England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(COMMERCIAL COURT)
(MR JUSTICE TOMLINSON)

		Royal Courts of Justice Strand London WC2
		1 February 2002

LORD JUSTICE WALLER:

1. This is in large measure an appeal from the judgment of Tomlinson J dated 2^nd February 2001. That judgment is reported in [2001] 1 Lloyd's Rep. 632. The background facts as set out in that judgment are not in issue, but for convenience the respondents have produced as schedule 1 to their skeleton argument the facts as found relevant to the issues that arise on this appeal. Mr Hochhauser QC who appeared for the appellants does not dispute the facts as set out, and for convenience I append that schedule to this judgment.
2. The case concerns the termination of an Agreement dated 24th October 1997 under which the respondent Mr Diniz had agreed to drive a Formula 1 racing car for the appellants. The agreement related to the seasons 1998 and 1999. The agreement was on each side's case terminated for the season 1999.
3. There are five issues raised on this appeal one relating to a separate judgment, delivered on the same day, as will appear. According to Mr Hochhauser those issues were as follows and this is the order in which he approached them. First how was the agreement terminated – was it consensual as held by the judge; was there a repudiation by Mr Diniz accepted by the appellants as Mr Hochhauser contends; or was there a lawful termination by notice from Mr Diniz in accordance with the provisions of the agreement as Mr Glick QC contends, or as a final possible alternative, was there a repudiation by the appellants accepted by Mr Diniz for which Mr Glick alternatively contends. It is in relation to this latter contention that consideration must be given to the respondent's notice under which it is suggested that the contract was still in being so as to entitle Mr Diniz to payment of $110,000 for fees and expenses on 15^th November 1998. The second issue concerns the proper construction of clause 7(1) of the agreement. On the appellants' construction Mr Diniz had no right to terminate the agreement in reliance on that clause, and on the respondents argument Mr Diniz did have such a right which he had lawfully exercised. The third issue relates to damages. This issue only arises if Mr Diniz fails on the argument as to the proper construction of clause 7(1). The appellants, through Mr Hochhauser, in opening the appeal, argued that the judge wrongly included two figures in assessing the sum to be deducted from what would otherwise have been the claimant's damages. The criticism of the judge is that in one case he wrongly applied the principles relating to mitigation and in the other that he either misconstrued the agreement and/or a side letter or misapplied the relevant principles in making his assessment of damages. In reply Mr Hochhauser suggested that logically another figure deducted by the judge would fall foul of the criticism he made. The fourth issue is whether a side letter made at the same time as the main agreement, terminated if the agreement terminated. The argument of the appellants is that win or lose on the arguments relating to the main agreement, an independent obligation was created by the side letter which the appellants are entitled to enforce.
4. The fifth issue is whether the claimants should have been granted leave to amend to bring a claim for damages relating to the quality of Mr Diniz's driving in 5 Grand Prix. During the trial, in circumstances which I shall have to turn in some detail, an issue (relating to the question whether even if Mr Diniz was not able to rely on clause 7(1), was he able to rely on clause 7(3)) - was hived off to be tried later. An answer to that contention made by the appellants was that one reason he could not rely on clause 7(3) was because breach of that clause had been brought about by Mr Diniz's bad driving in five Grand Prix, and that aspect was also thus hived off. At the beginning of her final speech at the trial of the other issues, an application was made by Miss Allan for the appellants, for leave to amend to turn what was being raised by way of a shield to the clause 7(3) point, into a sword giving rise to a right to damages in the sum of nearly $2m. In a separate judgment, delivered on the same day, the judge refused that amendment.
5. It is convenient to take the clause 7(1) issue first. That is so for various reasons. First if the appellants were right on the issue, then the question how the contract terminated would become easier to resolve. If the appellants were right it becomes much more difficult to see how the judge could be right that a consensual termination of the contract was reached, under which each side gave up any rights that they had as against the other. Consensual termination in one sense i.e. that it was agreed that the contract would come to an end on a certain date i.e. 1^st November 1998, is one thing. But consensual in the sense that the parties gave up such rights as they had is another.
6. If on the other hand the issue were decided in the respondent's favour, then the issue as to how the contract ended becomes to a large extent academic. Mr Hochhauser would have sought to persuade us that even if Mr Diniz lawfully gave notice in reliance on clause 7(1), Mr Diniz still repudiated the agreement by his conduct in relation to making an agreement with Sauber, but Mr Hochhauser accepted that even then he could not establish damage if Mr Diniz's reliance on clause 7(1) was upheld. Thus the points on damages simply do not arise if Mr Diniz lawfully terminated the contract in reliance on clause 7(1). Furthermore, although Mr Glick very tentatively put forward an argument that Mr Diniz should be entitled to his expenses because if the contract was terminated lawfully under clause 7(1) it would still exist over the period including November 15^th when his clients expenses were due, he accepted that it was not an argument he could press in the light of the judge's finding that both sides agreed at least on the termination date as at 1^st November 1998.

The issue relating to clause 7(1).

7. The issue that arises must be briefly set in its context. Mr Diniz was what is termed a "pay driver". He brought with him sponsorship. On 4^th October 1996 Mr Diniz and the appellants signed a contract for the 1997 and 1998 years. The relevant clauses of that agreement are as follows:

"Clause 1.1 This Agreement shall be binding

and enforceable between the parties until 31st December 1998 unless further extended pursuant to clause 3 or earlier terminated by the failure to satisfy the requirements of the precondition ("the Condition Precedent") set out in clause 1.2 below.

Clause 3.The driver shall drive for the Team

in all the races of the Formula One World Championship in the calendar years of 1997 and 1998. By mutual consent of the parties, this Agreement may be extended by one year so that the Driver shall drive for the Team in the Formula One World Championship in 1999, subject to exercise by the Driver's Sponsor of the option specified in clause 1.2 by the date December 1^st 1998

...

Clause 6.A.The Team Owner warrants that

the Team shall supply the Driver with a race car and equipment to the same specification as that used by the Team's number one Driver (Damon Hill) at Races in the 1997 and 1998 Formula One World Championships and shall permit the Drive to participate fully in the Team's testing and tyre testing programmes. The racing car and equipment provided shall be fully competitive, equipped with a YAMAHA V-10 engine, and the car's performance shall be such as to enable the Driver to be ranked among the first 60% (sixty percent) of the cars in the starting grid at a minimum of 60% (sixty percent) of the Formula One World Championship races, during the seasons of 1997 and 1998.

Should said performance fail to enable the Driver to be so ranked, through causes attributed by the Team Owner to the Driver, the Team Owner shall provide an additional series of tests with the Driver so as to empower the latter to attain the desired performances described above"

8. It should be noted first that on any view in that clause "performance" in the first line of the second paragraph was to be assessed by reference to where the Driver qualified. That was accepted by Mr Hochhauser. Mr Hochhauser suggested however that it had a different meaning in the last line where the words are "to attain the desired performances described above". Mr Hochhauser suggested that in that instance the word took the reader back to the first paragraph where he would suggest that performance is assessed not by reference to actual positions achieved, but by reference to the car's capabilities. This as it seems to me is an impossible contention. It has to be accepted as I see it that the words in the first line "said performance" take the reader back to the performance referred to in the first paragraph. Thus since it is accepted that the word in that line refers to actual, it must also refer to actual in the first paragraph and unsurprisingly therefore the word performance has a consistent meaning where it is used in the different places in the same clause.
9. Performance thus was in that contract referring to actual qualifying position, but it must also be noted that the scheme of that contract was not to allow any termination if the performance criteria were not reached. It provided for the manager to attribute a failure to reach the required performance to the driver and it allowed the driver to have further tests to "empower" him to achieve the required performance. It would seem that the clause was for the benefit of the driver in the sense that the driver wanted to be able to qualify well in order to enhance his reputation as a driver, and if he did not do so he wanted to have tests so as to improve his driving skills which would make it possible for him to do so.
10. During the year 1997 the agreement relevant to this appeal was signed on 24^th October 1997. The relevant clauses are set out in the judge's judgment from page 637 left hand column of the Lloyd's Report. The point of construction that arises does arise in the context of all the terms, but without losing sight of that and of the important fact that this was an agreement under which Mr Diniz brought substantial sponsorship, I will simply turn to the clauses on which concentration has focused in the appeal:-

"7. TEAM'S PERFORMANCE STANDARD

7.1The Team hereby warrants and guarantees that the Car and equipment provided shall be fully competitive, equipped with the Engine which for 1998 shall be a TWR Yamaha V-10, and the Car's performance shall be such as to enable the Driver to be ranked among the top 50% (fifty percent) of the competing drivers in the starting grid of each race, at a minimum of 60% (sixty percent) of the Races of the 1998 Formula One World Championships. In the case of a fractionary number results, the number shall be increased to the next whole number for the purpose of calculating half the number of the competing drivers and the number of races.

