thousand) in the event of there being 11 participants, unless a valid prize indemnity policy/hedge is sourced by the first Race of the season. (a) US$ 200,000 (US Dollars two hundred thousand) if SPYKER is placed in the penultimate position in the Constructors’ Championship; or (b) US$ 400,000 (US Dollars four hundred thousand) if SPYKER gain one further position higher in the Constructors’ Championships; or (c) US$ 600,000 (US Dollars six hundred thousand) if SPYKER gain two further positions higher in the Constructors’ Championships etc; up to a maximum of US$ 1,320,000 (US Dollars one million, three hundred and twenty thousand) in the event of there being 12 participants in the Championship or US$ 1,200,000 (US Dollars one million, two hundred thousand) in the event of there being 11 participants, unless a valid prize indemnity policy/hedge is sourced by the first Race of the season. (a) the Defaulting Sponsor has committed any material breach of this Agreement which, if capable of remedy, has not been remedied by whomsoever within ten (10) Business Days of receipt of written notice giving particulars of the breach and requiring its remedy; (b) an order is made or an effective resolution is passed for the liquidation, winding up or dissolution of the Defaulting Sponsor and such order or resolution is not cancelled within 1 (one) month; (c) an encumbrancer takes possession or a receiver is appointed over all or any part of the assets or undertaking of the Defaulting Sponsor; or (d) the Defaulting Sponsor becomes insolvent, enters into a voluntary arrangement with any of its creditors and is unable to pay its debts or admits in writing its inability to pay its debts as they fall due; or in accordance with Clause 19. (a) SPYKER has committed any material breach of this Agreement which, if capable of remedy, has not been remedied within ten (10) Business Days of receipt of written notice giving particulars of the breach and requiring its remedy; (b) an order is made or an effective resolution is passed for the liquidation, winding up or dissolution of SPYKER and such order or resolution is not cancelled within one month; (c) an encumbrancer takes possession or a receiver is appointed over all or any part of the assets or undertaking of SPYKER; (d) SPYKER becomes insolvent, enters into a voluntary arrangement with any of its creditors and is unable to pay its debts or admits in writing its inability to pay its debts as they fall due; or (e) under the provisions of Clauses 19, 5.1.3 (and 5.1.4.) Schedule 1 – Definitions and Interpretation – (Clause 1) Team Name Etihad Aldar Spyker F1 Team

The 2007 season

[12]Mr Baumgartner gave evidence that the 2007 season was “not obviously a successful one for [the Team]”. The Team finished in tenth position in the Constructor’s Championship and gained only one point for finishing in ninth place at the Japanese Grand Prix. Eleven teams had competed in the races run during the 2007 season.

[13]One of those teams, namely McLaren, had become involved in a controversy over confidential information belonging to Ferrari being passed to one of McLaren’s engineers. In consequence the World Motor Sport Council stripped McLaren of all the Constructors’ Championship points previously gained in the 2007 season and announced that McLaren could score no points for the remainder of the season. The McLaren drivers, however, were allowed to keep their points and to take part in the remaining races of the season. According to the official F1 Book for 2007, the McLaren team occupied eleventh place in the 2007 Constructors Championship. The Team, still named Spyker, occupied tenth place.

[14]Although the Team did not have a successful 2007 season, Mr Baumgartner gave evidence that from Etihad’s perspective the season was a considerable success. The return on investment on the sponsorship was greater than had been anticipated. According to a survey carried out by marketing agents, the value of the exposure in terms of media equivalent value to the sponsors was just short of US $10 million.

[15]Mr Baumgartner added that Etihad appreciated the flexibility and mutual respect in the working relationship between the sponsors and the Team. The Team were cooperative and responsive to Etihad’s suggestions about such matters as livery and branding, which were agreed jointly between them. Mr Kolles gave evidence that, shortly after the Team achieved eighth place in the Japanese Grand Prix, he met Mr Baumgartner and said jokingly to him that payment would be due under the contract for the points obtained by the team. According to Mr Kolles, Mr Baumgartner agreed.

The acquisition of Spyker by Orange India Holdings Sarl (“OIH”)

[16]Mr Vijay Mallya, who is the Chairman of the UB Group, gave evidence that at some stage in 2007 Mr Mol explained to him that members of his family who owned shares in Spyker were having problems with the other shareholders and consequently were looking for a new partner. Mr Mallya was interested in this proposal and in due course OIH was set up in order to bid to acquire Spyker.

[17]OIH’s bid was accepted in late August 2007. At a press conference in Mumbai on 1 September 2007 Mr Mallya made reference to “Team India” being “on the grid”. Mr Mallya denied in his evidence that this constituted an announcement of a change of team name. He said that, if it was suggested to him that OIH had bought Spyker in order to obtain exposure for the Kingfisher name, he would need to see a psychiatrist. His evidence was that he did not set up OIH in order to promote products; that could be done through sponsorship of a racing team. Indeed UB already had agreed to sponsor the Toyota team.

Narrative account of the dealings between the Team and E/A

[18]Mr Mallya gave evidence that he met Mr James Hogan of Etihad at the Italian Grand Prix in Monza in early September 2007. He said he assured Mr Hogan that he wanted E/A to remain sponsors of the Team. Mr Mallya also said that Mr Hogan told him that he thought it was a very good idea to use the Team to target India which would have 400 million middle class people by 2010. He believed that F1 would perfectly suit their aspirations. Mr Hogan was not called to give evidence on behalf of the defendants. Consequently Mr Mallya’s evidence as to this conversation is unchallenged.

[19]It seems, however, that, following the change in the ownership of the Team, E/A were thinking about looking for substitute sponsors. Mr Cunningham responded to a request from Mr Baumgartner for his thoughts by e-mail sent on 27 September 2007 as follows:

“These are my thoughts on the Spyker state of play: We let Spyker end the agreement … We put a tender document together for US$3-5million per annum for: BMW, Ferrari, McLaren and Renault to make Etihad an offer to become their official airline partner for 2008 and 2009 …”

. Mr Baumgartner replied: “… I agree in principle. In parallel we at Etihad need to understand ‘Abu Dhabi Inc’ and Ferrari a little better and whether there is another option for us”.

[20]The transfer of the shares in Spyker to OIH was completed on 5 October 2007. At that time there was only one more race in the 2007 season which was in Brazil. The Team raced under the name “Etihad Aldar Spyker F1 Team”.

