In the wake of Russia’s invasion of Ukraine, the American-owned Haas Formula One team cut ties with its title sponsor Uralkali. The team also cut the Russian-born Nikita Mazepin from the team, replacing him with Kevin Magnussen.
Following the dissolution of the relationship, Uralkali released statements hinting at the possibility of litigation related to the funding the company provided to Haas F1. One particular statement read: “As most of the sponsorship funding for the 2022 season has already been transferred to Haas and given that the team terminated the sponsorship agreement before the first race of the 2022 season, Haas has thus failed to perform its obligations to Uralkali for this year's season. Uralkali shall request the immediate reimbursement of the amounts received by Haas.”
Uralkali formally wrote to Haas F1 regarding these compensation claims setting forth the demands of the former sponsor. Haas, it has been reported, has formally responded to the demand outright rejecting the compensation claims and even demanding compensation of lost profits of their own.
So, what is the potential legal argument from each side?
Uralkali’s main argument is the most basic contract argument that can be made: Haas F1 breached the contract by removing Uralkali as a sponsor of the team when Uralkali had already performed their side of the contract by providing around $13 million in funding. They will also argue that Haas had no basis to terminate the contract and therefore Haas is responsible for repaying Uralkali the money that was provided to the team.
Haas articulated in a reply letter to Uralkali their argument as to why the contract was rightfully terminated. Haas also said that Uralkali’s actions caused a loss of profits for the team. Haas based these statements on a clause in the sponsorship agreement stating Uralkali shall not “injure, bring into dispute, ridicule, or lessen the public reputation, goodwill of favourable image of Haas”.
Haas claims that, Uralkali’s owner, Dmitry Mazepin’s ties to the Kremlin along with numerous EU sanctions against the company triggered this reputation clause. Haas went on to cite case law stating that the party that terminates the contract based on a breach by the other party is under no obligation to return what the party received. Using this argument, they stated they were under no obligation to return the $13 million.
The team adds that it is entitled to profits lost that the team says it would have made if the agreement with Uralkali had not been breached and subsequently terminated. Haas demanded $8 million dollars, which should be paid in a matter of about a week. Haas went on to bolster the demand by stating that it would not provide Uralkali with one of Mazepin’s 2021 Formula One car, another provision in the agreement, if the sum was not paid. Haas has also reportedly refused to pay out the salary of Nikita Mazepin following his termination.
Uralkali has been left in disbelief by the response from Haas F1 and has stated of Haas “they seem to be fine with spending Russian money - and even are asking for more - but don’t want to have any Russians around. It's a truly shocking treatment toward a title sponsor who stepped up last season when [Haas] badly needed resources and who had offered to go above and beyond the contracted amounts to provide additional bonuses to team staff to achieve better results for all involved.”
With both parties at odds, it seems to forecast impending litigation finalizing the tumultuous relationship between the two parties. Haas F1 has started off their 2022 campaign strong on the track, but impending litigation could bring unneeded distractions throughout the season.
Justin Mader is a 3L at the University of New Hampshire School of Law where he serves as Lead Articles Editor for IDEA: The Law Review of the Franklin Pierce Center for Intellectual Property. He can be reached on Twitter: @maderlaw and LinkedIn at https://www.linkedin.com/in/justin-mader-15a602119/.