7.2Likewise, the Team hereby warrants and guarantees that the car and equipment provided shall be fully competitive, equipped with the Engine, and the Car's performance shall be such as to enable the Driver to be ranked among the top 50% (fifty percent) of the competing drivers in the starting grid of each Race, at a minimum of 60% (sixty percent) of the Races of the 1999 Formula One World Championships. In the case of a fractionary number results, the number shall be increased to the next whole number for the purpose of calculating half the number of the competing drivers and the number of races.

7.3The Team Undertakes to finish the 1998 and 1999 Formula One Championships in the top half of the 1998 and 1999 Constructors Championships (and in the case of an odd number of constructors contesting such Championship the number shall be increased to the next whole even number for the purpose of calculating half the number of constructors).

9.TERM AND TERMINATION

9.1This Agreement shall be binding and enforceable between the Parties until 31 December 1999 unless further extended by mutual and formal agreement of the Parties, or earlier terminated by either of the Parties, as provided for in clause 9.2 below.

9.2This Agreement may be earlier terminated, by means of a 15-day prior notice, via telefax, in the following events;

a)by the Team, upon failure of the Driver to fulfil the obligation undertaken in clause 2 above; and

b)by the Driver, upon failure of the Team to fulfil its obligations undertaken in clause 3, or in the event the Team has not met the minimum performance standards set out in Clause 7.1, 7.2 and 7.3 above.

9.3Upon early termination of this Agreement all sponsorship agreements generated by the Driver, including the PARMALAT (or equivalent) Sponsorship provided for in clause 2 above, and any additional sponsorships provided for in clause 6.3 above, shall be equally terminated, and any payments related thereto, which are not yet due at the time of such termination, shall be automatically withheld by the respective sponsors.

9.4In the specific event that the Driver shall exercise his termination rights provided for in clause 9.2(b) above, due to failure of the team to meet the Performance Standards as provided in clauses 7.1, 7.2 and 7.3, this Agreement shall continue to be in force until the conclusion of the correspondent Formula One World Championship calendar year at which time it shall be duly and effectively terminated.

9.5Either party may terminate this Agreement for any reason at the end of the 1998 season upon giving the other not less than 7 days notice in writing before the end of the 1998 Formula One season, subject to paying to the party receiving the notice the sum of US$7,000,000 upon the termination of this Agreement."