[21]Mr Mallya gave evidence that he met Mr Bernie Ecclestone of the Formula One Management (“FOM”) on 11 October 2007 and discussed with him amongst other things a possible change of the existing Team chassis name from Spyker to a name referring to India. According to Mr Mallya, Mr Ecclestone said that he thought this would be helpful to the future of F1. A change of the chassis name to Force India was subsequently approved by the World Motor Sport Council (“WMSC”) on 1 November 2007.

[22]The 2007 racing season finished in October 2007. It is customary for F1 teams to use the time between the end of one season and the beginning of the next in or about March to carry out testing of the cars which are intended to race in the up coming season.

[23]Mr Baumgartner gave evidence that Etihad’s principal source of information about the acquisition of the Team by OIH was through media reports. He said that he was upset by the failure of the Team to keep the sponsors “in the loop”. He considered that there were obvious problems for E/A arising from the acquisition of the team by OIH because for him Mr Mallya and the UB group were synonymous with the Kingfisher brand, which is associated both with the airline industry through Kingfisher Airlines and with the alcohol industry through Kingfisher beer. According to Mr Baumgartner, Etihad was a competitor of Kingfisher Airlines and Etihad were very sensitive about any potential association with alcohol. He also expressed concern about the dominant personality of Mr Mallya.

[24]Notwithstanding these concerns it was the evidence of Mr Baumgartner that E/A hoped that the sponsorship relationship with the Team would continue. E/A made no complaint about the change to the name of the chassis sponsor. However, documents disclosed by them in the course of this litigation reveal that discussions took place within E/A, in conjunction with their legal advisers, about the contractual position and whether the Team was in breach of its legal obligations and duties. According to an internal memorandum dated 25 October 2007, Etihad Legal was assessing the contractual position and whether [the Team] was in breach of its legal obligations and duties as stipulated in the Agreement; E/A were currently working on respective options. The memorandum concludes: “…the present case does also provide opportunities for E/A which we now have to use to our best benefit”.

[25]The perception within the Team was that E/A were paying too little for the title sponsorship. For their part E/A had well in mind that by virtue of clause 5 of the Agreement it was open to the Team to seek a sponsor who would offer terms financially better than those agreed in the contract.

[26]By his email to Mr Hogan of Etihad sent on 1 November 2007 Mr Mallya indicated that he remained committed to maximising the value of the Etihad Aldar sponsorship but that, in view of the fact that the Team now had the unique draw amongst millions of Indians, the current title sponsorship amount was “way too low”. Mr Mallya sought a fairly substantial increase in the amount of sponsorship or an alternative space on the new car at the same cost. Notwithstanding the terms of that email, Mr Mallya insisted in his evidence that, if E/A had wanted the terms of the contract to stand, with E/A remaining as sponsors and the name continuing to be Etihad Aldar India F1 Team, he would have accepted that position. It is, however clear from his e-mail to Mr Hogan dated 1 November 2007 that Mr Mallya was keen that E/A should consider the “value addition” he was bringing and either agree to increase the sponsorship amount or accept alternative space on the new car.

[27]Mr Baumgartner wrote to Mr Kolles and Mr Malhotra of the Team a fortnight later that he was “looking forward to welcoming both of you in Abu Dhabi to discuss current situation and partnership options”. On November 22 2007, however, Mr Baumgartner e-mailed Mr Barrott telling him that, given the recent livery design changes and interviews, E/A had initiated a legal assessment of the sponsorship situation “to understand out potential leverage”.

[28]As I have already recorded at paragraph 17 above, OIH’s bid for Spyker had been accepted by the end of August 2007 and the purchase was completed in early October 2007. There followed the name change to Force India F1 Team Limited on 31 October 2007. Testing of the Team’s cars took place in Spain in November and December 2007. It appears that the media are not excluded from testing sessions, which consequently receive some publicity.

[29]Mr Mallya’s evidence is that he e-mailed Mr Mol on 13 November 2007 to say that Kingfisher had committed to sponsoring the Team. His evidence was that he had not by that time had an opportunity to consider the terms of the sponsorship contract with E/A.

[30]It is common ground that the livery on the Team’s cars was changed for winter testing. There was a Kingfisher logo on the car and its colours were dark red, white and gold.

[31]There is an issue between the parties as to what, if anything, had been discussed between them as to the change of logo and livery for the purpose of testing. The evidence of Mr Kolles was that Mr Baumgartner accepted at a meeting between them on 13 December 2007 that the car could carry the Kingfisher logo during testing but not “Fly Kingfisher” because that was the logo of Kingfisher Airlines. Mr Kolles said that he told Mr Baumgartner on the telephone that the interim livery for the post-season (i.e. winter) testing would be in Etihad colours. His evidence was that Mr Baumgartner did not object. In his internal e-mail to Mr Mallya dated 13 December 2007, Mr Kolles confirmed that Mr Baumgartner had accepted having Kingfisher on the car during testing but not Fly Kingfisher.

[32]The evidence of Mr Baumgartner by contrast was that it was untrue that Mr Kolles had discussed what livery was to be used during testing with him or anyone else at Etihad. He said he would not have approved the logo sight unseen over the telephone. He also said it was untrue that Mr Kolles’s only objection was to the logo “Kingfisher Airlines”. No one at Etihad would have agreed to the Kingfisher logo being on the car, according to Mr Baumgartner, in view of Kingfisher’s involvement with beer and an airline. Mr Baumgartner also disputed that Mr Kolles had mentioned Kingfisher livery and denied that Mr Kolles told him that he thought that Etihad would like it because it was dark red, white and gold. Mr Baumgartner gave evidence that red was not even part of Etihad’s secondary colour palette.

[33]According to an internal e-mail dated 18th November 2007, Etihad had initiated a legal assessment of the sponsorship contractual situation to understand “our potential leverage” in the light of “recent livery design changes (including of the Kingfisher airline brand)”.

[34]The parties met in Abu Dhabi on 13 December 2007. Following that meeting Mr Kolles e-mailed Mr Mallya to tell him that those present at the meeting had emphasised that they were very happy with the relationship, results and their return of (sic) investment on the sponsorship. He reported that the three potential options in the contract that had been discussed, namely(1) match a potential different title sponsorship option at a value of €15 million;

(2) not increase the sponsorship but move to other spaces;

(3) termination of the agreement.

[35]On 18 December 2007 the Team sent a detailed presentation on its performance and prospects to E/A. Having received the presentation, Mr Baumgartner asked Mr Cottage of Etihad to “please push FI/Colin to send through the A/B/C proposals (also to showcase our willingness to discuss further with a view to managing our KF relationship…). The pitch idea needs to be looked at again indeed. Appreciate you organising a meeting with Jamie [Cunningham] for early next week to get various balls rolling”.

[36]On 14 January 2008 Mr Kolles e-mailed his opposite number Mr Baumgartner telling him that the Team would like to continue their successful relationship with option B meaning no title sponsorship, no livery rights and new branding on the car in accordance with a visual attached to the message. The Team proposed for seasons 2008 and 2009 that the sponsorship fees as set out in clause 16 should apply except for the points bonus being reduced by 25% for each sponsor and the Constructors’ Championship position bonus no longer applying.

[37]Mr Kolles gave evidence that just before 27 January 2008 Mr Baumgartner telephoned him to say that, although E/A were happy with the Team and the people involved, someone in the Abu Dhabi Royal family was not happy with the presence of Kingfisher and the reference to India in the Team name and that accordingly E/A intended to terminate the sponsorship.

[38]On 27 January 2008 E/A responded to the Team’s e-mail of 14 January by terminating, or purporting to terminate, the sponsorship agreement. The letter included the following: “We take this e-mail communication from [the Team] to be notice of its intention to exercise its rights in clause 5.1 of the Sponsorship Agreement to replace E/A as the main Team Sponsors and we accept it as such, notwithstanding that such notice has not been given in accordance with the terms of the Sponsorship Agreement. As you are aware, clause 5.1.4 gives E/A the discretion to decide which option to select from option A, option B and option C. Although [the Team] has proposed option B, E/A are not required to accept that proposal. In a joint decision, Etihad and Aldar have decided to elect Option C and hereby give [the Team] notice pursuant to clause 5.1.4 to terminate the Sponsorship Agreement pursuant to clause 5.1.3, subject to the other terms of this letter”.

[39]E/A’s letter concluded by referring to the re-naming of the Team to incorporate reference to India as a “blatant breach of our rights under the Sponsorship Agreement”. E/A gave notice under clause 21.3.1(a) of [the Team’s] material breach of the Sponsorship Agreement, which the letter asserted was incapable of remedy and which entitled E/A to terminate the Sponsorship Agreement with immediate effect.

[40]Mr Kolles on behalf of the Team wrote to E/A on 31 January 2008 complaining of their failure to pay the sums due under the sponsorship agreement. The letter asserted that the purported termination of the Sponsorship Agreement by letter dated 27 January 2008 was itself a repudiation of the agreement which the Team accepted as a wrongful repudiation, thereby bringing the agreement to an end. The letter further denied that the re-naming of the Team “Force India” was in breach of the Agreement. The letter concluded by inviting proposals from Etihad and Aldar for payment of the sums outstanding together with the future loss of at least $15 million plus bonus payments in respect of years 2008 and 2009.

[41]The inter-party correspondence concludes with a letter from Etihad to the Team dated 27 February 2008 in which complaint was made of the exclusion of any reference to E/A as the main team sponsor in the changed Team Name and denying any breach of their payment obligations under the agreement.

The Ferrari proposal

[42]It was the unchallenged evidence of Mr Kolles that, just over six weeks after the ending of the Agreement between the Team and E/A, on 12 March 2008 Etihad signed a sponsorship agreement with Ferrari. No disclosure has been given by Etihad of any documents passing between them and Ferrari prior to the agreement being concluded. Mr Kolles thinks that six weeks from the letter of 27 January 2008 was a relatively short time for Etihad to have been able to negotiate and agree this new sponsorship with Ferrari. It is necessary to explore such evidence as exists as to the relationship between E/A and Ferrari over the preceding months.

[43]The only document which appears to cast any light on the developing relationship between Etihad and Ferrari is to be found in the exchange of e-mails referred to at paragraph above 19 above about putting together a tender document for submission to amongst others Ferrari. E/A were clearly considering approaching Ferrari and other teams about sponsorship in place of the Team. I reject the claim made by Mr Baumgartner that they were doing nothing of the kind.

[44]It is unclear when it was that Etihad and Aldar decided to approach either Ferrari or some other Formula One team with regard to sponsorship arrangements. Mr Baumgartner says only that the decision had not been taken by 27 September 2007. However, on 18 December 2007 Mr Cottage, on receipt of a proposal from the Team, circulated an e-mail within Etihad, which includes the following:

“This still being a slightly sensitive issue, I propose we follow up with Colin [Kolles] again to request proposals for all three ‘options’ (A, B and C) which they had promised to send through to us in the New Year. With the proposals back from Ferrari, it looks more likely we should start thinking about the ‘pitch’ idea again with other teams”

. The proposals from Ferrari have not been disclosed.

[45]On 27 September 2007 Mr Cunningham e-mailed Mr Baumgartner and put forward the following alternative courses open to E/A:• “We let Spyker end the agreement with us from a contractual state of play. If we do not hear anything formally from them by mid-November, then we should request a meeting with them in Abu Dhabi in late November or early December.

• We put a tender document together for USD3-5 million per annum for: BMW, Ferrari, McLaren and Renault to make Etihad an offer to become their official airline partner for 2008 and 2009. We would ask each to make a pitch in Abu Dhabi in late January/early February.

• We examine which drivers might be available for personal sponsorship (e.g. Lewis Hamilton). This may (sic) a great leverage for the 2009 sponsorship and our continued marketing presence for Etihad in F1. It may only cost USD500,000 – 1 million depending on the driver… Etihad would need to see branding on the driver in F1, full image marketing and PR rights and an agreed number of personal appearances.” Mr Cunningham concluded: “Purely on the team front, I believe that a European as opposed to British team may make most sense within Etihad’s sponsorship portfolio. We can no doubt work on the above over the next few months”.

[46]The Ferrari team was at the material time one of the more successful Formula One racing teams. It is plain that there were discussions between E/A and Ferrari about sponsorship from time to time over the relevant period. Mr Cunningham refers in his witness statement to a sponsorship proposal made by Ferrari not to Etihad but to Mubadala Development Company, which was at the time a shareholder in Ferrari. Mr Cunningham does not say when this proposal was made. However, by e-mail dated 27 September 2007 Mr Cunningham, as requested, provided Mr Baumgartner with his thoughts on the Spyker state of play to which I have referred at paragraph 45 above.

