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Implied terms – a Mantra for victory

Locations

United Kingdom

A sports marketing company ("Sports Mantra") acting under an agency agreement (the "Agency Agreement") to introduce a sports team ("Force India") to sponsors was not entitled to commission where a sponsor it had introduced to Force India (such sponsor known as "Sahara Adventure") later agreed to buy shares in the team's parent company ("Orange India Holdings").

Background

Sports Mantra is an Indian company engaged in sports marketing and events management, whilst Force India is an English company and was the operator of a Formula One racing team until its business and assets were sold by its Administrators in August 2018, after which Force India entered liquidation.

By way of an Agency Agreement dated 2009, Force India appointed Sports Mantra as its "non-exclusive independent commercial representative with regard to a potential sponsorship opportunity for Force India's Formula One team".

Sports Mantra introduced Force India to Sahara Adventure on 7 July 2009 pursuant to the Agency Agreement. As negotiations between Force India and Sahara Adventure proceeded and then halted for a period of one year between February 2010 and February 2011, Sports Mantra's involvement in the relationship lessened. On 12 October 2011, Orange India Holdings and two of its major shareholders entered into a share subscription agreement and a shareholders agreement (together known as the "Investment Agreement") with Sahara Adventure.

Sports Mantra later discovered the existence of the Investment Agreement (once it had become public knowledge), and claimed that Force India owed to it commission under the Agency Agreement, in relation to the Investment Agreement. Force India rejected this claim, and a dispute arose between the parties. The below judgement comes from Deputy High Court Judge Lance Ashworth QC (the "Judge") in the High Court of Justice, Business and Property Courts of England and Wales.

 

Facts

The main point of dispute between Sports Mantra and Force India was in relation to the interpretation of clause 2.1 (with reference to a few other clauses) of the Investment Agreement, and whether Sports Mantra was entitled to commission under this clause. Clause 2.1 specifically stated that:

"If Force India enters into a sponsorship agreement with the Sponsor [defined as any potential sponsor] within twelve months of an introduction effected by the Agent in accordance with this agreement (a "Negotiated Agreement"), Force India will pay to the Agent a commission in respect of sponsorship fees actually received by Force India (exclusive of value added tax) in respect of such Negotiated Agreement ("Commission"), at the rates set out in clauses 2.2 or 2.3 below as applicable."

 

Decision

There were three separate issues determined by the Judge:

 

a) Parties issue

On this issue, the Judge found the wording used in clause 2.1 was clear - Force India was a defined term. The fact that there was reference to Force India's group companies in parts of the agreement, but not others (including clause 2.1) indicates that the parties did not intend for clause 2.1 to extend to Force India's group companies. The Judge ruled that therefore there was no room for an implied term.

 

b) Sponsorship issue

On this issue, the Judge explained that the agreement was for the purchase of shares in Force India's parent company, which was very different in its nature to a sponsorship agreement. The 'sponsorship aspects' of the Investment Agreement were an incident of the part ownership granted, as opposed to being sponsorships rights in themselves. Further to this, the Judge found that it was not suggested that Sports Mantra had any role in causing the Investment Agreement to come about (especially as it only became aware of it when it was announced to the public). As such, the Judge found that clause 2.1 could not be construed to cover the purchase of shares in the parent company of Force India (or any other agreement providing such entitlements).

 

c) Time issue

The introduction of Sahara Adventure to Force India took place on 7 July 2009, and the Investment Agreement was entered into on 12 October 2011. Even if it was agreed that the Investment Agreement was indeed a sponsorship agreement with Force India (countering the above two judgements), it was not entered into within the 12 month period specified in the Agency Agreement, and therefore no commission is payable to Sports Mantra. In this regard, clause 2.1 must be construed literally, as it clearly and specifically sets out the time limit within which an introduction must be effective in order to earn commission.

 

Comment

This case highlights the importance of accurate drafting, and provides useful guidance on the factors taken into consideration when courts are interpreting the wording of particular clauses (including taking the language used throughout the agreement into consideration) particularly in relation to implied terms. This finding is not only applicable in the context of agency agreements, but commercial agreements more broadly.

Parties to commercial agreements of any nature are reminded by this case that it is essential to ensure that detailed attention to is given to the wording used in key clauses, to ensure that their rights under an agreement are clearly defined and in addition, that they regularly review the nature and intention of such contracts to ensure that they accurately reflect the commercial agreement as the relationship develops. Not least giving proper consideration to the introduction of affiliates and, if this is intended, how this might affect interpretation and enforcement.

Fieldfisher has a wealth of knowledge and experience with reviewing, drafting and advising complex commercial agreements in the motorsport industry, including agency contracts. If you would like to know more about this topic, or for any advice, please get in touch with your usual contact at Fieldfisher.

Co-authored by Arwa Abdeh

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