11. It will be noted that there was no equivalent to the clause allowing the manager to say that the reason for not meeting the performance criteria was the driver, and no provision for allowing the driver to have a further series of tests. By this time of course the appellants were well aware of Mr Diniz's ability as a driver. Furthermore some concern had been expressed by the sponsors as to the inability of the Arrows Team to achieve the results demanded by clause 6(a) of the previous agreement (see the letter of 30^th April 1997 page 14.1 of the Bundle).
12. This agreement contained a termination clause in the event of the relevant criteria not being reached. The scheme of clause 9 allowed for early termination without penalty by the appellants if the sponsorship did not materialise and early termination by the driver if the performance criteria were not reached. It also allowed for termination to be achieved by either side even if there was no right to terminate by the making of a payment.
13. Mr Hochhauser's main argument was the same as that addressed to the judge. He placed great weight on the word "enable". He pointed to the absolute nature of the obligation in Clause 7(3), and stressed that in clause 7(1) the word enable appears. He thus submitted that the proper construction of the clause required the driver to establish that the car by whomever it was driven was not capable of getting into the top 50% of 60% of the Grand Prix in the season. He submitted that to prove there was a breach it was likely that expert evidence would have had to be called and indeed he pointed out that Mr Diniz had permission to call such evidence. He further pointed out that at one stage during the interlocutory skirmishes, Mr Glick, for Mr Diniz, seemed to think that the proper construction of the clause required close examination of the capabilities of the car. He suggested that far from this being an impractical construction of the clause, it was practical. He suggested that a business man was hardly likely to enter into a bargain which left so much to factors outside the appellants' control. That he suggested would be the result of construing the clause by reference simply to actual results in qualifying.
14. The clause could be operated in a practical way he submitted first because there would be circumstances in which it would be obvious that it was the car's fault that placings in the top half were not achieved e.g. when the car simply broke down or where as in this case the manager accepted the car was not up to scratch as Mr Walkinshaw did in relation to four Grand Prix. In addition he suggested that there was available highly sophisticated computerised simulations measuring cars abilities. These were available for all cars in the sense that all constructors produced them. But he accepted that other constructors would not allow the appellants to have their confidential information and that it would be on a simulation in relation to the Arrows car that matters would have to be judged. Even then he suggested that if a simulation assessing by reference to perfect conditions demonstrated that the car would not have qualified by reference to actual results achieved by others, that would also enable the driver to demonstrate a failure to reach the performance standard. He had to accept however that it was very difficult to go further than that, it would be very difficult to test by reference to simulation how respective cars would do, in the actual conditions applying to the relevant qualifying sessions.
15. He furthermore submitted that it should not be assumed that the car was incapable of getting into the top 50% in qualifying simply by showing that Mr Diniz did not achieve that ranking, because there were a number of factors that can affect whether the car will qualify including weather, choice of tyres, other drivers in the way during qualifying, etc. His basic submission was that the clause was concerned with the capability of the car, and not with how the car performed in the hands of Mr Diniz as the particular driver even though Mr Diniz could be taken as having driven to the best of his ability.
16. On the basis that that was the proper construction of the clause he submitted that on such unscientific calculations as Mr Walkinshaw could do, it was wrong for the court to conclude that there was any failure to comply with the performance criteria laid down by clause 7(1). The unscientific calculations were based on the premise (about which there was little doubt), that Mr Diniz was not as fast a driver as for example Mr Schumacher. It so happened that because Mr Salo drove for Ferrari in the year 1999 when Mr Schumacher broke his leg, some calculation could be done designed to establish that if Mr Schumacher had driven the car in place of Mr Diniz then better qualifying results would have been achieved. The exercise involved comparing the qualifying times achieved by Mr Schumacher and Mr Irvine when they drove together for Ferrari; comparing Mr Irvine 's times with Mr Salo when they drove together for Ferrari; comparing Mr Salo's times with Mr Diniz when they drove for the appellants. The result was to suggest that with Mr Schumacher in the car, the car would have achieved better qualifying results. Even then it is in fact in dispute whether as the claimants contend all results should be taken into account including a possible odd one, or whether something is done to iron out possible rogue calculations. The claimants only get home on their best case. But, submitted Mr Hochhauser in the light of the evidence, Mr Diniz simply cannot show the car was not "capable" of qualifying in the top 50% for 60% of the qualifying sessions.
17. Mr Hochhauser also sought to make a further point, which was not really taken, in the court below. The argument went on the following lines. There are three factors which can affect the question where a car will qualify – the car, the driver, and outside factors such as the weather, choice of tyre etc. The onus he submitted would be on Mr Diniz to show that the failure to get into the top 50% in any particular qualifying session was not due to one of these outside factors. In reply he accepted that it would be open to Mr Diniz to conduct his case simply on the basis that the car had not qualified in accordance with the performance criteria set out in the clause and seek a finding from the court that the performance criteria were broken. He accepted that it was only once there was some evidence that one of the so called extraneous criteria were shown to have had some causative affect on a qualifying position that it would become relevant, but he submitted that there was such evidence in this case, and thus the position was that it was up to Mr Diniz to prove that the extraneous factor did not cause the result.
18. Mr Glick approached the clause completely differently. He relied on the way performance was used in the previous contract. He then suggested that "the Driver" with a capital D showed that it is with Mr Diniz and no other driver that the clause is concerned. He submitted that the clause is concerned with actual results. He said that was clear from the way performance was used in the previous contract and confirmation that it is intended to have the same meaning can be gained from the part of the clause that makes provision for "fractionary results". He further said that it must be presumed to be the intention of the parties that they should be able to work out whether the Team Performance had been complied with with certainty. The very idea that the Driver in whose favour this clause is should only be able to rely on the clause where the position is an obvious one in the sense that the car had broken down was unreal. The submission that the clause should have a meaning that would lead to a dispute which could only be resolved by obtaining simulations to be analysed by experts or comparisons between the driving abilities of various drivers in the way that took so much time during the hearing of this case, and which would be likely to lead in almost every case to an arbitration or court proceedings should be rejected. Sensible commercial parties, including it should be added sponsors, would wish to know where they were with some certainty.
19. He said that the difference in the language between 7(1) and 7(3) is explained by the fact that when one looks at the regulations one can see that so far as constructors are concerned ie 7(3) it is the cars that are being dealt with; but in 7(1) it the driver's position which counts. But he said one can see that clause 7(3) involved an absolute obligation which if not complied with allows the driver to terminate, although factors such as the driver and extraneous factors, will be beyond the control of the constructor. So why (he would ask rhetorically) should it be surprising if under clause 7(1) an obligation is being undertaken which to some extent is outside the control of the appellants.
20. I, like the judge, think that the construction suggested by Mr Glick is to be preferred. I should say I am not much persuaded by his point that Clause 7(3) is concerned with a car and 7(1) with the driver. The language of clause 7(1) could have been very similar to that in clause 7(3) although it is dealing with the driver. But the fact that the appellants were content to take on an absolute obligation under clause 7(3), seems to me to do serious damage to the argument that a commercial man would not take on a clause which would allow termination when factors over which he has no control may play a significant part. Clause 7(3) does just that, and I did not find persuasive Mr Hochhauser's attempts to persuade us that there were reasons why an absolute obligation might be accepted under clause 7(3), but not under clause 7(1).
21. The position is that by the time the appellants came to sign this agreement they had seen Mr Diniz drive. They knew his competence and they knew also that he brought sponsors. They knew the driver would want success and the sponsors would want success. They knew what they agreed the year before by reference to actual performances in qualifying. They would want to know by reference to readily ascertainable criteria where they were when considering whether termination at the end of the year was available without payment. It was commercially perfectly sensible to agree a provision which allowed for a termination at the end of a year, and which gave no right in addition to damages, simply on the basis that the team with the driver driving his best had not qualified in accordance with the criteria.
22. That leaves one possible further question on the way the appeal has been argued. Would it be an answer to an asserted breach of the clause, that the reason why the driver qualified below the half way mark was through an extraneous factor? If so, what extraneous factor could be relied on? Only certain candidates as extraneous factors were raised in the evidence. They are set out in a schedule prepared by Miss Allan with references to the transcript where they were raised.
23. The first point which Mr Glick made, and which I accept, is that the sort of extraneous factors relied on are the common or garden factors that will occur when any driver driving a Formula 1 car is attempting to qualify. Again they would be well known as factors before the clause in the first agreement was negotiated, and thus of course before Clause 7(1) was agreed. Neither clause was in my view intended to operate so as to allow such factors to affect the calculation. What would be appreciated is how the qualification day would normally go. Test runs in the morning qualifying session in the afternoon. In the qualifying session in the afternoon the driver would be entitled to do 12 laps. However a qualifying lap must be preceded by a lap and followed by a lap. The norm would be for a driver to do three or four qualifying laps in the hour. Difficulties on one such lap should not occur on the others, and the fact that a problem with for example another driver getting in the way occurs on one of the qualifying laps is just one of those things to be expected, and there are two more qualifying laps or conceivably three to complete. Furthermore the warranty is not to qualify in the top 50% for all races but in the top 50% in 60% of Grand Prix. That again allows for the sort of factors that are relied on affecting the performance at some Grand Prix but not at others. I would thus say that the type of extraneous factors suggested could not in any event provide any answer.
24. If by chance that were wrong, then in any event at the trial these factors were in fact relied on by Miss Allan as can be seen from her closing submissions in reality to support the construction point. They were not pleaded or relied on as extraneous factors that actually did affect the qualifying position in any particular qualifying session. Mr Hochhauser said it was up to Mr Diniz to prove the breach of warranty which would involve proving that no extraneous factors affected the position. Mr Glick said that it was for the appellants to prove the factors and put them to Mr Diniz as factors which actually led to the car not getting into the top 50% of any particular session if that was to be the appellants' case.
25. It seems to me that Mr Glick is clearly right. On the construction of the clause which I like the judge have preferred, actual results prove a breach. If, nevertheless, the appellants wish to allege there were factors which relieved them from being in breach it would be for them to raise them and plead them. It would certainly be for them to give Mr Diniz an opportunity to deal with them in his evidence. The case was not fought that way, and it simply cannot be right that extraneous factors of the kind relied on can now be brought into the calculation.

Termination of contract

26. How was the contract brought to an end? This is an academic issue save in so far as it relates to the respondent's notice. Having held that Mr Diniz was entitled to rely on clause 7(1) it must follow that even if he was in repudiation as Mr Hochhauser contends by signing for Sauber on 5^th October 1998 and even if that repudiation was accepted by Mr Walkinshaw by his letter of 13^th October 1998, no damages would have been suffered by the appellants.
27. So far as the respondent's notice is concerned, Mr Glick very realistically recognised that it would be very difficult for him to argue that the judge's finding that the agreement was over by 1^st November 1998 on whatever basis should be reversed. His client's case was that he thought it was over at that date. He acted as though it was over. He did not claim any money and he handed back his motor car. He also went off to test drive for Sauber. Mr Glick accordingly did not press the respondent's appeal.

Damages

28. The damages would be the next issue. As was recognised by Mr Hochhauser the points he raises simply do not arise if we were against him on the Clause 7(1) issue. Mr Hochhauser in his reply as already indicated wished to apply to argue that in addition to the two figures relied on in his opening as having been wrongfully deducted in the Judges' calculation, there was a third figure. We simply do not think it right to consider this whole question as an academic exercise, and we accordingly stopped even argument as to whether reliance could be placed on this third figure.