[47]Mr Baumgartner replied on the same day saying that he agreed in principle and adding: “In parallel, we at Etihad need to understand ‘Abu Dhabi Inc’ and Ferrari a little better and whether there is another option for us. Let’s continue the dialogue over the coming weeks”.

[48]Mr Manfredi Ravetto formerly worked for Spyker. On leaving the Spyker team, he sent Ferrari his CV. Mr Ravetto’s evidence was that the interview went well. Before he left, he was taken to see Ferrari’s head of Global Branding, Mr Bahar. Mr Ravetto’s evidence was that Mr Bahar did not ask him anything about working for Ferrari but immediately started asking him questions about Etihad. Mr Ravetto gained the clear impression that Ferrari had already been in communication with Etihad. When Mr Ravetto asked Mr Bahar whether Ferrari were interested in Etihad as a sponsor, he replied: “We are working”. He then said that Ferrari did not have a job for him.

[49]It was the understanding of Mr Cunningham that when Mubadala received Ferrari’s proposal in late December 2007, it was forwarded to Etihad and Aldar with a view to putting together a joint sponsorship.

[50]Mr Baumgartner made reference in his evidence to a short meeting which took place in Maranello, Italy in November or December 2007. He said that this discussion was about promoting Ferrari at the theme park then being developed in Abu Dhabi and that it in no way related to the Team. Mr Baumgartner added that no meeting took place thereafter with Ferrari prior to the termination of the sponsorship agreement on 27 January 2008.

[51]What also emerged in the course of the evidence of Mr Baumgartner was that towards the end of 2007 Etihad was in discussion with Kingfisher Airlines to lease a wide-bodied Airbus plane because one of Etihad’s planes had been damaged. Mr Baumgartner said in his oral evidence that this meant that Etihad did not want to harm its relationship with Mr Mallya. Mr Cunningham confirmed in his oral evidence that he thought that Etihad’s problem in October 2007 was that they needed to borrow a plane from Kingfisher Airlines and this meant that it would not be politic to upset Mr Mallya. Neither Mr Baumgartner nor Mr Cunningham mentioned the possible lease of a plane by Etihad from Kingfisher Airlines in their witness statements; nor was mention made in the witness statements of the meeting in Maranello in November 2007.

[52]Mr Cunningham did, however, accept in the course of his cross-examination that Ferrari made proposals for Etihad to sponsor its team in February 2008. Mr Cunningham also accepted that a meeting between Etihad and Ferrari did take place at about the time of Mr Cottage’s e-mail of 2 January 2008.

The issues which arise for decision

[53]After that over-long narrative account of the exchanges between the Team and E/A, I can turn to the questions which have to be decided in this case.

Issue 1: The date and manner in which the Sponsorship Agreement came to an end

[54]The first question which arises for determination is whether, as Mr Andrew Fulton maintains on behalf of E/A, the notice of termination given by E/A on 27 January 2008 had the effect of terminating the agreement between the parties or in the alternative whether, as E/A contend, that constitutes an acceptance by E/A of the antecedent repudiation of the Agreement by the Team.

[55]The case advanced by Mr Francis Tregear QC in relation to these questions is that prior to 27 January 2008 his client, the Team, had committed no material breach of the Agreement within the meaning of Clause 21.3.1(a). A further argument is advanced on behalf of the Team that the breaches were remediable within the meaning of Clause 21.3.1(a) so that, in the absence of any notice as required by that clause, it was not open to E/A to terminate the Agreement as they purported to do. Alternatively, if any such irremediable material breach was committed by the Team, it was either waived or acquiesced in by E/A or in the further alternative E/A thereafter affirmed the Agreement. Finally on this issue the Team denies that by its conduct it repudiated the Agreement with the result that the letter of 27 January 2008 effectively terminated the Agreement at common law.

[56]I shall start by reviewing the authorities which were cited on this aspect of the case. On behalf of E/A, Mr Fulton submitted in reliance on Stocznia Gydnia SA v Gearbulk Holdings

[2009] EWCA Civ 75

, [20] and [44] that, given the conduct of the Team, E/A were entitled(a) to accept the Team’s repudiation of the Agreement and

(b) to serve contractual notice of termination because, in practice, these two courses of action amounted to one and the same thing. Reliance was placed on a dictum of Moore-Bick LJ in Stocznia at paragraph 44:

“…but where the contract provides a right to terminate which corresponds to a right under the general law (because the breach goes to the root of the contract or the parties have agreed that it should be treated as doing so) no election is necessary. In such cases it is sufficient for the injured party simply to make clear that he is treating the contract as discharged…”

. It will be necessary for me to decide whether the right to terminate contained in Clause 21 of the Agreement is or is not co-extensive with the right to terminate under the general law by accepting a repudiatory breach of contract on the part of the opposite party.

[57]In relation to E/A’s letter of 27th January 2008, Mr Fulton points out that it is not to be treated as a pleading or statement of case. He makes a number of assertions as to its legal effect: i) The wording is not important provided that E/A made clear that they were treating the contract as at an end: see Vitol SA Respondent v Norelf Limited

[1996] AC 800

per Lord Steyn at 810; ii) Unless it involves an election between inconsistent rights, it does not matter whether the notice is expressed as a contractual termination or the acceptance of a repudiation: Stocznia (see above); iii) E/A are not bound by the terms of the notice and, subject to exceptions are entitled to rely subsequently on the additional grounds: Glencore Grain Rotterdam BV v Lebanese Organisation for International

[1997] 4 ALL ER 514

. The exceptions are that E/A may not rely on those new grounds if they could have been remedied if raised earlier or if E/A misled the Team into thinking that the new grounds would not be relied on: Glencore (op. cit.).

[58]Mr Fulton further argues that, even if the notice of 27 January 2008 did not of itself determine the contract, it does not follow that E/A was guilty of repudiating the agreement: see Woodbar Investment Development Limited V Wimpey Construction Limited

[1980] 1 WLR 277

per Lord Wilberforce at 283. If grounds for terminating the contract at common law did not otherwise exist, Mr Fulton argues that it was not open to the Team to purport to treat the notice of termination as a repudiation of the Agreement: see Concord Trust v LawDebenture Trust Corporation Plc

[2005] UKHL 27

at [16] and [18]. In any case Mr Fulton says that the letter purporting to accept E/A’s repudiation caused no loss to the Team and gave no right to the Team to terminate or to seek damages.

