McLaren Indy LLC & Anor v Alpa Racing USA LLC & Ors

Contract damages are assessed by comparing the claimant’s actual position with the position that performance would have produced. The claimant must prove loss, factual causation and the counterfactual on the balance of probabilities, subject to proportionate assessment where the conduct of third parties creates a real and substantial chance of gain. The defendant bears the burden of proving remoteness, intervening cause, failure to mitigate and benefits requiring set-off.

A breach need only be an effective cause of loss. It need not be the sole or dominant cause. Loss is not too remote where the type of loss was reasonably contemplated as liable to result, even if its precise manner or extent was not. Commercially reasonable mitigation may include renegotiating contractual arrangements to preserve important commercial relationships. Wasted expenditure and restitutionary remedies remain subject to the contractual allocation of risk and proof of recoupment or total failure of basis.

The claimants operated IndyCar and Formula One racing teams. Liability had already been entered against the defendants for admitted breaches of agreements under which Mr Palou was to drive for the claimants. The trial therefore concerned causation, remoteness, mitigation, quantum and alternative claims for wasted expenditure and restitution.

The claimants alleged losses arising from increased driver remuneration, renegotiation of sponsorship arrangements, reduced team support payments, other sponsorship losses and performance-based revenue. The defendants argued that the claimed losses were speculative, too remote, avoidable or offset by benefits obtained through replacement drivers, particularly Mr Siegel.

The central issues were whether the breaches caused the claimed losses, whether the losses were within reasonable contemplation, whether the claimants acted reasonably to mitigate them, and what benefits had to be brought into account.

1. Disposition. The driver salary claim succeeded in the sum of US$1,312,500. The NTT base fee claim succeeded in US$5,382,344 for 2024–2026 and US$950,000 for 2027. The GM uplift claim succeeded in US$500,000. The F1 loss claim failed. The other sponsorship claim succeeded in principle, but the claimant’s expert had to recalculate it using a consistent rate-card methodology. The performance-based revenue claim succeeded in US$2.05 million after a 50% reduction for uncertainty. The wasted expenditure and restitutionary claims failed.
2. Damages were assessed by comparing the actual position with the minimum-change counterfactual required for contractual performance. A claimant must prove its own and the defendant’s hypothetical conduct on the balance of probabilities. Where the loss depends on what a third party would have done, a real and substantial chance may suffice, followed by proportionate assessment: Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602; Perry v Raleys Solicitors [2019] UKSC 5.
3. The defendants’ breaches were effective causes of the increased remuneration paid to Mr O’Ward and of the renegotiation of the NTT sponsorship agreement. Other contributing causes did not displace the breaches’ causal efficacy. The relevant question was one of common sense, not scientific precision: Galoo v Bright Grahame Murray [1994] 1 WLR 1360; FCA v Arch Insurance [2021] UKSC 1.
4. The losses were not too remote. Increased driver salaries and sponsorship losses were types of loss which the defendants should reasonably have contemplated, having regard to Mr Palou’s knowledge of driver leverage, sponsorship arrangements and the importance of driver identity. The precise renegotiation mechanism and extent of loss did not need to have been foreseen: Hadley v Baxendale (1854) 9 Ex 341; Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] 1 QB 791.
5. The burden of proving remoteness, intervening cause, mitigation and benefits rested on the defendants. The claimants acted reasonably in seeking to preserve the NTT relationship and in pursuing replacement drivers. A claimant need not adopt a course which would damage its commercial reputation or insist on strict contractual rights at the cost of an important sponsorship relationship: Banco de Portugal v Waterlow [1932] AC 452; James Finlay & Co Ltd v Kwik Hoo Tong [1929] 1 KB 400.
6. Benefits are set off only where there is a sufficiently close causal link between the breach and the benefit. The defendants failed to show that Mr Siegel would not have been hired in the counterfactual. His later payments therefore did not reduce the recoverable claims beyond credits already accepted: Fulton Shipping Inc of Panama v Globalia Business Travel SAU of Spain (The New Flamenco) [2017] UKSC 43.
7. The alternative wasted expenditure claim failed. Recovery is subject to the presumption that expenditure would have been recouped from a profitable contract, but the presumption is rebutted where the bargain would not have generated relevant revenues or the claimant received benefits from the expenditure: Soteria Insurance Ltd v IBM United Kingdom Ltd [2022] EWCA Civ 440. The signing-on bonus was contractual consideration for signing, not an advance payment.
8. The restitutionary claim also failed. The contract expressly identified the basis on which the signing-on bonus was payable. That basis occurred when the agreement was signed, so there was no total failure of basis and no scope to substitute an alternative basis: Barton v Morris [2023] UKSC 3; Dargamo Holdings Ltd v Avonwick Holdings Ltd [2021] EWCA Civ 1149.

This was a first-instance trial decision in the Commercial Court. Liability had previously been entered against the defendants by order dated 4 June 2024. The present judgment determined causation, remoteness, mitigation, quantum and alternative remedies.