Side letter

29. So far as the main judgment is concerned that leaves the issue whether the side letter dated 23^rd/24^th October 1998 survived termination of the main agreement. This aspect is dealt with in paragraph 111 of the judge's judgment. Like him I am quite clear that the letter has to be read with the main agreement and that it was intended that the letter should be ancillary to that agreement, and that any obligation on Mr Diniz under it was intended to terminate when the main Agreement terminated. The main pointers to that being the correct conclusion are the following. First, sponsorship came with the driver. Mr Hochhauser recognised that if either the appellants or Mr Diniz had exercised a right of termination either under clause 9(2) or under 9(5) bringing the contract to an end at the end of the 1998 season, and if thus Mr Diniz would not have been driving in the 1999 year, and if by then the additional sponsorship had not been achieved, it would be impossible for Mr Diniz to obtain the sponsorship for the Arrows Team for 1999. Mr Hochhauser suggested that would still leave in force an obligation on Mr Diniz to pay $2m. It seems to me most unlikely either party would intend such a result. Second, assuming again termination by either party under clause 9(2) or 9(5), but assuming now that prior to termination Mr Diniz had secured a sponsor for $2m for the 1999 season, under clause 9(3) of the main agreement that sponsorship agreement would come to an end on termination of the main agreement. Mr Hochhauser submitted that it was intended under the side letter that an obligation would then arise on Mr Diniz to make a payment of $2m. Again that simply cannot have been intended. Clause 9(3) is in fact determinative of this issue. That is not to say that the side letter can itself be said to be a sponsorship agreement, but that clause demonstrates that it was the obvious intention of the parties that obligations relating to sponsorship would come to an end if the driver ceased to drive for the team.

Amendment

30. The final issue relates to the question of amendment the subject of a separate judgment. Permission to appeal was given in relation to this aspect because of the way the judge put the matter at one stage. One consideration as to which there was obviously argument, was whether if leave was refused the appellants would still be able to bring an action claiming damages on the same basis. He said at one point in his judgment (page 12 of the transcript) "As Mr Glick observed, in my respectful view unanswerably, if a new action would be an abuse of process, so must be this amendment. If on the other hand, a new action would not be an abuse of process, then it will be permitted to proceed and the claimants will suffer no prejudice consequent upon my declining to permit them to make the amendment in the context of this action." In granting permission it seemed to me that it could be argued that the judge was here misdirecting himself because a basis on which a fresh action might be said to be an abuse was on the basis that the matter should have been the subject of the previous proceedings i.e. by following the principle in Henderson v Henderson. It thus could not be said that if the fresh action were an abuse, the allowance of an amendment must also be an abuse. Indeed if Henderson v Henderson would prevent a fresh action that must be a material factor to take into account in considering whether the amendment should be allowed.
31. However the above comment of the judge clearly played little part in his ultimate decision. The key influences to his decision were the following factors. First Mr Diniz's legitimate expectation up to the start of the trial was that one way or another following the trial the dispute between him and the appellants would be over. One of the issues that would have to be fought out was an allegation of reckless or deliberate bad driving in certain Grand Prix, an issue raised by the appellants in their reply in answer to his reliance on Clause 7(3) by a pleading dated 16^th July 1999. It was accepted that there was no reason at all why if a claim for damages was going to be made by reference to the alleged driving it could not have been pleaded in July 1999. At the last moment the appellants produced material in relation to the allegations of bad driving which led to an argument as to how the trial should proceed. One answer might have been that the appellants simply should not be allowed to rely on that material; one possible answer would have been to adjourn the whole trial in order to give Mr Diniz time to deal with the material; the actual ruling of the judge was to hive off the clause 7(3) issue which would only need to be tried if Mr Diniz failed to establish his entitlement to terminate the contract under clause 7(1).
32. On that ruling made to enable the appellants to use material which should have been available much earlier if the issue ever arose, Mr Diniz's expectation was still at least that if the issues were resolved in his favour all would be over. Mr Hochhauser described this expectation as only being for a matter of days, but that is not in my view a fair way of looking at it, because up until the ruling it was Mr Diniz's expectation that if he was successful on clause 7(1) all would be over.
33. If there had been no hiving off the judge's view with which I have no reason to disagree was that it is unlikely that the proposed amendment would ever have seen the light of day. Since it involved an assertion of loss which would have been dependent on evidence not given at the trial, it certainly would not have been allowed at the commencement of final speeches or indeed at a stage some distance into the trial. It was only by virtue of the fact that there had been a hiving off due to the fault of the appellants that it became possible to mount the application to amend at the commencement of the final speech at the trial.
34. It is in the above circumstances that before ever making the comment to which I referred and in relation to which it might be possible to criticise the judge, the judge said this:

"I must look at the matter in the round, which includes also consideration of the factor that there never would have been any question of a second trial had it not been for the fact that the question whether the defendant was entitled to rely upon Clause 7.3, for whatever purpose, could not fairly be tried within the confines of the first trial and it could not fairly be so tried because of the manner in which the claimants had themselves chosen to conduct the action. Had it not been for my order hiving off the issues which might never arise, it seems unlikely that this application to amend would ever have seen the light of day. It would be ironic indeed if the claimants were now able to introduce into this action new claims which could not have been introduced had it been possible to deal at trial with the allegations of misconduct made in an entirely different context in which the new claims are themselves founded.

It seems to me that, however the matter is looked at, it would amount to a grave injustice if this action were not now brought to an end. I bear very well in mind that the effect of my not giving permission to amend may be that the claimants are precluded from bringing the claims which are the subject of the proposed amendment. I do not have to decide whether an attempt to bring a new action asserting those claims would amount to an abuse of process or be capable of being struck out on some other cognate ground. I shall assume that it is, at the very least, a realistic possibility that if a new claim were sought to be brought in a new action such action would be struck out as being an abuse of process."

35. He then made the comment that could be the subject of criticism, and then continued:-

"Whatever be the outcome of an application to strike out a new action brought upon the basis of the new claim, that does not in any way alter my very firm conclusion that it would be unjust to allow these claims to be made in this action."

36. He made clear thereafter that he had not based his decision on the merits of the claim the subject of amendment, but went on to consider the merits. We have not explored the merits of the claim in this court and I will accordingly make no comment.
37. All it is necessary to say is that even if some criticism of two sentences is legitimate, the decision of the judge is not in my view impugned when examined in full. Even if it could be said that the judge so misdirected himself that we were free to exercise our discretion afresh, I have no doubt that the factors spelt out above and relied on by the judge would compel the same decision
38. It follows that I would dismiss the appeal against the main judgment and the appeal against the judgment refusing the amendment.

39. LORD JUSTICE RIX: I agree. I would add some words of my own in recognition of the importance of this case to the parties. On construction of clause 7.1, I would, briefly, list the following points as being altogether persuasive that the car's performance is to be tested against actual results obtained by Mr Diniz as "the driver", provided only that he fulfilled the implied obligation of driving to the best of his ability. There is no additional or alternative requirement that he extract the last ounce of the car's theoretical performance or that he drive to the best of his ability but to the best of the ability of some other and better driver who (upon a hypothetical assumption) is to be regarded as able to extract the fastest possible time from the car in conditions which would, nevertheless, have in some way to be assimilated to the actual conditions obtaining at the individual races as well as to the actual and not theoretical times of the other drivers.

