International enforcement of arbitral awards: Giedo van der Garde v. Sauber
Published 13 April 2015 By: Gary Hughes
This article analyses racing driver, Giedo van der Garde’s, dramatic last minute actions against Sauber in the Australian courts to try to enforce the terms of a Swiss arbitral award (in his favour) and secure his race seat for the Australian Grand Prix. The author then reflects on wider learning points relating to the international enforcement of arbitral awards, and identifies specific contractual issues to keep in mind.
Albert Park in Melbourne is a splendid, picturesque, lake-side venue for Formula 1® to traditionally commence its motor racing calendar for the year. However, for the last two years, controversy off the track has threatened to overshadow the motorsport spectacle on-track.
In 2014, the controversy was noise – or, rather, lack of it.1 Smaller V6 turbocharged engines had been introduced in an effort to enhance fuel efficiency and contain rampant rising costs for teams. Purists and die-hard fans were dismayed that the visceral high-pitched scream of traditional F1® race engines had gone in favour of much quieter, tame-sounding racing. The Australian Grand Prix promoter muttered threateningly about breach of contract,2 and other host nations later on the calendar threatened to cancel their event promotions deals, but Mr Ecclestone made soothing noises and later regulation changes would serve to unmuffle the cars to a degree.
In 2015, the controversy was different, and focused on the Sauber team rather than the whole (quiet) grid. A driver from Holland, Giedo van der Garde, sued in the Victorian State Courts to enforce an overseas arbitral award that had been given in his favour against Sauber. That award (applying English law, in a Swiss arbitration) declared that he had a valid contract for driving, testing, and promotional services, which Sauber had repudiated by appointing a different race driver in his place for the 2015 season.
His enforcement action in Australia succeeded. On 11 March 2015, two days before first practice for the Grand Prix, Sauber were ordered not to deny him a race seat in the team,3 leading to much legal and media drama before and during the event. While on the surface a straightforward breach of contract claim, the underlying issues ironically trace directly to the overall failure to adequately control team costs, and how that has changed F1’s® commercial dynamics.
The underlying dispute and the Swiss arbitral award
The front-running and richer teams generally have no problem with their own levels of spending and tend to attract most of the sponsorship and direct financial remuneration generated by F1®. The minnows and lesser-resourced teams at the rear of the pack tend to be trapped in that position and, while periodically demanding cost-containment rules and a process that will enable the revenue streams to be distributed in a more equitable way, to most observers it seems little really changes. Both Caterham and Marussia
What this has led to in Formula 1 in recent years is a radically split field of contestants. This is of course obvious between rich teams and poor teams. Less obvious, but perhaps more damaging, is the polarising effect between leading drivers who are handsomely paid by a team for their efforts6 and other drivers who pay handsomely in sponsorship or direct contribution in order to race for a team.7 Mr Van Der Garde has had a successful racing career in various machinery, and is clearly no slouch as a race driver, but his relationship with Sauber was in the second of those categories.
The arbitration proceedings were brought in the joint name of Mr Van der Garde and his Dutch management company and, in effect, were an attempt by the driver and his substantial corporate backers to force Sauber to honour the sums that had been paid in order to him secure a race seat with the team. The basis for the claim was that he had a valid agreement for driving, testing, and promotional services dating to January 2014. That agreement enabled him to initially be the test and reserve driver for Sauber and then, in mid-2014, Sauber exercised an option to promote him to the racing seat.
However, later in that year, while around them Caterham and Marussia were collapsing, and presumably desperate to ensure its own survival, two drivers became available to Sauber with more sponsorship and financial muscle that they could bring to support the team (reportedly, some 40m euros). Sauber then announced its 2015 driving line-up would be Marcus Ericsson and Felipe Nasr, replacing Mr Van der Garde.8
The claimants then took a claim to arbitration, applying English governing law, but under the auspices of the Swiss Chambers' Arbitration Institution.9 He sought what was effectively specific performance of his driving contract with Sauber. On 2 March 2015, Arbitrator Todd Wettmore found in his favour and against the Sauber team. The Arbitrator ordered Sauber to refrain from taking any action the effect of which would deprive Mr Van der Garde of his contractual rights to participate in the F1® 2015 season as Sauber’s nominated driver.
By that point in time, the preparations for Sauber’s season debut at Albert Park were already well-advanced and, when the team arrived in Australia, Mr Van der Garde’s lawyers rapidly sprang the enforcement trap.
