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GP Week : Issue 216
F1 >>> BUsinEss By Christian sylt Following the collapse of Marussia and Caterham in October last year, Formula One has been dominated by discussion about whether more teams will hit the wall. several are understood to be on the brink though it remains to be seen whether they will actually collapse. What is certain is that even if they don’t survive, F1 itself will. The simple reason for this is that leading lawyers have revealed that the contracts at the heart of the sport do not contain an “absolute obligation” for the series to field a minimum number of cars. It was previously thought that it would breach its contracts if less than 16 cars race in a Grand Prix however, in fact, this is not the case. It means that other teams could collapse and races would still take place as normal One theory suggested that if more teams go under the remaining ones would have to field a third car to prevent F1 from breaching contracts with race organisers and its governing body, the Fédération Internationale de l’Automobile (FIA), which ultimately owns the commercial rights to the series. The race promotion contract for the European Grand Prix in Spain recently came into the public domain after its final race in 2012. It states that F1 “shall use its reasonable endeavours” to ensure that at least 16 cars race. This reflects the details of F1’s contract with the FIA which is known as the Umbrella Agreement and is disclosed in the prospectus for the stalled stock market flotation of the series. The key part states that F1 “must attempt to procure that at last 16 cars participate in the world championship.” Jonathan Lux, leading auto racing lawyer at London’s Stone Chambers legal practice, says that “neither contract imposes an absolute obligation on F1 to ensure a threshold of 16 cars. “The Rights contract simply refers to an ‘attempt to procure’ – not even requiring that there be a reasonable attempt. At least arguably an attempt falling short of a reasonable attempt would suffice. “The Promoter contract, on the other hand, calls for the exercise of ‘reasonable endeavours’ and that sets an objective standard.” As Charles Braithwaite, media and sports partner (http://www.collyerbristow. com/our-team/partners/charles- braithwhaite) at British law firm Collyer Bristow, explains, “the obligation on F1 to ‘use its reasonable endeavours to ensure... that at least sixteen cars’ race in the Grand Prix is not hard and fast. “Reasonable endeavours’ is a commonly used term in contracts. However, in English law, it is not a term that is defined by legislation. Rather its meaning has been developed by case law. Although there is no singular meaning or definition. The meaning that a court will give to the term will always be dependent on the facts of the specific contract and situation. “In generic terms, to comply with a ‘reasonable endeavours’ obligation, a party should adopt and pursue a reasonable course of action in order to achieve the result, bearing in mind its own commercial interests and the likelihood of success, and which need not be exhaustive of every course available to it. The onus is less than an obligation to use ‘all reasonable endeavours’ or ‘best endeavours’, two other frequently used terms. None provide an absolute obligation. “In the FIA contract, the obligation is that F1 ‘must attempt to procure that at last 16 cars participate in the world championship.’ There again is no hard and fast meaning to this. The expression ‘must attempt to procure’ is much less frequently used than ‘reasonable endeavours’ and it is hard to be certain how a court may interpret this. In particular, it is not clear to what lengths F1 would need to go to be deemed to have complied with this obligation. However, it certainly falls short of an absolute obligation.” In summary, all that F1’s chief executive Bernie Ecclestone needs to do is show he attempted to procure 16 cars, and used his reasonable endeavours to do so, and the sport will not be in breach of contract, even if there are less than 16 on the grid. This isn’t an unthinkable scenario as Ecclestone told British broadcaster Sky Sports at last year’s Brazilian Grand Prix that “it could go down to 14. If we lose another two teams that is what will happen.” It blows out of the water theories that the FIA is deliberately not implementing cost control mechanisms in order to let teams go under so that F1 will breach its contract and it can take over the commercial rights. In 2001 F1’s parent company paid the FIA $313.6m for a 100-year licence to the sport’s commercial rights beginning in 2011. It means that the FIA will have to wait a long time to get the commercial rights back unless F1’s parent company breaches its contract. It isn’t likely that this will happen if more teams go under why F1 won't collapse if more teams go bust 35 GPWEEK.com // 35 GPWEEK.com // PARTNERS: