Force India Formula One Team Ltd v Etihad Airways PJSC & Anor

A contractual right to terminate for a remediable material breach does not, without clear words, exclude the common law right to accept an irremediable repudiation. Repudiation may arise from cumulative, continuing conduct which objectively demonstrates an intention to disregard essential contractual rights.

Whether a breach is remediable is assessed practically. Future compliance may suffice in many cases, but a completed and sustained marketing campaign cannot necessarily be undone merely by changing future branding.

Affirmation requires a clear and unequivocal election. An innocent party may take reasonable time to understand a complex situation and consider its position. Negotiating under a contractual mechanism, or terminating under an inapplicable clause, does not necessarily waive the right to accept repudiation at common law.

The claimant owned a Formula One team sponsored by the defendants under an agreement running from 2007 to 2009. Following a takeover, the team was renamed and rebranded as Force India. The sponsors’ names were removed from the team name, a new livery was introduced and the Kingfisher brand was displayed without the sponsors’ contractual approval.

The sponsors purported to terminate the agreement under contractual provisions concerning alternative sponsorship and material breach. Sir Charles Gray, sitting as a judge of the High Court, held that the sponsors had repudiated the agreement and awarded the claimant US$5,140,775 in damages. He also held that a US$500,000 Constructors’ Championship bonus was payable for the 2007 season.

The sponsors appealed. The central questions were whether the team’s cumulative conduct amounted to an irremediable repudiation, whether the sponsors had affirmed or waived that repudiation, whether their termination letter validly accepted it at common law, and whether the championship bonus was payable.

1. Appeal allowed. The team’s deliberate and sustained course of conduct constituted a cumulative, continuing and accelerating repudiation. Removing the sponsors from the team name, changing the livery without their approval, promoting a conflicting airline brand and seeking to deprive them of main-sponsor rights were inconsistent with essential obligations under the agreement.

2. Clause 21.3.1(a) dealt with remediable material breaches and did not displace the common law right to accept an irremediable repudiation. Since the sponsors had given no contractual notice requiring remedy, they could not rely upon that clause as an independent basis for termination. They could nevertheless rely upon the common law.

3. Following F L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235, remediability was a practical question. Ordinarily, curing a continuing obligation for the future may be sufficient even though past damage remains. Here, however, the completed and sustained rebranding campaign could not practically be undone. The team’s identity had been deliberately marketed as Force India, and the team had no intention of reversing that strategy.

4. The sponsors had not affirmed the agreement or waived or acquiesced in the breaches. Affirmation required a clear and unequivocal election, whether by words, conduct consistent only with affirmation, or excessive delay. The complex relationship and developing course of conduct entitled the sponsors to a reasonable period in which to understand the position and decide what to do. Their without-prejudice discussions concerning the contractual sponsorship options did not constitute affirmation.

5. The sponsors’ reliance on ineffective contractual termination mechanisms did not prevent their letter from accepting the repudiation at common law. Where contractual and common law termination rights overlap, invoking the former does not necessarily exclude the latter. A termination remains effective where the innocent party clearly treats the contract as discharged and the circumstances support that course, even if it gives an incorrect legal reason.

6. No Constructors’ Championship bonus was payable. The underlying contractual question was the team’s position among competitors who validly completed the championship. One of 11 original participants had been disqualified and left unranked. The team was therefore last among the ten ranked competitors and had not gained a position.

7. The claimant’s damages award was set aside. The sponsors’ counterclaim for repudiation damages was remitted to the trial court for assessment.

1. Court of Appeal (Civil Division): By [2010] EWCA Civ 1051, unanimously allowed the sponsors’ appeal, set aside the claimant’s damages award, held that no championship bonus was payable and remitted the sponsors’ counterclaim for damages.

2. High Court of Justice, Queen’s Bench Division: Sir Charles Gray held that the sponsors had repudiated the sponsorship agreement, awarded the claimant US$5,140,775 and held that a US$500,000 championship bonus was payable. No citation is stated in the judgment.