The enforcement action in Australia
The Supreme Court of Victoria, the first instance court in that State, heard the matter on an urgent basis, and dealt with several arguments from Sauber and also on behalf of the two new drivers Ericsson and Nasr, as to why the foreign arbitral award should not be enforced in Australia.
In Australia, each State may have legislation controlling enforcement of domestic arbitrations, but enforcement of international arbitrations fall to be considered under a Federal statute, the International Arbitration Act 1974.10 Many of the arguments by Sauber and counsel for the two new drivers, Ericsson and Nasr, were directed towards statutory criteria for when it would be appropriate under that 1974 Act for the Court to decline to enforce a foreign award.11 Counsel argued strongly that because those drivers had not been party to the Swiss arbitration, and had not been heard on these matters, there had been a breach of the rules of natural justice or it would be contrary to public policy to grant enforcement in Australia.
However, with brief reference to the genesis of the statute in the UNCITRAL Model Law and the New York Convention,12 and its central goals taken to be placing independence, autonomy and authority into the hands of arbitrators,the Judge moved to reject each of the challenges made by Sauber.
First, highlighting a potential technical error by the Arbitrator, Sauber said that there was no in personam right of the driver to enforce contractual obligations; only via his corporate entity. The Court said that even if this may be correct, it did not invalidate the arbitration or lead to an award beyond scope of arbitration.
Second, while acknowledging that the team’s new drivers had not been party to the arbitration, and could be seriously adversely affected, the Judge rejected the idea that every time a person who may be affected by the outcome of an arbitration is not invited to join the process and to make submissions it may amount to a breach of the rules of natural justice and thus lead the court to decline enforcement. Implicitly, the new drivers’ remedy, if affected, again lay in contract against Sauber.
Finally, Sauber argued that putting Mr Van der Garde in the race car that weekend in Melbourne would be unsafe and could endanger lives, because he had not had the pre-season bespoke seat fitting demanded by safety regulations. However, the Court found this could be solved, as the Arbitrator had done, by putting the orders in negative terms, i.e. for Sauber to refrain from doing anything. Therefore compliance with the Orders by Sauber would not involve compromising safety, training, insurance or other like requirements – Sauber’s option was not to race. Further, it would not render the driver’s court victory futile if that was the outcome, as the arbitral order extended to all of the 2015 F1® season.
Croft J agreed with counsel that local enforcement of the Award must be by an order in the same terms as the critical dispositive provision of the Award, and so granted an order requiring the respondent, Sauber Motorsport AG, to refrain from taking any action the effect of which would be to deprive Mr Van der Garde of his entitlement to participate in the 2015 Formula One Season as one of Sauber’s two nominated race drivers.
Back around the paddock at Albert Park, with the media lavishly highlighting every aspect of this development, all sorts of chaos and comedy broke loose. Sauber were initially defiant, immediately lodged an appeal and sought a stay, and told assembled media that the driver could not race anyway as he did not currently hold the FIA required Superlicense. The driver reacted with threatened contempt of court proceedings, and the urgent appeal held on 12 March resulted in the challenges from Sauber and Nasr/Ericsson being quickly thrown out by the three appellate judges.13
The presumptive policy in favour of upholding arbitration was neatly summarised by the appellate judges the very next day:14
" In order to establish that the enforcement of an award would be contrary to public policy by reason of a breach of natural justice what must be shown is real unfairness and real practical injustice. Courts should not entertain a disguised attack on the factual findings or legal conclusions of an arbitrator ‘dressed up as a complaint about natural justice’. Errors of fact or law are not legitimate bases for curial intervention. Unfairness in any particular case will depend upon context, and all the circumstances of that case."
On the contempt point, the judges did not comment on Sauber’s own somewhat precarious position, but had this to say about Nasr and Ericsson: “... QC who appeared for the other drivers submitted that the existing order exposed them to liability for contempt. In our view this concern was far-fetched. There is no realistic prospect of contempt by them if they do no more than comply with their own contractual arrangements.”
On qualifying day, Mr Van der Garde sauntered about the pits in full helmet and flameproof racing apparel, apparently ready to jump in the car. He had not tested the car, no seat had been made for him, and this was never going to happen. Perplexingly, by the Sunday of the Grand Prix itself, he announced he was dropping the legal action and walking away from F1®. It seems a hefty settlement and costs payment had been negotiated.
