How solid is FOTA’s legal argument? A lawyer looks at the FIA-Ferrari letters

Ferrari's Luca di Montezemolo and the FIA's Max Mosley are both lawyers

Ferrari's Luca di Montezemolo and the FIA's Max Mosley are both lawyers

What should we make of the legal letters sent between Ferrari and the FIA, which were made public by Max Mosley last week?

The FIA give the impression that Ferrari’s case is flimsy and full of holes, but the Ferrari representatives hit back that the FIA have failed to address the substance of the matter.

It’s fairly technical stuff but it could have a significant bearing on the next phase of the FIA-FOTA row. Not being a legal expert, I thought it would be useful to get a lawyer’s opinion on the letters. Here’s what he had to say after reading the exchange of letters:

“I’ve had a look at the Ferrari – FIA correspondence and done a bit of Googling. Interesting stuff. Its impossible to work out exactly what is going on without being able to see the actual contractual documents they are talking about. Obviously, its a very complicated dispute.

“Looking at the correspondence, what does come across is that the FIA letters seem more directed towards their media image than actually addressing the legal points made by Ferrari. Although the letters have the facade of presenting a legal argument, they do not actually present much in the way of good legal points, and a lot of their allegations about Ferrari’s position altering or being contradictory seem unfair to me. Ferrari’s letters were much more to the point and cogent legally.

“It also seems that Ferrari have a very strong case for believing they are entitled to veto the 2010 regulations. The French court view at first instance appears to have accepted this at least, which is a strong indicator that Ferrari are right. Obviously France is not a jurisdiction I understand much about, but I have gathered Ferrari were effectively seeking an interim injunction restraining the FIA from taking further steps in implementing the 2010 regulations. Getting such injunctions is broadly about demonstrating two things – that the matter is urgent (because imminent harm will occur to the applicant if the injunction is not granted), and that there is a certain percentage chance of the applicant succeeding were the matter to go to a final trial (though I do not at what standard the threshold test would be set in France).

“What is key to note is that whether or not an injunction is granted, there is no final decision in France as to whether or not Ferrari are right (plus, what is finally decided in France may not be the last word on what is decided in other jurisdictions, although the existence of any final French judgement would be highly relevant in any related proceedings brought elsewhere). Furthermore, it appears there has been no final decision even on the injunction point yet – it seems there is some appeal route for Ferrari, although I don’t know what it is or whether they are pursuing it. It seems though that there may still be a chance of Ferrari getting the injunction in France.

“The court in Paris seems to have taken some point against Ferrari regarding when they exercised the veto, particularly the fact that Ferrari did not exercise it at the WMSC meeting. It’s unclear whether the point the court was making is that the veto may only be exercised at a certain time otherwise it is lost/waived, or whether because Ferrari exercised the veto relatively late, that indicated that on the facts there was insufficient urgency/it was implicit that Ferrari would not suffer damage in the immediate future. On the former argument, which would be a substantive point affecting the ultimate outcome, Ferrari appear from the correspondence to argue that there was no effective way/mechanism to exercise a veto at the WMSC meeting and therefore their veto right cannot be lost by a failure to exercise it there. That depends on the facts obviously, but if the facts support Ferrari the legal argument is again strong.

“It is much harder to tell who is right about whether Ferrari are contractually obliged to compete in Formula 1 next year. To some extent this appears to be interrelated with whether the FIA are entitled to impose the 2010 regulations and whether Ferrari can veto them. The French proceedings have no bearing on this (save to the very limited extent they give an indication on the veto point).

“What is clear is that it is extremely difficult to effectively injunct someone to compete in an F1 championship – that is a tough order for any court to effectively enforce/supervise, and so I think its very unlikely any court in the world would grant such an injunction. What that probably means is that both Ferrari and the FIA know that as between them, what is at stake if Ferrari do withdraw is a very long and costly legal battle to determine whether Ferrari must pay any damages to the FIA. I doubt therefore whether this legal issue is a major consideration (although it must be a factor) in Ferrari’s ultimate decision to take part or not.