39. (1) Clause 7.1 lays down its own test of the car's performance: viz the ranking of Mr Diniz among the top 50 per cent of competing drivers at a minimum of 60 per cent of the 1998 races. That test is a test of actual results. Any construction which seeks to detract from the simplicity and reality of that test has to be justified.
40. (2) The implication of a proviso that Mr Diniz has to drive to the best of his ability is common ground. That proviso reflects a basic term to be implied in the contract as a whole, which is also common ground, that Mr Diniz should drive to the best of his ability. It is also common ground that no complaint has been made against Mr Diniz on this score with reference to the qualifying times. No other implied proviso in clause 7.1 is common ground and any further proviso would have to be justified on the standard basis that it was necessary as well as reasonable.
41. (3) The test laid down in clause 7.1 is a practical and commercial test. It only requires Mr Diniz to be ranked in the top half and only in 60 per cent of the races. That makes any allowances for mishaps at any particular meeting. It recognises that theory is one thing and actual performance is another.
42. (4) The test is premised in terms of Mr Diniz' ability to achieve these results and no other drivers'. It is recognised that in 1998 Mr Diniz was not a Michael Schumacher. As Mr Walkinshaw said in his evidence, Mr Schumacher was paid $40m a year for his own personal, exceptional abilities. It is, therefore, entirely irrelevant that Mr Schumacher, driving the Arrows' car, might have saved, say, 1.5 seconds a lap on Mr Diniz' qualifying timings. The Arrows' team were not paying for Mr Schumacher's services, but for Mr Diniz.
43. (5) Mr Hochhauser relies on the words "such as to enable" the driver to achieve the stipulated rankings and he contrasts that with the bald language of clause 7.3's "undertakes to finish". He submits that clause 7.1 could have incorporated similarly absolute language. Clause 7.3 however is an undertaking in respect of both cars and in respect of the races as a whole, and not in respect of Mr Diniz alone on a single qualifying lap. In those circumstances, it is entirely understandable that the undertaking be given in the simple terms in which it is, to emphasise, if need be, that the undertaking is unqualified. The difference of language is there, but the question remains, what do the words in clause 7.1 mean?
44. (6) Clause 7 as a whole is headed, "TEAM'S PERFORMANCE STANDARD". Clauses 7.1 and 7.2 talk about "the Car's performance". Clause 7.3 does not contain the word "performance" . Clause 7.2(b) refers to "the minimum Performance Standards set out in Clause 7.1, 7.2 and 7.3 above". 9.4 similarly refers to "failure of the team to meet the Performance Standards as provided in clauses 7.1, 7.2 and 7.3". It is clear, therefore, that each of clauses 7.1, 7.2 and 7.3 is viewed as laying down a performance standard. If one asks what that standard is, the natural answer is to say that it is to the ranking indicated in the relevant clauses. No distinction is made between the three clauses for this purpose. I think that this indication that all three clauses, whatever the idiosyncrasies of their individual wordings, are setting real life rankings actually achieved as the relevant standard of performance is persuasive that the test under clauses 7.1 and 7.2, as well as under 7.3, is a real test of performance and not a theoretical one.
45. (7) If the test under clause 7.1 is in some way theoretical, rather than determined by Mr Diniz' actual ranking, I was unable to understand from Mr Hochhauser how it could be determined. The actual rankings of Mr Diniz would not be conclusive. Indeed the appellants' pleadings and skeletons said that they were entirely irrelevant. Once the actual rankings are not determinative, one is in the realm of speculation and simulation. That would be an unsatisfactory test for a guarantee ("the team hereby warrants and guarantees") whose only practical remedy is the right to terminate under clause 9.2(b). It is of the greatest importance to the team, the driver and the sponsors (see clause 9.3) to know where they stand in respect of termination. A clause whose stated performance standard was not determinative would be worse than useless; it would be a snare. Commercial and practical realities are, in my judgment, much against the appellant's reliance on a theoretical approach to performance.
46. (8) Mr Hochhauser's construction would, in any event, involve a comparison between the car's theoretical performance and the actual times of the competing drivers in their qualifying sessions. This involves not comparing like with like, which is an inappropriate and an unlikely way to proceed.
47. (9) Mr Hochhauser's further or alternative gloss on his theoretical approach is to submit that clause 7.1 should be read as subject to an additional implied proviso to take account of external factors over which the team could have no control, such as, he submits, weather, accident, set-up, tyres and so forth. He submits that it would be unlikely and uncommercial for the team to undertake a responsibility or permit a termination in circumstances where outside factors could affect qualifying rankings.
48. This is a valid consideration but, to my mind, there are a number of difficulties with the submission. First, it involves an implication, the terms of which have been nowhere defined. Secondly, it has never been pleaded or addressed, even in witness statements. In my judgment, it is simply not open to the appellants on this appeal, and any reference to such factors in the oral evidence below were purely incidental and collateral to other considerations. My view in this regard is irrespective of which party would in such a case bear the ultimate burden of proving the existence and materiality of the external factors. If such factors were in issue, however, in my judgment the burden would in any event rest on the team, not on the driver.
49. Thirdly, the external factors relied on fall into several different categories. Some, like accidents on the track due to third parties, are true matters of force majeure, but the contract's references to force majeure are very limited (see eg clauses 1.4 and 1.5). Other factors like weather are essentially something which all competitors face equally, albeit it may be that some cars are better or worse adapted to some weather conditions than others, which takes one back to the car. A third category, like set-up or tyres, are matters on which driver and team collaborate over the course of the practice and qualifying sessions to get right. All competitors equally have to make an exercise of judgment on such matters. I cannot see in any such list of external factors, as Mr Hochhauser relies upon a sound basis for a proviso.
50. Fourthly, the fact that drivers are entitled to practice sessions and possibly up to three or four attempts at a fastest qualifying lap speed goes very far to mitigate the dangers of such external factors. In such circumstances, it is entirely understandable that the clause, which makes no express provision for them, should not be construed to incorporate an implied proviso to take account of them.
51. As for the other matters debated, and in particular the issues concerning the side letter and refusal for permission to amend, I agree entirely with Lord Justice Waller and have nothing to add.
52. I agree that this appeal (and the cross-appeal) should be dismissed.
53. MR JUSTICE WILSON: I agree with both judgments.
    Order: Application to amend grounds of appeal allowed. Appeals and cross-appeals all dismissed with costs. Respondent's Notice dismissed with costs. Agreed that an interim payment of £50,000 should be paid within 28 days. Leave to appeal to the House of Lords refused. (Order does not form part of approved judgment)

 


Annex
WALKINSHAW & ORS v DINIZ 01/02/2002

SCHEDULE 1 The parties

1. The First Claimant in these proceedings, Mr Walkinshaw, is a highly successful businessman with diverse interests, principally in the field of automotive engineering. Mr Walkinshaw is the Chairman, Managing Director and majority shareholder of the Second Claimant, TWR Group Limited ("TWR"). TWR is a company that provides engineering and motor racing services to motor manufacturers. Mr Walkinshaw is also Chairman of the Third Claimant, Arrows Grand Prix International Limited and owns about 45% of the share capital of that company. TWR at all material times operated and managed the Arrows Formula One racing team ("Arrows" or "the team").^[1] Mr Walkinshaw has been involved in Formula One motor racing since 1991^[2].
2. At all material times, the Defendant, Mr Diniz, was a professional Formula One racing car driver. His driving career began in 1988 and he moved to Formula One in 1995 to join the Forti-Corse Formula One team. ^[3]
3. Like many Formula One drivers, Mr Diniz brought substantial sponsorship with him to the team for which he drove. In particular, Mr Diniz received sponsorship from Parmalat, an Italian dairy produce company. ^[4]

Formula One

4. The Formula One season consists of a series of Grand Prix that take place from approximately March to November of each year. Each Grand Prix is preceded by pre-qualifying practice, free practice, a qualifying session (or qualifying practice) and a warm Up. ^[5]
5. The drivers' position in the starting grid in each Grand Prix is determined on the basis of his car's performance in the qualifying session.^[6]
6. The Formula One World Championship is organised by the Formula One Association ("the FIA") and there are two titles of World Champion, one for drivers and one for constructors. ^[7]
7. In the 1998 Formula One season there were 16 Grand Prix. Points for both titles are awarded at each Grand Prix according to the following scale: 1^st (10 points; 2^nd (6 points); 3^rd (4 points); 4^th (3 points); 5^th (2 points); 6^th (1 point).^[8]
8. The World Championship drivers title is awarded to the driver who has scored the highest number of points from the Grand Prix in which he has participated. The constructors title is awarded to "the make" of car which has scored the highest number of points, taking account of the results of a maximum of 2 cars per make. So each team seeks to field two drivers in two cars of the same make in each Grand Prix.^[9]