[59]In relation to the issue of remediability, Mr Fulton accepted that the authorities favour a practical rather than an unduly technical test. The case advanced on behalf of E/A is that the breaches were irremediable because E/A could not be restored to the position to which they should have been in.

[60]On behalf of the Team Mr Tregear disputed E/A’s contention that for present purposes repudiation and termination under Clause 21.3 amounted to the same thing. He says that Stocznia does not assist E/A because everything turned on the interpretation of the contract in that case. In the present case it is clear that Clause 21.3 creates an entitlement to terminate the Agreement which is wholly distinct from the right to terminate at common law. For instance the right to terminate under the contract in the present case differs significantly from the right to terminate at common law because under the terms of the contract the right to terminate cannot arise where the breach is remediable.

[61]In support of his client’s case that E/A affirmed the Agreement Mr Tregear relies on Chitty on Contracts (30th Edition) at 24-010. It is there stated that:

“There will be circumstances where, even in the absence of an actual election, the innocent party will be regarded as having made its election and decided not to terminate when a reasonable time has passed and it has not sought to bring the contract to an end”

. In this connection Mr Tregear relied also on Tele2 International Card Company SA v Post Office Limited

[2009] EWCA Civ 9

, where at paragraph 53 Aikens LJ summarised the analysis by Lord Goff of the principles of affirmation by election in Kanchenjunga

[1990] 1 Lloyd’s Rep 391

at 397-399 as follows: i) If a contract gives a party a right to terminate upon the occurrence of defined actions or inactions of the other party and those actions or inactions occur, the innocent party is entitled to exercise that right. The innocent party has to decide whether or not to do so. Its decision is, in law, an election. ii) It is a prerequisite to the exercise of the election that the party concerned is aware of the facts giving rise to its right and the right itself. iii) The innocent party has to make a decision, because if it does not do so then ‘the time may come when the law takes the decision out of [its] hands, either by holding [it] to have elected not to exercise the right which has become available to [it] or sometimes by holding [it] to have elected to exercise it’. iv) Where, with knowledge of the relevant facts, the party that has the right to terminate the contract acts in a manner which is consistent only with it having chosen one or other of two alternative and inconsistent courses of action open to it (i.e. to terminate or affirm the contract), then it would be held to have made its election accordingly. v) An election can be communicated to the other party by words or conduct. However, in cases where it is alleged that a party has elected not to exercise a right, such as a right to terminate a contract on the happening of defined events, it will only be held to have elected not to exercise that right if the party ‘has so communicated [its] election to the other party in clear and unequivocal terms’.

[62]The Court of Appeal in Tele2 agreed with the findings made by the Judge in that case: the continued performance of the Agreement by one party without any protest or any reservation of rights, was consistent only with it having elected to abandon its right to terminate or alternatively constituted the communication of an election to the opposite party in clear and unequivocal terms.

[63]Dealing with the question of the remediability of the breaches relied on in E/A’s letter of 27th January 2008, Mr Tregear cited Schuler v Wickman Tools

[1974] AC 235

and Expert Clothing Service v Hillgate House Limited

[1986] 1 CH 340

. Both authorities are broadly to the same effect, that is, that a breach will only be treated as being irremediable where the consequences of that breach cannot be put right or retrieved for the future. If a breach is only to be treated as being remediable in cases where all damage past and future can be put right, there would hardly be any scope for a remediable breach.

Breaches of contract on the part of the Team

[64]I turn now to the facts and in particular to the question what breaches of the Agreement on the part of the Team are established by the evidence. I start with the breaches which are said by Mr Fulton to be the “most serious ones”, namely the use of the Kingfisher logo, the new team name and the new livery during winter testing in 2007/2008: see paragraph 8(c)(vii)-(ix) of the Defence and Counterclaim. I have summarised the evidence relating to those breaches at paragraphs 30ff above. As I have pointed out, there is a conflict of evidence between Mr Kolles and Mr Baumgartner as to whether or not the former told the latter beforehand about the new livery and the Kingfisher logo which were to be used during testing. The only contemporaneous document bearing on this issue is the e-mail from Mr Kolles to Mr Mallya sent on 13 December 2007 in which he says:

“As I told you, I spoke after completion to [Mr Baumgartner] and he accepted to have Kingfisher on the car but not Fly Kingfisher. Their concern is more in terms of communication because of the F1 FOM website if it’s talked about Kingfisher the perception is that it’s talked about Fly Kingfisher.”

[65]I also bear in mind the evidence that E/A were anxious at this time not to upset the Team or Mr Mallya because of the ongoing discussions about Etihad’s request to borrow an aircraft from Kingfisher. I think that this would have influenced Mr Baumgartner’s response to the use of the Kingfisher logo and the changed livery during winter testing. It goes without saying that the appearance of a car during winter testing is far less important to sponsors than its appearance during Grand Prix races.

[66]I accept the evidence of Mr Kolles that he did tell Mr Baumgartner that the Kingfisher logo would be on the car during testing and that the only concern raised by Mr Baumgartner was that it should not include a reference to Kingfisher Airlines. I see no reason why Mr Kolles should have misrepresented the position in his e-mail to Mr Mallya of 13 December 2007 (see paragraph 31 above).

[67]As to whether Mr Kolles also mentioned to Mr Baumgartner the new livery to be used during testing, there is no contemporaneous documentary evidence. Mr Kolles does not refer to the topic in his e-mail of 13 December 2007. It may well be that he did not deem it necessary to inform Mr Baumgartner about the new livery because it was only intended to be used on an interim basis during testing in the closed season.

[68]I am not in any event persuaded that this limited use of the new livery was a material breach by the Team of its obligations under the Agreement. Moreover I note that, whilst it is apparent from Mr Baumgartner’s internal e-mail to Mr Barrott (his superior) sent on 18 November 2007 that E/A sought legal advice about the livery design changes made in order “to understand our potential leverage”, it is common ground that no complaint was made to the Team about the livery at that stage. That was probably because, as Mr Cunningham accepted in his evidence, E/A were at this time well aware of the likelihood that the Team would be able to find an alternative sponsor able to offer better terms, thus enabling the Team to exercise Option A of the Agreement (see paragraph 11 above at clause 5).