“For what it’s worth, it looks to me as though certain things are still up in the air which those concerned would like to be clear on at this stage, and therefore it’s too soon for an agreed solution. Whatever posturing both sides get up to around now (including publishing the final entry list), I predict a negotiated settlement inside about the next six weeks, with a single F1 championship continuing.”

I offer this as a starting point for a discussion and it would be especially interesting to hear if other legal minds have a view that tallies – or not – with the one expressed above.

You can download the correspondence in full from the FIA’s website.

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44 comments on How solid is FOTA’s legal argument? A lawyer looks at the FIA-Ferrari letters

  1. Sei said on 22nd June 2009, 12:46

    Interesting.. I do know that ordering recurring specific performance is not something that courts like to impose on parties. Injunctions stopping that party from going elsewhere is another matter. Ferrari might not have to compete in the FIA’s F1 series but the FIA may be able to get an injunction preventing them from competing in the FOTA breakaway.

    • Nik said on 22nd June 2009, 17:04

      I seriously doubt that the Ferrari/FOM agreement has any stipulation in it that does not allow Ferrari to race in any other motorsport. F1 does not have an exclusive contract with Ferrari, so there is no way for them to force Ferrari out of a FOTA series (or same way there is no way for anybody to force Ferrari into an FIA series).

      Ferrari simply argue that the FIA took the rules too far and that in the new form it is no longer the F1 they signed up for.

      For instance, the FIA can change F1 rules so that it is a competition between three-wheeled cars. The teams can pull out (and these provisions would exist) citing that it simply isn’t in their interest any more to compete in that form of motorsport.

      As for the Ferrari veto, they missed their opportunity because the meeting was called to hear the Maclaren lie-gate case. The funny thing is that on the morning of the meeting a spokesperson for Ferrari actually said to a reporter ‘i hope they don’t sneak in a vote about the budget cap’, which is exactly what they did. You would think somebody from Ferrari would bother to show up to the meeting in case they did..

      I believe in the end that FOTA will prevail with a new series and the FIA won’t even bother running their F1 because they won’t have enough teams. Bernie will be squeezed out while the FIA will eventually come back around under new leadership .. FOTA have far too much leverage to go back to the Max/Bernie show .. and they have no real reason for doing so.

  2. Erico said on 22nd June 2009, 12:51

    I am also not a Legal one, but imagine, for 2010 Ferrari decides to make mockery of “F1″ (and avoid legal battles) by entering some “Donkey Ferrari car” on FIA-F1 championship while at same time entering their real “Horse Ferrari” in FOTA championship side.

  3. CJD said on 22nd June 2009, 12:57

    Brilliant stuff, thank you very much.
    I read somewhere that Ferrari have now taken the normal approach in a commercial contract dispute of invoking the arbitration clause and have selected Switzerland as the battleground outside the reach of the EC.

    I wonder if the kind expert would consider the implications of this and also how European law would have reacted to a contract which seems to give an unfair advantage to a competitor. Is it possible that the courts may have declined to support such a contract.

  4. Bigbadderboom said on 22nd June 2009, 12:59

    Well I feel more informed at least, I wonder if it is possible for any teams to “Buy” their way out of any contractual obligations, for instance, could Force India return paid moneys to CVC and compensate FOM to be free to compete in a rival league, likewise for Red Bull, Torro Rosso or Ferrari.
    Also on a legal point I wonder how watertight is the claim that the FIA have rights to call any series a world championship, I have heard the FIA making legal threats over the teams forming a Cartel and thus restricting free trade, but can not the argument be made in reverse to argue that FIA are also operating a cartel and also restricting free trade by making concealed threats to its member countries about supporting a new breakaway series?
    Another legal question I would like some ligh shed on is, How valid are FOM’s contracts with the individual broacast rights holders if a breakaway series is formed, as most of the attractive components will be missing, ie Jenson and Lewis McLaren/Brawn for the BBC and Ferrari for SKY Italia??

    More questions than any answers, but I would like a better understanding, I wonder how likely the breakaway series would be to succeed. Keiths lawyers article has persuaded me (or assured me) that the most likely outcome is a compromise, but I think that we need to understand other issues to be able to judge the situation in its entirety.