The parties' initial contacts

9. In 1996, with only one season of previous experience in Formula One, Mr Diniz moved to the Ligier Formula One team ("Ligier"). In that season he scored two Championship points. Ligier was then run by Mr Walkinshaw who then owned a majority stake in the Ligier team. At that time (and in 1997), Mr Walkinshaw considered Mr Diniz a driver of ability and potential. ^[10]
10. In mid 1996, Mr Walkinshaw left Ligier and bought a controlling interest in the Arrows Formula One team. ^[11]

The 1996 contract

11. On 4 October 1996, Mr Walkinshaw and Mr Diniz entered into a contract ("the 1996 Contract") pursuant to which Mr Diniz drove for Arrows in the 1997 season. The 1996 contract stipulated that the Arrows team's "number one Driver" for 1997 would be Mr Damon Hill, who was the reigning world champion (having won the Drivers' Championship in 1996).^[12]
12. The 1996 Contract contained a condition precedent, providing for the Driver to obtain a satisfactory sponsor who would provide sponsorship for the team of at least $9 million for the 1997 World Championship season, $10 million for the 1998 season and, should the sponsor choose to exercise its' exclusive option to sponsor the team for a further year, at least $12 million for the 1999 season. On 13 December 1996, Arrows and Parmalat concluded a sponsorship agreement providing for sponsorship of $9 million in 1998, $10 million in 1999 and with an option for Parmalat to sponsor the team for $12 million in 1999. It was a condition of the sponsorship agreement that Mr Diniz should drive for Arrows. In consideration for the sponsorship the team would display the Parmalat name and logo on their racing cars and on the driving overalls of Mr Diniz.^[13]
13. The 1996 contract contained the performance warranty set out at paragraph 8 of the Skeleton. The 1997 season
14. In 1997 Mr Diniz drove for the Arrows Team pursuant to the 1996 Contract. That season was, however, a disappointing one for the Arrows team. Mr Hill obtained only 7 points in the season; Mr Diniz obtained 2. Arrows came eighth in the Constructors Championship. Neither Mr Hill nor Mr Diniz came close to qualifying in the top 60% of the starting grid at 50% of the races. Mr Diniz achieved a faster time than Mr Hill in four of the sixteen qualifying sessions which Mr Walkinshaw described as "no mean feat".^[14]
15. Mr Diniz and his representatives were sufficiently concerned about the performance of the car in 1997^[15] that, on 30 April 1997, relatively early in the 1997 season, Mr Huck (Mr Diniz' lawyer) wrote to Mr Walkinshaw, saying:

"I am writing to express the deep concern of my client Pedro Paulo Diniz, as well as of the sponsors which he provided to the TWR Group LimitedlArrows Team in compliance with the agreement dated October 4th, 1996 executed by and between Thomas Walkinshaw, of TWR Group Limited) Arrows Team and Pedro Paolo Diniz, as to the performance of said agreement.

The abovementioned sponsors have not been satisfied with the poor results the Arrows racing team has achieved so far in the races of 1997 Formula One World Championship. Clause 6(a) of the agreement provides that "the racing car and equipment provided shall be fully competitive, equipped with a Yamaha C-10 engine, and the car's performance shall be such as to enable the Driver to be ranked among the first 60% (sixt2 12ercent) of the cars in the starting, grid at a minimum of 60 (sixty percent) of the Formula One World Championship races ...

Needless to say, despite the information we have received from our client Pedro Paolo Diniz regarding yours and the team's efforts to improve the performance, the Arrow team's current results jeopardize the fulfilment of the obligation undertaken by said clause. On behalf of my client and the sponsors, I expect you will endeavour all efforts to reach the pledged results in the remaining race of the 1997 Championship, thus satisfying the obligation set forth in clause 6(a). In the meantime, the sponsors will continue to provide cash flow in compliance with their duties "^[16]

16. Mr Walkinshaw responded on 1 May 1997, observing that Mr Huck's comments were "not at all helpful" and assuring him that the team was committed to making every possible endeavour to achieve improved performance.^[17]
17. The engine that had been used for the 1997 year bore a badge with the name "Yamaha" but was actually manufactured by a company called Engine Developments or Judd although the Yamaha motor company had contributed to the funding of its development. Mr Diniz made it clear to Mr Walkinshaw that he was not satisfied with the engine from the 1997 season and wanted something that would be better and more reliable.^[18]
18. In early August 1997, Mr Walkinshaw entered into negotiations with Yamaha to set up a joint team for the development of a "Grand Prix winning" engine for the 1998 season ^[19],The plan for 1998 was that, starting in late 1997, TWR and Yamaha were to join together to finance and develop a new engine that would be manufactured by Brian Hart Ltd. It was envisaged, therefore, that there would be important financial and engineering support from Yamaha. ^[20]
19. On 11 October 1997, TWR and Yamaha signed heads of agreement. Under this agreement, Yamaha was to participate in a jointly funded engine project for 1998 and 1999. Yamaha agreed to provide 15 billion Yen and TWR 10 billion Yen to the project and technical input to the engine. The Heads of Agreement said: ^[21]

The performance objectives for the project will be to produce reliable and competitive Formula One engines to be used exclusively by the Arrows Fl Team for 1998 and 1999. The performance parameters for the engine should be that it is capable of obtaining regular podium positions throughout the 1998 Formula One seasons . ... "

The heads of agreement were expressly subject to the resolution of some outstanding issues between Arrows and Yamaha. ^[22]

20. On 9 December 1997, in circumstances which Mr Walkinshaw described as disappointing and totally unexpected, Yamaha pulled out from the engine project. ^[23]
21. The 1996 Contract was for two years, 1997 and 1998, with provision for extension for a third. However^[24], in September/October 1998, Mr Diniz's representatives and Mr Walkinshaw entered into negotiations for a new contract to cover the terms upon which Mr Diniz would drive for Mr Walkinshaw and his Arrows team for the 1998 and 1999 Formula One seasons. ^[25]

The Arrows Contract

22. On 24 October 1997 Mr Walkinshaw and Mr Diniz entered into the Arrows Contract under which the Defendant agreed to provide his services as a Formula One motor racing driver for the 1998 and 1999 Formula One World Championships.^[26] The relevant terms of the agreement are set out in paragraph 18 of the Judgment and paragraphs 12 to 15 of the Skeleton.
23. On the same day, Mr Diniz signed the Letter Agreement relating to the Arrows contract, pursuant to which he agreed to bring $2 million of additional sponsorship to the Team in 1999.^[27]