[69]Even if, contrary to my finding, the livery and/or the logo used by the Team during winter testing did constitute material breaches of the Agreement, it appears to me that those breaches were remediable in the sense that the Team could have put matters right by reverting to the previous livery and removing the Kingfisher logo for the remainder of the winter testing. It follows that under the Agreement E/A were obliged to give notice to the Team requiring the breaches to be remedied.

[70]I further find that these breaches were in any event waived by E/A. I base that finding upon the conduct of E/A both during winter testing and afterwards, in full knowledge of the appearance of both car and driver during that testing. Not only did E/A not complain of conduct which they now assert to have been a material breach, but also they led the Team to believe that they were happy with its performance of the Agreement. In this connection I refer by way of example to the parties’ meeting on 13 December 2007 and the unchallenged note of that meeting which was sent by Mr Kolles’s e-mail to Mr Mallya of even date.

[71]I turn to the other breaches relied on by E/A which are pleaded at paragraph 8(f) of the Defence and Counterclaim, starting with the change of the Team name to Force India which E/A contend constituted a breach of clause 4.6 of the Agreement. There is a certain unreality about construing the obligation imposed by clause 4.6 as requiring the retention in the Team Name of a reference to Spyker in circumstances where the original Dutch-owned Spyker had been taken over by the Indian concert party led by Mr Mallya and Mr Mol.

[72]That said, I am prepared to assume, without deciding, that the change of name by substituting Force India for Spyker did constitute a material breach of clause 4.6 of the Agreement. The wording of clause 4.6 (which was put forward by E/A) strikes me as confused and confusing. I do not overlook the fact that Mr Baumgartner found it difficult to answer the question how clause 4.6 was intended to operate.

[73]What appears to me to be clear is that, assuming the change of name to be a material breach of the Agreement, it was a breach which was plainly remediable. If E/A had given the notice required by clause 21.3.1(a) of the Agreement, the Team could have changed the team name back to Etihad Aldar Spyker F1 Team. There is no reason to suppose that this change back would have been prevented by the F1 authorities. No objection was made to the various changes to the chassis name.

[74]The next breach relied on by E/A in paragraph 8(f)(ii) of the Defence and Counterclaim is that Spyker was acquired by a company associated with Kingfisher Airlines, particularly for the purpose of promoting Kingfisher Airlines. That is said to be a breach of clauses 3.1 and 3.2.4 of the Agreement. Whilst I accept that the company which acquired Spyker was “associated with” Kingfisher Airlines, I do not accept that the evidence supports the proposition that the acquisition was “particularly for the purpose of promoting Kingfisher Airlines”. I accept the evidence of Mr Mallya to that effect: see paragraph [17] above. In any event I find it difficult to reconcile clauses 3.1 and 3.2.4 of the Agreement with, firstly, the right conferred on the Team by clause 5.1 of the Agreement to source an alternative Team Sponsor for the years 2008 and/or 2009 and, secondly, with clause 12.1 of the Agreement which expressly permits the Team to obtain and contract with potential and actual Team Sponsors other than E/A. I note that the latter clause makes no reference to airlines being unlikely to be approved.

[75]I am in any event entirely satisfied on the evidence that any breach of clause 3.1. or 3.2.4 of the Agreement was waived or alternatively acquiesced in by E/A by reason of their conduct after they became aware of the identity and business interests of the new owners of the Team.

[76]I have set out at paragraphs 34ff above in some detail the events which followed the announcement by Mr Mallya of the acquisition of Spyker and his aspirations for the reconstituted Team. It appears to me to be clear from the contemporaneous exchanges of e-mails, as well as from the evidence of both Mr Baumgartner and Mr Cunningham, that E/A were at all material times well aware of what was happening over the weeks and months following the acquisition of Spyker. Notwithstanding this knowledge, E/A did not lodge any complaint with the Team; nor did E/A object that the Team was behaving in a manner which breached its obligations under the Agreement. On the contrary E/A expressed their happiness with the way in which the contract was being performed by the Team and told the Team that they were delighted with the media coverage achieved in the 2007 season. It is now apparent that E/A were busily pursuing the possibility of sponsoring other teams (including Ferrari) and carefully considering their options under the Agreement; but E/A were careful to conceal this from the Team.

[77]In my opinion there were a number of reasons why E/A did not protest. In the first place they were well aware that the level of sponsorship for which the Agreement provided fell significantly short of what the Team hoped to achieve once the acquisition of Spyker had been completed. Mr Mallya made no secret of the fact that he wanted and expected an improved level of sponsorship. The evidence supports the conclusion that E/A well knew that they had driven a hard bargain when negotiating the amount of the sponsorship payable to the Team.

[78]Moreover I am satisfied that the senior management at E/A had well in mind the entitlement of the Team under clause 5 of the Agreement to exercise its option to seek an alternative sponsor willing and able to pay a materially greater amount by way of sponsorship for the 2008 and 2009 seasons. Clause 5 is a highly unusual provision which in effect entitled the Team to walk away from the Agreement if it managed to find a better deal with another sponsor. It was unlikely that E/A would thereupon have exercised Option A and in the event they did not do so.

[79]My conclusion on the evidence is that the existence of the clause 5 option was the major reason why E/A made no complaint about what they now assert were breaches by the Team of its contractual obligations. There were two further reasons: firstly, I am satisfied that from an early stage E/A were hopeful of concluding an alternative sponsorship agreement with Ferrari or, failing that, with another established F1 team. I have described above the contact which took place between E/A and Ferrari during the currency of the Agreement. Secondly, I am satisfied that the desire of Etihad to prevail on Kingfisher Airlines to lend them an aircraft was a further material reason why E/A did not wish to rock the boat by complaining of breaches of contract on the part of the Team.

[80]I have set out earlier in this judgment the guidance given in the authorities on the question of waiver, acquiescence and affirmation of a contract. Applying those authorities to the facts of the present case, my conclusion is that over the period starting with the date of the acquisition of Spyker and concluding with the letter of termination dated 27 January 2008, E/A was, as Mr Tregear submitted, engaged upon a strategy of watch and wait and see what advantage they might be able to extract from the situation. In my judgment this is a case where E/A, being the party that had the right to terminate the contract, with knowledge of the facts said to amount to breaches on the part of the Team, acted in a manner which is consistent only with it having chosen to affirm the Agreement, that being one of the two alternative and inconsistent courses of action open to it (i.e. to terminate or affirm the contract), and so will be held to have elected by their words and conduct to affirm the Agreement: see The Kanchenjunga cited above.