  5. PJA said on 22nd June 2009, 13:10

    “Looking at the correspondence, what does come across is that the FIA letters seem more directed towards their media image than actually addressing the legal points made by Ferrari.”

    I have no knowledge of the law but I also got the impression that the FIA’s statements were more about winning the PR battle, but then Mosley is a politician as well as a lawyer.

  6. Bartholomew said on 22nd June 2009, 13:16

    Very interesting, thanks Keith for getting the expert advice.
    It is fascinating how well a lawyer can put complex issues into clear writing.
    cheers !

  7. Not to mock the article, but a legal person looking at mere letters sent by the FIA and Ferrari is not the interesting bit. It would be far more interesting to have the underlying contracts based upon wich both parties claim to be right.

  8. Daniel said on 22nd June 2009, 13:53

    I’m not a specialist, but, anyway, I could say it’s a good point on the TV contracts, but probably they’re full of clauses that protect FOM from short-term decisions of the local TVs (in an extreme example, a Polish TV could consider stopping its F1 coverage if Kubica, disappointed by BMW’s poor performances, switched to Indycars) and that would keep them valid even in the case of a breakaway series…

    On the other hand, if that happened, probably a Court could could grant the local holders a discount or other compensations for broadcasting a weakened championship, since it was a completely unpredictable situation, when they signed the contract, for which they can’t be blamed…

    • jockmcspredder said on 22nd June 2009, 19:21

      On TV rights, if the FOTA breakaway happens, I hope that the team principals will give thought to the many fans who rely on Freeview and have no wish to pay for sport from other (satellite) services.

  9. WidowFactory said on 22nd June 2009, 13:58

    Thanks for the article, very interesting.

    I think Mosley has already realised he has a flimsy legal case, due to his frantic back peddling after the British GP.

    It would be a shame if the breakaway didn’t happen now, I think the only people not in favour of it are Max and Bernie.

  10. Sush Meerkat said on 22nd June 2009, 13:59

    the plot thickens.

    • Bigbadderboom said on 22nd June 2009, 14:40

      How reliable is that report? it’s not quoted Max as saying the FIA will not take legal action.I’m sure he is waiting until the WMSC meeting on Wednesday/Thursday to get a view on his support. I think he is much more aware that his position is weakening and maybe losing support amongst his peers.

  11. F1 Outsider said on 22nd June 2009, 14:46

    My understanding of all this legal mumbo-jumbo is about as good as a child’s understanding of international politics.

    I understand that some TV stations have clauses in their contract that if Ferrari doesn’t race, then it’s null & void. I also understand that the organizers for the Monaco GP have stated that if there’s no Ferrari, then they won’t hold the race.

  12. Poor old Max is back peddaling as fast as his massive ego will allow. Especially when Bernie states he will not allow F1 to be destroyed by “minor” differences. You can bet your last dollar Bernie is working feverishly, hand in hand with FOTA, to have Max deposed at the upcoming WMSC.

    Given the choice of an endorsement of Max or the 8 top teams in F1 leaving to form a new series, which way do you think the WMSC delegates will vote, if given the chance?

  13. Mussolini's pet cat said on 22nd June 2009, 15:06

    This is an unwanted twist to the whole fiasco.

    • Tom Watson said on 22nd June 2009, 15:28

      I hope that is just speculation with no truth behind it.

    • PJA said on 22nd June 2009, 16:53

      If FOTA want the new series to rival F1 and to be a success they have to make sure it is live and on free to air TV.

      • Mussolini's pet cat said on 22nd June 2009, 18:35

        You’d have thought, but then again who can tell…..

        • smiggs said on 22nd June 2009, 21:55

          The only reason F1 has mostly fta coverage is because sponsors and manufacturers want exposure to as many people as possible. If no broadcaster is interested in paying, they will gift the coverage to whoever will give them maximum exposure and produce a world feed with commentary and presentation.

          Whatever they get for 1 year’s coverage from Sky is pittance to the value of the sponsorship and brand exposure they would have from establishing a series entirely in control of the entrants. Remember apart from some notable exceptions (Williams, Force India, the drivers) F1 is primarily a marketing exercise.

