Force v Etihad Airways – Court of Appeal decision

The Court of Appeal has overturned the first instance decision (as In addition to this right of termination, Etihad and Aldar also had reported in February’s Sports IP Focus column) in Force India the right to terminate the Sponsorship Agreement upon written Team Limited v (1) Etihad Airways, (2) Aldar Properties notice if the team had committed a material breach of the [2010] EWCA Civ 1051. Sponsorship Agreement which, if capable of remedy, had not been Many sponsors were concerned by the High Court decision, as it remedied within 10 business days of receipt of written notice. suggested that even if a rights holder stopped performing key con- tractual obligations, such as the carrying of logos or reference to New ownership sponsors in a team name, this did not amount to a repudiatory By November 2007, shortly after the conclusion of the 2007 sea- breach, even though these “branding” rights are typically the most son, the team came under new ownership. The new owners imme- important and ultimately the fundamental reason why sponsors diately changed the commercial strategy of the team and set about enter into such relationships. creating a strong affiliation with India. The team name was changed The Court of Appeal, through its judgment given by Rix LJ (and to Force India F1 Team and, following the commitment of the agreed by Pattern LJ and Sir Mark Waller), has taken a far more brand (which, amongst other things, operates an airline pragmatic and commercially viable approach to the set of facts with and sells ), the team livery changed to accommodate a which it was presented, and to the relief of the sponsorship indus- Kingfisher logo, while the team colours changed to dark red, white try confirmed that such fundamental breaches, even though they and gold. The new owners also made it known to Etihad that they may technically be capable of remedy, can amount to a repudiato- would not be able to continue with its title sponsorship at the cur- ry breach; as Rix LJ stated: rent level of fees. “the marketing genie cannot be put back into the bottle.” The parties met in December 2007 to discuss the team’s change of branding and the three potential options that had been included Brief reminder of the facts within the Sponsorship Agreement in relation to a new main Force India (a team participating in the Formula One World sponsor being sought. Although no decision was reached at this Championship), brought a claim against two of its main sponsors, meeting, the team, having been chased by the sponsors, emailed Etihad Airways and Aldar Properties, to recover monies said to be them on 14 January 2008 proposing that the parties should continue due under the sponsorship agreement between the parties and for their sponsorship but via alternative branding assets as opposed to damages for their alleged repudiatory breach. title sponsorship. Force India (or Spyker MF1 Racing, as the team was called at the Etihad and Aldar interpreted this email as notice of the team’s time), Etihad and Aldar entered into a three year sponsorship agree- intention to replace it as main team sponsor, and accordingly ment in April 2007 (the “Sponsorship Agreement”), shortly after believed they were entitled to decide which of the three options to the commencement of the new season. The Sponsorship pursue. On 27 January 2008 the sponsors wrote to the team to ter- Agreement provided Etihad and Aldar with the expected array of minate the Sponsorship Agreement, citing its ability to do under sponsorship and marketing rights, including: “Option (C)” and alternatively under the general termination clause due to the team’s material and irremediable breach. (a) the right for their names to be incorporated into the official Three days later the team responded, claiming that it had not team name; materially breached the Sponsorship Agreement and that in any (b) the right for Etihad to be the sole and official airline associated event, the sponsors had effectively waived their right to terminate. with the team; The team claimed that the sponsors’ letter purporting to terminate (c) various branding and livery rights in relation to the team and the Sponsorship Agree ment was itself a repudiation of the agree- the cars; and ment, which was accepted by the team. (d) the right for Etihad and Aldar to be the most prominent The main issue in the case was whether the Sponsorship brands associated with the team outside of the automotive Agreement had been lawfully terminated by the sponsors or brand sector. whether that purported termination itself amounted to a repudia- The principal negative obligation on Spyker was not to do any- tory breach of the Sponsorship Agreement on the part of the thing by way of sponsorship or marketing which could be deemed sponsors. to be conflicting with the sponsors’ main activities. The Sponsorship Agreement also contained a clause which per- High Court decision mitted the team to source an alternative main sponsor willing to The High Court held that: pay more than Etihad and Aldar to sponsor the team in respect of (a) use of the Kingfisher logo and change of the team colours the 2008 and 2009 seasons. If the team