Force India Rebranding
Published 28 January 2011
Force India Formula One Team Ltd v Etihad Airways PJSC & Anor  EWCA Civ 1051
In Force India Formula One Team Ltd v Etihad Airways PJSC & Anor, the English Court of Appeal held that the rebranding of an F1 team without including the names of sponsors as contracted under a sponsorship agreement constituted an irremediable and repudiatory breach of contract.
The sponsors were entitled under common law to accept the repudiation as putting an end to the contract under common law.
In this case, the owner of an F1 team, Spyker F1 Team Limited (“Spyker”) entered into a sponsorship agreement with two Abu Dhabi companies, Etihad Airways PJSC (“Etihad”) and Aldar Properties PJSC (“Aldar”) (collectively, the “Sponsors”) under which the Sponsors committed to provide at least US$20 million of sponsorship over 2007, 2008 and 2009.
Under the sponsorship agreement, Spyker's principal negative obligation was not to do anything by way of sponsorship or marketing which could be deemed to be in conflict with the Sponsors' main activities (clause 3.1) and in this respect to ensure that Etihad would be the sole and exclusive airline brand to be associated with the team (clause 3.2.4) and to submit other potential team sponsors to the approval of the sponsors (clause 12.1).
Spyker's principal positive obligations were to integrate the team name in the name of the team and to use the integrated name whenever referring to the team in any oral or written press communication (clause 4.6). “Team” was defined as the Formula One motor racing team owned and managed by Spyker, and “team name” as “Etihad Aldar Spyker F1 Team”.
Spyker was also to respect the adopted livery for 2007 and the Sponsors' choices of livery in 2008 and 2009 (clause 4.7). As for the second and third years of the sponsorship term, clause 5 enabled a balance to be preserved between the parties whereby Spyker could seek a higher sponsorship value from alternative main sponsors for 2008 and 2009, whereas the Sponsors then had the options of either (i) matching such potential new sponsorship, or (ii) retaining their main sponsorship position at a somewhat discounted price while ceding something of their branding rights, or (iii) terminating the contract. There was a termination clause (clause 21) designed to deal with material, but remediable, breaches.
In September 2007, Dr Vijay Mallya, a prominent Indian entrepreneur and billionaire, bought into Spyker. Dr Mallya was chairman of United Breweries Group, one of the largest spirits companies in the world. The Group encompasses United Breweries Limited, which has 45% of the Indian beer market including Kingfisher beer, and Kingfisher Airlines, India's largest airline.
When Dr Mallya bought into Spyker, he wanted the team to be known as an Indian team and drove the rebranding of the team and team name as “Force India”. The team's car was given new livery which sported the Kingfisher logo. In these circumstances, the Sponsors argued that they were effectively forced out of their position as the team's main sponsors, while the team was publicised as Force India, rather than under their own names. Meanwhile, they were also faced by the fait accompli of new livery for the car, and with sharing their own logos on the car with the prominent use of the Kingfisher logo. To make it worse, Kingfisher was not only a rival (being India's major airline, which detracted from the sponsorship logic of marketing Etihad, the Abu Dhabi national carrier), but also the major beer brand in India, which did not go well with the antipathy to alcohol in Muslim Abu Dhabi. Things came to a head in December 2007 and January 2008 when the Force India team tried to misuse the clause 5 options to manoeuvre the Sponsors to take a back- seat to Kingfisher in the marketing of the Force India brand.
In the circumstances, the Sponsors wrote to Force India to terminate the contract stressing breach of clause 4.6 and the change of the team name to Force India.
Breach of contract and repudiation
The court considered whether Force India was in repudiatory breach of the contract. If Force India had committed an irremediable repudiatory breach, then the Sponsors were entitled to accept it under common law.
The court was of the view that the facts of the case revealed a series of repeated, or continuing, breaches which were ultimately repudiatory. The principal point was that Force India changed its team name and abandoned the contractual team name in particular by omitting the names of its main sponsors Etihad and Aldar. This was a clear, grave and continuing breach of clause 4.6.
Clause 4.7 promised that there would be no major livery changes in 2007, and that the Sponsors would have the right to decide and approve the livery of the cars for the 2008 and 2009 seasons. The deliberate change of the car livery without consultation with, and the approval of, the Sponsors was a further serious breach of the contract.
Clause 3.1 similarly reflected the sponsors' rights by barring the team from entering into “any sponsorship, marketing or advertising arrangement” which the sponsors might deem to be in conflict with their main activities. Similarly clause 3.2.4 guaranteed that Etihad would be the “official airline associated with SPYKER and be the sole and exclusive airline brand to be associated with SPYKER”. Yet after the take over, Dr Mallya and Force India adopted a deliberate policy of promoting India in general and Dr Mallya's Indian business interests in particular, including Kingfisher Airlines. Similarly clause 12 warranted the Sponsors the right “to approve all Team Sponsors” and expressed a clear sensitivity about alcohol related branding. In the court's judgment, the facts showed that Force India rode roughshod over all these rights and protections.
The court held that the accumulation of breaches had to be seen as a clear repudiation of the contract born of a very real clash of interests.
The next issue was whether these breaches were remediable for the purposes of clause 21.3.1(a).
The court was of the view that these breaches were not remediable breaches. The closest analogies were with the publication of confidential information or the publishing of advertising matter not containing a party's name: one releases information which should be kept confidential, the other broadcasts a product in an inappropriate way. Looking at the matter pragmatically and not technically, the court was of the view that a proper marketing campaign was, generally speaking, all of a piece. Where Dr Mallya and Force India had persistently marketed the team as “Force India” to the Indian market and had publicised the car's new livery with deployment of the Kingfisher logo, and where Kingfisher was so much associated with Dr Mallya himself and he with Force India, and where, as Dr Mallya himself said in his interview which appeared on Force India's website on 11 October 2007, “The name is an integral part of the team identity”, the marketing genie could not be put back into the bottle. The breach was irremediable, particularly where the breaches were repeated, cumulative, continuing and repudiatory.
As a general principle, delay in exercising a right to terminate a contract may constitute affirmation, in which case, the right to terminate will be lost. An innocent party must be mindful of this risk.
In this case, Force India argued that the Sponsors had waited too long to communicate their acceptance of the repudiation and were thereby precluded from doing so. The court disagreed. The court found that this case entailed a complex and medium-term relationship where it necessarily and legitimately took time for the consequences (of a repudiatory breach) to become clearer and for the innocent party to consider his position. The court also found that the delay took place during the winter break between two racing seasons and there was therefore no immediate urgency for the Sponsors to elect to terminate.
The facts in this case were contrasted to instances where time is of the essence, for example, in a share transaction where market prices are volatile or in a sale of goods where a seller has to know whether or not his buyer is accepting goods that have been delivered.
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