          You’re more likely to see FIA F1 on Sky next year after the split as what limited value left would be in the actual sporting spectacle.

  14. al_amana said on 22nd June 2009, 15:07

    Interesting to see that the lawyer has focussed his analysis around the issue of the veto which wasn’t (or couldn’t be!) used at the WMSC. The reason I say this is because for all the talk of legal action possible, to obtain compensation in the case of a breakaway, by the FIA, I would also like to suggest that teams like Ferrari (for example) stand to also lose out if the FIA were to impose these regulations for 2010 and Ferrari were forced to compete under those regulations. In other words, it may be sufficient enough a reason that Ferrari and other FOTA members don’t agree with the “proposed” regulations and hence are well within their right to choose to withdraw from the FIA regulated championship.

    Another question, which I guess has been alluded to by Keith’s lawyer (sounds weird) is the strength of the contract/s in so far as, when a team signs to part take in the FIA regulated championship to what degree can rules be altered before they become unacceptable for the teams to basically say “this isn’t what we signed up for” and pull out. I can’t imagine all the FOTA teams being that naive to simply sign a contract that was that tight that if the FIA does something deemed to be inappropriate that they couldn’t just pull out. Surely Max isn’t that much of an enigma!

    • MacademiaNut said on 22nd June 2009, 18:22

      It’s exactly what you said – that Ferrari is using it as their argument. FIA has changed the rules so much, that they now cannot force them to participate in next year’s championship. If it goes to court, I am sure there’s a line of argument that Ferrari will make: If FIA wants force FOTA members to participate in F1, they should keep the rules as they were last agreed upon (which is the 2009 rules).

      It is really sad to see that Max, who was brought in to mediate a negotiation, is the one who is utterly destroying the sport.

      • phil c said on 23rd June 2009, 3:51

        Also to ad to this,the FIA have not followed there own rules regarding the implementation of rules. If they were to follow the concorde agreement rules need to be agreed amongst the teams. This was never the case, therefore they are in breach of there own policies.

        • GB2009 said on 23rd June 2009, 7:33

          The concorde agreement is currently not applicable. It expired at the end of 06 (I think), and teams have either been sticking to an ‘in principle’ agreement with FOM, or sigingi individual contracts (ala Ferrari and Red Bull, and reading ebtween the lines, they got more money for doing so)…

          So this argument (unfortunately) wouldn’t stand up in court.

          • al_amana said on 23rd June 2009, 8:12

            Just to clarify. You are commenting on the concorde agreement GB2009? Because my point is in relation to any contract (if any) that may are may not be disputed. I am purely saying that there seems to be a case that the FIA has to answer for. That being the regulations that were agreed to when contracts were signed. I can’t imagine there not being a “get out” clause if regulation changes become unacceptable or the team/s can prove that they will cost them. I think these types of clauses stand up in court?

  15. Thanks for putting up this commentary, Keith. As someone with a legal background, I really appreciate that a site is making an effort to delve into a discussion on this side of the issue.

    My assessment (and in fact the analysis I have given amongst friends) is almost identical to what your lawyer has posted. It is very difficult to go much further though because, as mentioned, we don’t have specifics.

    However, I would like to get his opinion, if you can, on Mosley’s comments initially announcing that the FIA were taking legal action against FOTA and Ferrari in particular. I too agree that the comments from the FIA have been less legally cogent, but those in particular I saw as extremely loaded and pointed – in fact, nothing like what would have been written by a lawyer. I actually thought that they could be considered libelous. The fact that Mosley is a lawyer and still endorsed them surprised me.

    In addition, I wondered about his thoughts on Mosley’s comments about FOTA’s actions being contrary to EU competition law. I would argue that either EU competition law is irrelevant under the circumstances as the parties involved and organisation is not covered by them or, alternatively, that they are in fact supported by EU competition law because they provide competition to the existing series. I have also heard mention that Mosley could be refering to them operating as a cartel, but I can’t see that FOTA fit that definition. It has left me scratching my head a bit.

    Once again, thanks for this article.

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