[81]My finding is that E/A by their course of conduct over the months detailed above had, prior to the sending of the letter of termination, elected not to exercise any right they might otherwise have had to terminate the contract. By parity of reasoning the various breaches of contract now relied on were waived by E/A or alternatively acquiesced in by their conduct over that period.

[82]I can deal briefly with the allegation of breach which is made in paragraph 8(f)(iii), namely E/A’s complaint that various press releases and media statements “related to the Defendants” but were not subject to prior approval as required by clause 10.5 (sic). The short answer to this complaint is that, as it appears to me, none of those press releases contained statements by the Team which “related to” either Etihad or Aldar.

[83]Moreover no complaint was made about the press releases at the time, nor so far as the evidence goes any other action taken by E/A in relation to them. In these circumstances I am satisfied that, if there were breaches, E/A waived them by their conduct as set out above.

[84]Similarly in relation to the breach alleged in paragraph 8(f)(iv), namely that E/A were not given the right to decide the livery and suits for the 2008 season, E/A made no attempt to seek to exercise its rights under clause 4.7 of the Agreement. There is no evidence that E/A lodged any contemporaneous complaint to the Team about the proposed livery or suits for the 2008 season. According to the evidence the most that can be said is that E/A took legal advice which may well have included the 2008 livery and suits.

[85]In my judgment it is not now open to E/A to make this complaint: the breach, if any, was waived or alternatively E/A are disentitled from making this objection by reason of what I have already held to be their affirmation of the Agreement.

[86]Finally I come to paragraph 8(f)(v), namely that the Team breached its obligation under clause 12 to protect the reputation, image and goodwill of E/A, their products and services by changing its company name and by using the Team and its personnel to promote Kingfisher Airlines. I have dealt at paragraph 74 above with the allegation that the Team acquired Spyker for the purpose of promoting Kingfisher Airlines in breach of clauses 3.1 and 3.2.4 of the Agreement. As to this breach, it does not appear to me that there is any evidence that the Team or its personnel promoted Kingfisher Airlines at any time in the period prior to 31 January 2008. Accordingly I reject this allegation of breach. The issue what damages should be awarded to the Team for the wrongful repudiation of the Agreement by E/A.

[87]The question which next arises is the amount of the damages payable by E/A for what I have held to be their wrongful repudiation of the Agreement. As to that, Mr Fulton takes the preliminary point that this damages claim should be peremptorily struck out under CPR 3.4(2)(c) by reason of the failure of the Team to comply with the order made by Rafferty J on 2 October 2009 for the specific disclosure of documentary material relating to the damages claim. Whilst I accept that the documentary evidence produced by the Team (much of it after the order of 2 October 2009) in support of this part of the claim for damages requires close scrutiny, I do not accept that any failure to comply with the order is a legitimate ground for striking out this part of the claim for damages. It appears to me that in circumstances where the Order has in part at least been complied with by the Team through additional disclosure of documents and, importantly, through the evidence of Ms Margaret Sweeney, the Chief Accountant of the Team since 2001, it would not be right for me now to reject the claim out of hand. Moreover I am not satisfied that the non-compliance with the Order was contumelious on the part of the Team. I am now, albeit belatedly, in a position fairly to deal with the damages issue.

[88]The total claim under this head originally stood at about US$15 million. Mr Tregear has conceded, firstly, that credit should be given for US$85,000 which is said by the Team to be the saving in costs to the Team by reason of the termination of the Agreement. Secondly Mr Tregear conceded that credit should be given by the Team for certain of the sponsorship income received by the Team from the date of the termination of the Agreement until its agreed expiry date on 31 December 2009. The income in question was paid to the Team by Kingfisher Airlines in the total sum of US$10 million and in addition by Whyte & Mackay (whisky producers who are part of the UB Group) totalling US$2,151,975.

[89]The first concession is made on the basis that US$85,000 is the estimated saving to the Team of the costs which it would have incurred if the Agreement had continued until the end of the 2009 season. Mr Fulton complains that the costs conceded to have been saved by the Team by reason of the termination of the Agreement, which total US$85,000, are not broken down or sufficiently explained. He was, however, understandably not in a position to advance a positive case that the saving to the Team would have been greater than the sum conceded. Mrs Margaret Sweeney supported the quantification of this head of this sum in her evidence. My judgment is that US$85,000 is probably the right figure and that I would not be justified in requiring the Team to give credit for a larger amount.

[90]The essential reason why the second concession is made is that, if the Sponsorship Agreement had continued, there would and could have been a right of veto on the part of E/A to the payment to the Team of these monies because Kingfisher was an airline brand and Whyte & McKay was a whisky brand. It can be said that the termination of the Agreement enabled the Team to obtain sponsorship from Kingfisher and Whyte & McKay. It would not have been open to the Team under the terms of the Agreement to take those monies if the Agreement had remained in force. The monies from those sources was substitute income for the monies the Team would, but for the termination of the Agreement have received from E/A: see The Fanis

[1994] 1 Lloyds Rep 633

per Mance LJ at 636. To put it another way the monies were a direct result of the breach by E/A : see Lavarack v Woods

[1967] 1 QB 276

per Lord Denning at 290.

[91]The position is fundamentally different with other monies received by the Team where there would and could have been no objection or right of veto on the part of E/A to the payment to the Team of sponsorship monies. As Mr Tregear put it:

“A point is never reached when a team ceases to need or search for sponsorship”

. It cannot be said of such monies that the termination of the Agreement enabled the team to earn them. I see no reason why credit should be given by the Team for this collateral benefit.

[92]The total credit which it is conceded must be given for the monies paid by Kingfisher Airlines and Whyte & Mackay respectively over the relevant period is US$12,151,975. It follows that the net shortfall in sponsorship receipts is, according to the Team’s case, US$2,841,025. In addition the Team seeks to recover the sum of US$42,216.44 being the interest accrued on the principal sum allegedly due.

