Opinion

Box, box, box: implied term causes Force India to pit

Published Date
Apr 22, 2022
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In Force India Formula One Team, the High Court held that a term which required Force India to own the Formula One team throughout a merchandising licence’s five year term should be implied since it was both obvious from the licence’s other terms and necessary to give business efficacy to them. The sale of the Formula One team, following Force India’s liquidation, therefore constituted a breach of this obligation. 

Force India, the company, owned and operated the Force India Formula One Team. It entered into a merchandising agreement with Brandon to produce the team uniform, and granted Brandon the exclusive right to manufacture products branded with trade marks associated with the F1 team. Brandon subsequently transferred the rights and obligations of this agreement to Stichd. 

The term of the agreement was approximately five years. However, during the term, Force India became insolvent. The F1 team was sold following a tender process, and Stichd argued that the sale constituted a breach of an implied term of the agreement that Force India would continue to operate the F1 team for the duration of the term.

The court held that Force India was required by the agreement to own the F1 team throughout the term. The court arrived at its conclusion by finding that it was both obvious from the agreement's other terms and because it was necessary to give business efficacy to the agreement.

The court found that the disposal of the team by Force India robbed the agreement of its entire commercial rationale from Stichd's perspective. It could no longer profit from the rights it had negotiated, rendering the exclusivity and the five year term worthless. In the absence of the implied term the agreement provided none of the security envisaged by various express terms. 

Normally when cases about implied terms are mentioned on this blog it's to illustrate the difficulty of persuading a court that there should be one. Here the court was satisfied a term should be implied because the manufacturing of F1 team uniform and merchandise would be rendered “inefficacious, futile and absurd” if Force India were not required to own the F1 team throughout the term. 

This term had been breached by the sale of the F1 team. Quantum—ie what is to be paid—was not decided at this hearing.

For those that are interested [Ed.: isn't that everyone?] the court gave a pithy analysis of a number of key cases on implied terms.

Judgment: Force India Formula One Team Ltd, Re

 
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