was able to source another were not material breaches of the agreement. In any event, such sponsor and produce an irrevocable and enforceable written the alleged breaches were capable of remedy and, further- commitment on the alternative sponsor’s letterhead, Etihad and more, notice had not been given by the sponsors to require Aldar would have three options: them to be remedied by the team; (a) to match the alternative sponsor’s offer; (b) the change of team name was a material breach, but could (b) to accept alternative branding assets (and relinquish the title easily be remedied; and sponsorship); or (c) the sponsors’ delay (of about 10 weeks) from finding out all (c) to terminate the Sponsorship Agreement with immediate the facts on which it relied for termination to the purported effect without any liability for payment relating to the date of termination was too long (and as such the breaches remaining duration of the Sponsorship Agreement. had been waived). The Court also concluded that the sponsors had been seeking Although the Court of Appeal did come down in favour of an alternative sponsorship arrangement with a more high-profile Etihad and Aldar, each case will ultimately turn on its own facts and team, which the judge evidenced by Etihad’s decision to enter into sponsors should remain alert to the fact that silence or a delay in an agreement with Ferrari just six weeks after termination of the addressing actual or potential breaches of sponsorship arrangements Sponsorship Agreement. may be interpreted as an act of affirmation. The High Court concluded that the team was entitled to damages A contrasting (but equally important) consideration is the fact for the wrongful repudiation of the agreement and also damages in that before an innocent party terminates an agreement for breach, respect of the loss of the chance to earn points bonuses which it it should ensure that it adheres to the particular termination provi- would have received if the agreement had run its full course. sions contained in the agreement or be certain that such breach is sufficiently serious or incapable of remedy to amount to a repudi- Court of Appeal atory breach. Otherwise the innocent party may be held to have The Court of Appeal reversed the High Court decision. Rix LJ repudiated the agreement by wrongfully terminating. considered that the sponsors were entitled to accept Force India’s The risk of affirmation can be mitigated if the applicable party repudiatory breach of the Sponsorship Agreement under common expressly reserves its rights to terminate while it considers whether law, irrespective of the contractual termination provisions, which to continue the agreement. However, this may not be a “foolproof ” applied only to material but remediable breaches. approach, particularly if the other party communicates a sense of The Court held that the rebranding of the team amounted to a urgency. series of repeated breaches and that this accumulation of breaches, Likewise, keeping the other party well-informed when consider- together with Force India’s disregard for the sponsors’ interests, ing the position and setting out how much time will be needed amounted to a clear repudiation of the Sponsorship Agreement. for consideration should help mitigate the risk of silence being The Court of Appeal also held that these breaches were not equated to affirmation or waiver of any actual or potential breaches. remediable under the terms of the Sponsorship Agreement and Equally, a party in breach may consider it sensible to set a deadline compared the breaches to publication of confidential information for termination and explain why such timelines are necessary. or the publishing of advertising matter not containing a party’s name. Force India had rebranded the team to appeal to the Indian Football Data Co Ltd: Data Feed Transmissions – market and it was plain that the team would not have been pre- pared, if asked, to reverse its new branding. The team’s rebranding tackling the jurisdiction challenges strategy was described by Rix LJ as being “simply inconsistent with the The recent decision in Football DataCo Ltd, The Scottish Premier sponsors’ vital rights”. League Limited, The Scottish Football League Limited and PA Sport UK In its judgment the Court of Appeal also held that Etihad’s con- Limited v Sportradar GmbH and Sportradar AG [2010] EWHC 2911 duct between mid-November (when it became clear to the spon- highlighted that where an alleged infringement consists of the act sors that the new owners of the team had conflicting commitments) of making a work available to the public, “making available” by and mid-January (when the team sent the sponsors a proposal for online transmission is committed, and only committed, where that alternative branding assets), did not amount to affirmation or other- transmission takes place. wise a waiver or acquiescence. The Court identified that in certain circumstances delay may well be an affirmation or acquiescence of The facts breaches where timing of the transaction is of the essence, or where The claimants compile a database (known as “Football Live”) of silence is misleading. certain data relating to English and Scottish football