[93]Mr Fulton did not, as I understood him, quarrel with the arithmetic which produces the reduced sum now claimed under this head. He does, however, argue that not only did the Team not comply with the Order for specific disclosure but also that such disclosure as was belatedly given by the Team is inadequate, contains unjustifiable redactions and is altogether obscure. Mr Fulton further objects that the intra-group transfer of funds is unexplained. In particular he queries the re-characterisation of the final US$2.5 million of the US$7.5 million originally committed by Kingfisher Airlines as a loan rather than as sponsorship income. He also questions why Whyte & Mackay signed up to a twelve-year sponsorship when none of the other sponsorship agreements exceeds three years.

[94]In my judgment each of these criticisms trenchantly advanced by Mr Fulton has been met, firstly, by the second witness statement of Mr Mallya (see paragraphs 13-15) and, secondly, by the two witness statements, together with supporting schedules, served on 17 September 2009 and 6 October 2009 respectively, from Mrs Sweeney together with her answers in oral evidence both in chief and in cross-examination.

[95]I accept that, leaving aside the substantial financial support provided to the Team by Kingfisher Airlines and by Whyte & Mackay, which was occasioned by reason of what I have held to be the wrongful termination of the Agreement by E/A, the Team has established that the balance of the sponsorship monies which would have been provided by E/A under the Agreement was lost to the Team by reason of its repudiation by E/A. I accept of course that the sponsorship monies which are the subject of the reduced claim made by the Team had been received. I do not accept that it is any answer for E/A to say that the Team has received sponsorship money from other third parties subsequent to the termination of the Agreement. As Mr Tregear pointed out, no objection could or would have been taken by E/A to the payment of those monies to the Team.

[96]For the above reasons I award damages under this head for the wrongful termination of the Agreement by E/A in the sum of US$2,841,025 plus interest thereon of US$42,216.44. The claim for the Constructors’ Championship bonus in the sum of US$500,000.

[97]I can take the remaining heads of claim more shortly, starting with the claim for payment of a Constructors’ Championship bonus of US$500,000. The nature and basis of the obligation upon Etihad and Aldar respectively is to be found in clause 16.3.1 which I have set out above.

[98]The issue is whether it can be said that in the 2007 season the Team was “placed in the penultimate position in the Constructors’ Championship” within the meaning of clause 16.3.1 and 2(a). It is common ground that eleven teams competed in the Championship in the 2007 season. The question is therefore whether it can be said that the Team was placed in the penultimate position in that year.

[99]I have described above in paragraph 13 above how it was that McLaren was disqualified that year and so finished unranked. I accept that McLaren was not placed eleventh in the Championship but rather was listed at the bottom immediately after the Team. Having been disqualified, McLaren could not be ranked for the purpose of the Constructors’ Championship. But it does not appear to me to follow that the Team cannot be said to have been placed in the penultimate position. The evidence is that McLaren was specifically allowed by the decision of the WSMC council to continue to compete throughout the season in order that its drivers could have the opportunity to win points.

[100]I accept the submission of Mr Tregear that drivers cannot compete without the team participating and continuing to compete. I cannot accept that McLaren was unranked is a reason for saying that they did not in the 2007 season come last, i.e. were placed in the ultimate position in the Constructors’ Championship. Nor do I derive assistance from the fact that there is reference in clause 16.3.1 to the Team “gaining” a position. The plain fact is that McLaren finished last in the Constructors’ Championship because the team was disqualified. Clause 16.3(1) and (2) do not require a comparison to be made between the 2007 and the 2006 seasons.

[101]In my judgment the Team is entitled to damages in the amounts to which, but for the termination of the Agreement, they would have been entitled to be paid by E/A by way of Constructors’ Championship bonus, that is, from Etihad US$300,000 and from Aldar US$200,000.

The claim for the loss of a chance of the points bonus

[102]Clause 16.2 of the Agreement, which I have set out above, required E/A to pay a points bonus per point scored by the Team in each of the 3 years of the Agreement subject to a cap.

[103]The contention for the Team is that, by reason of what I have held to be the wrongful repudiation of the Agreement, it lost the chance of being paid the contractual bonus for the points scored in the second and third years (2008 and 2009) of the Agreement.

[104]The first point taken by Mr Fulton for E/A is that the loss of any points bonus which might otherwise have been payable was extinguished by virtue of the Team having found substitute sponsors. This is the same argument as was deployed in opposition to the Team’s claim for loss of the Constructors’ Championship bonus which I have already dealt with (see in particular paragraph 90 above).

[105]The question which arises is whether the entitlement of the Team under its new sponsorship agreements is properly to be regarded as having arisen out of or as being sufficiently closely connected with E/A’s breach of contract to require to be brought into account in assessing damages. My answer to that question is in the affirmative. The chance of obtaining bonus payments from the new sponsors was the direct result of E/A repudiation of the Agreement. In those circumstances I consider that, by parity of reasoning with my conclusion above in relation to the claim for loss of sponsorship monies, the Team’s claim in respect of points bonus is in principle a valid one.

[106]However, Mr Fulton contends that at the date of the Team’s acceptance of the repudiation of the Agreement by E/A the possibility of a bonus accruing to the Team by reason of points being gained in the 2008 and 2009 seasons is wholly speculative. F1 racing is notoriously unpredictable. Mr Kolles explains in his witness statement some of the reasons why this is so. It follows, says Mr Fulton, that it is impossible to calculate the amount which the Team might have earned by way of bonus. So it is submitted that this head of claim must fail.

[107]It is true, as Mr Tregear pointed out, that all that has to be proved in order for damages to be recoverable is that the Team had a real or substantial chance of gaining points: see Chaplin v Hicks

[1911] 2 KB 786

. In the present case it would be very difficult to evaluate that chance. But Mr Tregear has another, to my mind more powerful argument: he submits that it is open to the Court to take account of the facts which have taken place between the date of the termination of the contract and the trial. It would be wrong, on his argument, to disregard those facts. Why speculate about the chances of a contingency arising when that contingency has materialised?

[108]In Golden Strait v Nippon Yusen

[2007] 2 AC 353

, the House of Lords held that it was open to a defendant to reduce his liability by reference to events occurring between the date of breach and the date of trial. I see no reason why the same principle of permitting the hindsight assessment of damages should not allow a claimant in appropriate circumstances to have damages assessed in the light of events subsequent to the breach.

[109]According to the evidence, the Team gained 13 points in the 2008 and 2009 seasons, so that under clause 16.2 a points bonus totalling US$1.3 million. That is the amount which in my judgment is recoverable by the Team under this head.

The Counterclaim

[110]It must follow from my findings that the Counterclaim is dismissed.