The 1998 season

24. Pursuant to the Arrows Contract, Mr Diniz drove for the Claimants in the 1998 Formula One World Championships season. His fellow driver for the Arrows team was Mr Mika Salo.
25. Mr Diniz did not rank among the top 50% of the competing drivers in the starting grid of each race at an of the Races for the 1998 Formula One World Championships (let alone in 60% of the races). The results of Mr Diniz and Mr Salo are summarised in the schedule to the Judgment, copied and annexed to this Skeleton Argument at Schedule 2.
26. Furthermore, the Team finished the 1998 season in 7th position out of the 11 teams that took part in the Constructors Championships^[28]. Mr Diniz himself finished the season in 13^th position overall, having scored 3 championship points by coming 6th in the race in Monaco and 5th in Belgium.
27. The 1998 season began inauspiciously for Arrows. The team had planned to test the new Arrows racecar for the 1998 season in Barcelona at the beginning of December 1997. However, the new car was not ready. The team tested in mid December in Barcelona with two alternative vehicles, one a 1997 racecar and the other a car that was a hybrid of a 1997 chassis and a 1997 Hart engine. ^[29]
28. It was not until the beginning of February 1998 that the 1998 car was ready to test and it was only at this late stage that the 1998 car was eventually launched^[30] This was disappointing, and an inadequate preparation for the season. ^[31]
29. The first Grand Prix meeting of the 1998 season was in Australia on 6-9 March 1998. Out of 22 drivers in the qualifying session of the Australian Grand Prix, Mr Diniz qualified in 20th place, Mr Salo in 16th place. As a result of the car's late launch very little testing had been done prior to the Grand Prix and Mr Walkinshaw and Mr Coughlan acknowledged that, as a result, they had known that the team was going to struggle^[32]. There were a number of problems with the gearboxes of the cars and with their hydraulics. These problems persisted for at least the next two Grand Prix ^[33]. At the Brazilian Grand Prix on 27-29 March 1998, Mr Diniz qualified in 22^nd position and Mr Salo in 20^th. At the Argentinian Grand Prix on 10-12 April, Mr Diniz qualified in 18^th position and Mr Salo in 17^th. ^[34]
30. At the San Marino Grand Prix on 24-26 April 1998, Mr Diniz qualified in 181h position and Mr Salo in 14^th. Mr Salo had to retire his car from the qualifying session due to gearbox problems ^{[35] [36]}
31. At the Spanish Grand Prix on 8-10 May 1998, Mr Diniz qualified in 15^th and Mr Salo in 17^th position. The Arrows' press release issued at the time reported Mr Walkinshaw, Mr Salo and Mr Diniz all as remarking that they were disadvantaged by the fact that, unlike many of the other teams, they had not tested the car at the Spanish track in the previous week. According to the Arrows' press release, Mr Walkinshaw said that, "the decision to return to base and sort out our gearbox problems was the right one"^{[37] [38]}
32. At the Monaco Grand Prix on 21-24 May 1998, Mr Diniz qualified in 12^th and Mr Salo in 8^th position. Mr Salo's car again developed gearbox problems during qualifying^[39] .^[40]
33. At the Canadian Grand Prix on 5-7 June 1998, Mr Diniz qualified in 19^th and Mr Salo in 17^th position. ^[41]
34. In June 1998, Mr Barnard left the team. ^[42] The departure of Mr Barnard had, at the very least, an unsettling effect on the Arrows team which was not enjoying success. ^[43]
35. At the French Grand Prix on 26-28 June 1998, Mr Diniz qualified in 17^th and Mr Salo in 19^th position. During qualifying, Mr Diniz' car developed a hydraulic problem and he was forced to use the spare car; Mr Salo's engine stopped on the track ^{[44] [45]}
36. At the British Grand Prix on 10-12 July 1998, Mr Diniz qualified in 12^th and Mr Salo in 13^th position (originally 13^th and 14^th, but the positions were modified by the stewards). Mr Salo's car again suffered from gearbox problems towards the end of his qualifying session ^{[46] [47]}
37. At the Austrian Grand Prix on 24-26 July, Mr Diniz qualified in 13^th and Mr Salo in 6^th position.^[48]
38. At the German Grand Prix on 31 July to 2 August, Mr Diniz qualified in 18^th and Mr Salo in 17^th position. Mr Diniz' car developed a handling problem which the team could not locate and repair in time, leaving Mr Diniz to use the spare car in qualifying ^{[49] [50]}
39. On 11 August 1998, Mr. Walkinshaw met Mr Diniz at Mandelieu airport, near Cannes. At about the same time another meeting took place between Mr Walkinshaw and Mr Diniz at the Villiers Hotel in Buckingham. Mr Diniz was testing at Silverstone and the session was not procceding particularly well. In the course of this meeting, Mr Diniz said something to the effect that he wished he had a better or more reliable racecar.^[51] Mr Diniz was not happy with the Arrows car and Mr Walkinshaw knew that he was not. ^[52]
40. At the Hungarian Grand Prix on 14-16 August, Mr Diniz qualified in 12^th and Mr Salo in 13^th position. ^[53]
41. At the Belgian Grand Prix on 28-30 August, Mr Diniz qualified in 16^th and Mr Salo in 18^th position. During the free practice session the new D-specification Hart engines suffered failures and the team decided to revert to the C-specification engines for both Cars ^{[54] [55]}
42. At and after the Belgian Grand Prix, Mr Morelli and Mr Huck started to have contacts with other Grand Prix teams (Sauber, BAR and Jordan) regarding the possibility that Mr Diniz might drive for them in the 1999 season^{[56] [57]}
43. At the Italian Grand Prix on 11-13 September 1998, Mr Diniz qualified in 20^th and Mr Salo in 16^th position.^[58]230. On 13 September 1998, the Arrows team exercised their option to renew their contract with Mr Mika Salo for the 1999 season.^[59]
44. At the Luxembourg Grand Prix on 25-27 September 1998, Mr Salo qualified in 17^th and Mr Diniz in 16^th position. Half way through the qualifying session, Mr Diniz' car developed a hydraulic leak, obliging him to continue in the spare car^{[60] [61]}
45. On 27 September 1998, Mr Walkinshaw, who had heard rumours that Mr Diniz had signed an agreement the previous week with Sauber for 1999, decided to take prompt action in case the rumours were true. He entered into an option agreement with a Japanese driver, Mr Toranosuke Takagi, for his services as a driver for the 1999 season. Under the terms of this agreement, if the option were exercised by Mr Walkinshaw, Mr Takagi agreed to bring $8 million in sponsorship to the team for the 1999 season. ^[62]
46. On 28 September 1998, Mr Abilio Diniz wrote to Mr Walkinshaw indicating, in particular, that, although it was not yet decided, it seemed likely, the way things were going, that his son would be driving for a team other than Arrows in the 1999 season^{[63] [64]}
47. On or about 5 October, Mr Diniz reached agreement with PP Sauber Ltd ("Sauber") to drive with them for the 1999 season. A side letter to.the agreement referred to the fact that Mr Diniz was party to a contract with Arrows. Mr Diniz represented that he would have terminated that contract by taking the necessary measures before the commencement of the Term, defined in the Sauber agreement as 20 days after the last race of the 1998 Championship season. (The contract between Mr Diniz and Sauber was eventually signed by both parties on 20 October 1998). ^[65]

Mr Diniz's termination

48. The events surrounding the termination of the Arrows Contract are set out at paragraphs 21 to 31 of the Skeleton.

Consequences of termination

49. On 27 November 1998, Sauber sent the contract between them and Mr Diniz to the CRB for registration. The contract was received by the CRB secretariat and registered on 30 November.
50. On 10 December 1998, Mr Walkinshaw entered into a racing driver agreement with Mr Takagi.^[66] Under the terms of that contract, Mr Takagi and/or his manager agreed to procure $5 million of sponsorship to the Arrows team. Mr Walkinshaw was well aware that around $2 million of this sponsorship would come from Japan Tobacco; he had no objection in principle to the Arrows team having a tobacco sponsor^{[67] [68]}
51. On 15 December 1998, Mr Walkinshaw entered into a test drive agreement with Mr De La Rosa. It was known to Arrows that Mr De La Rosa had previously been sponsored by Repsol SA, the Spanish national petroleum company, and that it was likely that, if they employed him as a driver, they would receive sponsorship from Respol. In contrast, Mr Salo, to whom Arrows were already contractually committed for 1999, brought no sponsorship to the team.^[69]
52. On 16 December 1998, the original writ in these proceedings was issued ^[70].
53. In late January and early February 1999, Mr De La Rosa, Mr Takagi and Mr Salo all tested for Arrows at Silverstone. At the end of the testing, Mr Walkinshaw took the decision to replace Mr Salo with Mr De La Rosa. On 10 February 1999, Arrows entered into a racing driver agreement with Herengracht Financial Services (a company associated with Mr De La Rosa) for Mr De La Rosa's services for the 1999 season^{[71] [72]}
54. On 12 February 1999, the CRB met to determine whether the Arrows Contract or the Sauber contract had priority and thus for which team Mr Diniz was entitled to drive in 1999. ^[73]
55. On 17 February 1999 the CRB issued its decision^[74], holding that the Arrows Contract with the Claimants had been validly terminated before 30 November 1998; that the Sauber Contract was valid and in force for the 1999 season; and that it was for that latter team that Mr Diniz was entitled to drive in the forthcoming season.^[75]
56. On 22 February 1999, Arrows entered into an agreement with PIRA under which PIAA agreed to pay Arrows $3 million in sponsorship for the 1999 season. By a letter agreement of the same date, Arrows agreed to a variation to Mr Takagi's racing driver agreement under which it was agreed that Mr Takagi and his manager had procured $3 million in sponsorship from PIRA and that; accordingly, he would be paid only $225,000 in total salary and expenses ^{[76] [77]}
57. On 26 February 1999, Mr Walkinshaw entered into an agreement with Mr Salo under which Mr Salo received $750,000^[78]. This was, in effect, the price for Mr Salo being dropped from the Arrows team for 1999 in breach of Arrows' contractual commitment to him.^[79]
58. On 17 March 1999, Repsol SA agreed to pay Arrows $6.5 million in sponsorship for the 1999 season.
59. Mr Takagi and Mr De La Rosa were paid $221,765.62 and $392,838.58 respectively in total fees and expenses for driving for Arrows in 1999.