matches. The However, in this case, the breaches had emerged over time and data, which includes (amongst other things) goals scored, substitu- primarily during a break between Formula One seasons, meaning tions, and red and yellow cards, is uploaded as matches are taking there had been no need for an urgent decision. This was evidenced place, and is subsequently made available to third parties. by the delay from the meeting in December to the email sent by The defendants provided live scores, results and statistics relating the team, nearly a month later, giving the sponsors the option to to football and other sports, which it assembled from public use alternative branding assets. sources, and made it available to its customers via the internet. All Throughout this period the sponsors had made it “perfectly clear data used by the defendants was stored on servers located in that they were contemplating the option of termination” and the impor- Germany. tance of the situation was highlighted by the fact that the meeting The claimants alleged infringement of their UK copyright and in December 2007 had been carried out on a “without-prejudice” database right and launched proceedings in the UK in April 2010. basis. In light of these set of facts, the Court of Appeal disagreed Sportradar argued that the English courts did not have jurisdiction, with the High Court’s judgment and held that the sponsors’ con- as neither was it domiciled in the UK nor did it carry out its activi- duct did not amount to affirmation of the breaches. ties in the UK. Sportradar then sued the claimants in Germany in Furthermore, the Court of Appeal also disagreed with the High July, by seeking negative declarations that its activities did not Court judge’s interpretation of the new agreement between Etihad infringe any of the claimant’s rights, and in doing so argued that the and Ferrari and it considered that Etihad was merely being com- German Court was first seized of any claim which the English Court mercially sensible by assessing its alternative options in light of its was not properly seized of before July. on-going problems with Force India. It was necessary for the claimants to show “a good arguable case” of copyright and/or database right infringement in the UK in order Implications of the Court of Appeal decision to establish jurisdiction in the UK. On the evidence presented, The Court of Appeal judgment will be seen by many as a far more Floyd J held that Sportradar had not committed any act of repro- sensible decision. Where a sponsor has entered into a contractual duction (in respect of copyright) or extraction (in respect of data- arrangement to obtain specific, and often exclusive, marketing base rights) in the UK. rights (usually at a significant expense), any failure by the rights Assessing the “re-utilisation” issue in respect of database rights holder to perform these rights, or where the rights holder acts in a raised a question of law, namely where “making available to the manner that is clearly inconsistent with the sponsor’s rights, is likely public all or a substantial part of the contents of a database by the to be regarded as a repudiatory breach. distribution of copies, by renting, by on-line or other forms of transmission” occurred, within the meaning of Article 7(2)(b) of the Multi-jurisdictional complexities Database Directive 96/9/EC. Rights owners who distribute services globally or across borders Floyd J stated that this Article should be interpreted as meaning will frequently have to contend with an array of different jurisdic- that: tions and intellectual property regimes. The decision of Floyd J “the act of making available to the public by online transmission is com- simply reinforces the difficulties that rights holders face in pursuing mitted and committed only where the transmission takes place. It is true infringers who are domiciled in a foreign jurisdiction. that the placing of data on a server in one state can make the data avail- From a rights holder’s perspective, it is important to try to bring able to the public of another state but that does not mean that the party proceedings against alleged infringers at source. Although it may be who has made the data available has committed the act of making avail- possible to obtain a judgment in the English courts, a rights hold- able by transmission in the state of reception.” er will still need to enforce the judgment against the infringer, and depending on the foreign jurisdiction in question, this can often Floyd J still held, however, that the English Court could hear the prove problematic. case. The Particulars of Claim alleged acts of reproduction and extraction by Sportradar’s end-users in the UK. Although these Alastair Purssell is an associate in the Sports and Media end-users were not party to the proceedings, the pleadings alleged Law Practice at Hammonds LLP in London. that Sportradar had authorised and/or was jointly liable for the acts [email protected] of these end-users. As such, Floyd J held that the English Court had jurisdiction to rule on this point.

This article originally appeared in Sports Law Administration & Practice December 2010 (Vol. 17, No. 6), on page 8.