It is hard not to be sympathetic towards the driver’s position. He had a signed contract, which appears to have been simply gazumped by a bigger offering that arrived later in time for the same contractual position. And Sauber were by no means unaware of the judgment outstanding against them since 2 March, but chose to take the risk nothing would come of it so close to the start of the season.
On the other hand, curiously, Mr van der Garde has had quite a litigious history in his F1® career. He had earlier been in a contractual dispute with Super Aguri team in 2007 when he left them at short notice to join the Spyker team, and he then sued the (since collapsed) Spyker team which had been renamed/reborn as Force India, in a matter that arose from his time as a test driver for Spyker and alleged he was not provided with contractually agreed test mileage on track.
Comment and observations
There might be three main lessons from this exceedingly messy breakdown of driver and team relationships:
- Full and immediate enforcement of arbitral awards in leading common law jurisdictions should be expected, barring truly unforeseen developments or new evidence.
- The Courts will not strain to take on board any special considerations delivered late by the parties, or non-parties, and will not shy away from intervening in an imminent sporting contest if that is the inevitable outcome. At risk of stating the obvious, that will be especially true where the local Judge may have formed a tacit view upon the merits (or otherwise) of a contract-breaker’s factual conduct.
- Respecting an arbitral process that appears to have been legitimately commissioned and fairly conducted is increasingly the default position of the courts, with legislative backing in Asia-Pacific countries like Australia, New Zealand, and Singapore. Those jurisdictions increasingly compete to have their legal systems seen favourably as welcoming seats of international arbitration, to rival the grand traditional arbitral centres London and Paris, or at the CAS.
- Therefore, any sport with a travelling circus that visits different nations cannot consider itself immune from the arbitral enforcement powers of local courts just because it happens to be a temporary visitor for the duration of the event, before then moving out of the jurisdiction again after a few days. Litigants have the advantage of a planned calendar of events, and a certainty of defendant having assets within the jurisdiction (albeit temporarily). Both service of proceedings and enforcement action can be ‘forum-shopped’ to best advantage in those circumstances.
- Trying to secure specific performance of a contractual promise that you will be the selected competitor is ultimately futile.
- As Mr Van der Garde eventually accepted (and as may have been the strategy all along) suing your prospective employers is unlikely to assist in getting you back that team spot, or indeed any other amongst their peer teams either. Even if you succeed, a mandatory injunction is impracticable and a nigh-on impossible expectation of the Court.
- The arbitrator, then the Court, rather twisted itself in knots to characterise the relief, in what was effectively a mandatory order compelling reinstatement of the driver, into ‘cease and desist’ language of a prohibitory order instead: “to refrain from taking any action the effect of which would be to deprive” the plaintiff of his racing seat.
- It may have been an interesting exercise trying to determine appropriate damages to the driver, who was going to pay a sizeable sum to the team
- In acknowledging that his F1® career was effectively over, the driver subtext may have been that he had burned all his bridges in the sport through the lawsuit, potentially damaging his reputation in the process, and was instead striving to achieve a significant settlement that he can move on with to other endeavours.
- A decision to drop a contestant, having signed a contract, and thereby casually or cynically walking away from those legal obligations, is not something a court is ever attracted to sanction. But in the situation of teams like Sauber, Marussia/Manor, Spyker or various others over the years, the driver’s fiscal contribution to the team’s survival can be immense. If the choice is to break the bargain you had previously struck, or cling on and perhaps go out of business, commerce will on most occasions win out over legal ethics. In such circumstances, perhaps the law and economics concept of “an efficient breach of contract” where a court should sanction contract-breaking in order that resources can move to their highest, most efficient use, could have something informative to add.17
Mr Van der Garde has been reported as saying that he hopes it may lead to lasting change in F1®, presumably meaning more respect for existing contractual obligations.18 Time will tell. But even if F1® races can be a touch processional when one team dominates, there will surely be enough new drama at the Australian Grand Prix each year to keep the lawyers and petrolheads equally enthralled.
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- Tags: Arbitration | Australia | Australian Grand Prix | Contract Law | Corporate Law | Court of Arbitration for Sport (CAS) | Employment Law | Fédération Internationale de l'Automobile (FIA) | Formula 1 | International Arbitration Act 1974 | Motorsport | Supreme Court of Victoria | Swiss Chambers Arbitration Insitution | UNCITRAL Model Law and the New York Convention | Victorian State Court
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Gary is a New Zealand lawyer advising on commercial rights, marketing, competition law and events management aspects of sport. He works with sports administrators, sponsors, and tournament organising bodies, or teams/athletes directly.