Note 1   Judgment, paragraph 1; Mr Walkinshaw's witness statement, paragraphs 3-5: Bl/1-2.    [Back]

Note 2   Mr Walkinshaw's witness statement paragraphs 6-7 and 18: B 1/2-3.    [Back]

Note 3   Mr Diniz's witness statement paragraph 2: B2/1-2.    [Back]

Note 4   Judgment, paragraph 9; Mr Diniz's witness statement paragraph 3:    [Back]

Note 5   Judgment paragraph 3; see also the FIA Formula One World Championship 1998 Sporting Regulations.    [Back]

Note 6   Judgment paragraph 3; see also the FIA Formula One World Championship 1998 Sporting Regulations.    [Back]

Note 7   Judgment, paragraph 4.    [Back]

Note 8   Judgment, paragraph 5.    [Back]

Note 9   Judgment, paragraph 6.    [Back]

Note 10   Judgment, paragraph 2 and 9.    [Back]

Note 11   Judgment, paragraph 7; the unchallenged evidence of Mr Huck at paragraph 3 of his witness statement: B2/5/76.    [Back]

Note 12   Judgment, paragraph 7    [Back]

Note 13   Judgment, paragraphs 8-10.    [Back]

Note 14   Judgment, paragraphs 8-10.    [Back]

Note 15   Judgment, paragraph 13; see also Transcript, Day 8, page 82, lines 15-21 (Mr Walkinshaw)    [Back]

Note 16   C1/52.    [Back]

Note 17   Ibid; C1/53.    [Back]

Note 18   Judgment, paragraph 14; Transcript, Day 8 page 84, lines 11-13 (Mr Walkinshaw).    [Back]

Note 19   C1/54.    [Back]

Note 20   Judgment, paragraph 15; Transcript, Day 5, page 89 line 16 to page 90 line 4 (Mr Coughlan).    [Back]

Note 21   Cl/83.    [Back]

Note 22   Judgment, paragraph 16.    [Back]

Note 23   C1/144.    [Back]

Note 24   According to the unchallenged evidence of Mr Huck, towards the end of 1997, Mr Diniz was contemplating leaving Arrows by reason of the non compliance with the performance criteria in the 1996 contract and the poor performance of the car and, if Mr Diniz was to stay for the 1998 and 1999 seasons, he wanted wanted stronger warranties and commitments than had been in place in the previous contract: see Mr Huck' s first witness statement at paragraphs 14 and 19: 132/79 and 82 and his second witness statement, paragraphs 15-16: B2/107-108    [Back]

Note 25   Judgment, paragraph 17.    [Back]

Note 26   A1/14-25.    [Back]

Note 27   Judgment, paragraph 20.    [Back]

Note 28   This is admitted by the Claimants: see Claimants Response 1(xi) to Defendant's Request for Clarification and Further Information of the Claimants Reply Pursuant to Part 18 CPR dated 9 August 1999 (at A1/148). See also paragraph 8 of the new Reply dated 13 June 2000 (at CMB/12/304)    [Back]

Note 29   Judgment, paragraph 22; Transcript, Day 5, page 101 line 3 to page 102 line 14.    [Back]

Note 30   Transcript Day 5 page 104, line 25 to page 105 line 19 (Mr Coughlan).    [Back]

Note 31    Judgment, paragraph 22.    [Back]

Note 32    J2/5, Transcript Day 5, page 105 line 20 to page 106 line 5 (Mr Coughlan).    [Back]

Note 33   Transcript Day 5 page 113 lines 12-25.    [Back]

Note 34   Judgment, paragraph 23.    [Back]

Note 35   J2/5.    [Back]

Note 36   Judgment, paragraph 24.    [Back]

Note 37   J2/33.    [Back]

Note 38   Judgment, paragraph 25.    [Back]

Note 39   J2/40.    [Back]

Note 40   Judgment, paragraph 26.    [Back]

Note 41   Judgment, paragraph 27.    [Back]

Note 42   A1/146; Transcript, Day 5 page 98 line 2 to page 99 line 8 (Coughlan); Day 8 page 112 line 21 to page 113 line 16 (Walkinshaw).    [Back]

Note 43   Judgment, paragraph 28.    [Back]

Note 44   J2/55    [Back]

Note 45   Judgment, paragraph 29.    [Back]

Note 46   J2/63.    [Back]

Note 47   Judgment, paragraph 30.    [Back]

Note 48   Judgment, paragraph 31.    [Back]

Note 49   J2/79    [Back]

Note 50    Judgment, paragraph 32.    [Back]

Note 51   Transcript Day 4, page 74 lines 1-3; Transcript Day 8 page 118 lines 22-25; Transcript Day 8 page 120 lines 20-23 (Walkinshaw).    [Back]

Note 52   Judgment, paragraphs 33-34.    [Back]

Note 53   Judgment, paragraph 35.    [Back]

Note 54   J2/95.    [Back]

Note 55   Judgment, paragraph 36.    [Back]

Note 56   Transcript Day 7 page 25 lines 13 to 24 (Morelli).    [Back]

Note 57    Judgment, paragraph 38.    [Back]

Note 58   Judgment, paragraph 40.    [Back]

Note 59   Judgment, paragraph 41.    [Back]

Note 60   J2/112.    [Back]

Note 61    Judgment, paragraph 42.    [Back]

Note 62   Judgment, paragraph 43    [Back]

Note 63   C2/93    [Back]

Note 64   Judgment, paragraph 44.    [Back]

Note 65   Judgment, paragraph 45    [Back]

Note 66    C2/193-216.    [Back]

Note 67   Transcript Day 8 page 144 line 1 to page 145 line 7.    [Back]

Note 68   Judgment, paragraph 63 (there is a typographical error in the judgment: the reference to Nov. 10 should be to Dec. 10).    [Back]

Note 69   Judgment, paragraph 654.    [Back]

Note 70   A1/116    [Back]

Note 71    B1/141.    [Back]

Note 72   Judgment, paragraph 67.    [Back]

Note 73   Judgment, paragraph 68.    [Back]

Note 74   D1/113-133.    [Back]

Note 75   Judgment, paragraph 69.    [Back]

Note 76   C2/298    [Back]

Note 77   Judgment, paragraph 70    [Back]

Note 78   C2/300    [Back]

Note 79   Judgment, paragraph 71.    [Back]