What sports lawyers need to consider when terminating an athletes contract following a repudiatory breach
As the Luiz Suarez “biting incident” at the FIFA World Cup1 and, more recently, the punching incident with Ben Flower at the Super League Grand Final2 demonstrate, there are times when sponsors will need to quickly consider whether they are able to sever links with a sportsman. While the these examples are extreme, it is important for sponsors and sportsmen to be able to terminate contracts and to know what the outcome will be following termination in terms of potential liability or entitlement to compensation.
Knowing whether, and in what circumstances, the common law rights to terminate and claim for damages following repudiatory breach may be excluded is crucial for litigators and those who are involved in drafting and negotiating contracts: if the common law right can be excluded, parties will have to rely solely on the terms of their contract, which may provide for a far less advantageous remedy if the terms of the contract limit, or exclude entirely, the amount of damages that can be claimed upon termination.
For example, is not clear that Luiz Suarez’s action caused any loss to his sponsors: however, the Lance Armstrong situation demonstrates circumstances where a sponsor may suffer losses and where it is crucial that there is clarity as to what losses can and cannot be recovered from the athlete.3
This article contains an up-to-date review of the essential authorities and examines how this area of law may develop in the future.
Defining Repudiatory Breach
A repudiatory breach of contract is “an actual breach of contract by conduct (or sometimes by omission) which is grave enough that it goes to the root of the contract.”4
The legal test for repudiation has been expressed in numerous ways. However, it is “commonly expressed in terms of whether the breach goes to the root of the contract or whether a party evinces an intention no longer to be bound by the terms of the contract.”5
The Effect of a Repudiatory Breach
A repudiatory breach does not automatically bring the contract to an end. The innocent party can elect either to affirm the contract, in which case the contract continues; or to accept the repudiation, in which case the contract is brought to an end immediately upon acceptance. This right to accept repudiation and terminate the contract is a right at common law.6
In its recent judgment in Force India Formula One Team Ltd v Aerolab SRL the Court of Appeal highlighted the following principles7:
- ‘Where a party has repudiated a contract the aggrieved party has an election to accept the repudiation or to affirm the contract.
- An act of acceptance of a repudiation requires no particular form… It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that that aggrieved party is treating the contract as at an end.
- The aggrieved party need not personally, or by an agent, notify the repudiating party of his election to treat the contract as at an end. It is sufficient that the fact of the election comes to the repudiating party's attention...’ 8
Though the right to terminate following repudiatory breach is a common law right, the contract may provide guidance on whether or not a breach is repudiatory in nature9.
Defining a “Material Breach”
Many contracts allow termination on the happening of a “material breach” and that term may be defined to a greater or lesser extent. The extent to which the parties define any particular term as “material” (or in some similar way) will not of itself determine whether a breach of that term is repudiatory at common law. However, when the court construes an agreement to decide if a particular term is fundamental, the fact the parties have chosen to allow termination for certain terms and not others, will clearly influence the outcome.
Restriction on the Right to Terminate – Remedial Periods
Perhaps the best example of a term that may restrict the right to terminate, in the context of sporting contracts, comes in the form of terms setting out a remedial period for a particular breach.
Per Ramsey J in BskyB, “the fact that for a particular breach the contract provided that there should be a period of notice to remedy the breach would indicate that the breach without the notice would not, in itself, amount to a repudiatory breach.”10 Ramsay J held in that case that there was “no question of a repudiatory breach”11 until the three months specified remedial period had elapsed.
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- Tags: 2014 FIFA World Cup Brazil | Commercial Law | Contract Law | Cycling | England | Football | Litigation | Rugby | Sponsorship | Super League | Wales
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Stuart is an experienced Commercial Lawyer and Advocate, who was called to the Bar in 2002, having qualified as a Solicitor with Clifford Chance in 1999. Stuart has advised a number of Premiership football clubs and an Italian Serie A club in relation to funding (and refinancing) structures for stadia.