New Zealand Rugby (“NZR”) has today announced that it is taking legal action against British petrochemical company, INEOS, over an alleged breach of a sponsorship agreement.
In 2021, the parties entered into an agreement under which INEOS (the co-owners of Manchester United and backers of Britain’s America’s Cup sailing team) would become a major sponsor of the All Blacks and the Black Ferns. The deal is reportedly worth NZ$8 million a year and was due to run for six years from 2022.
However, according to NZR’s statement, INEOS has failed to pay the first instalment of its 2025 sponsorship fee and has decided to “walk away” from the deal three years early.
INEOS has not denied the allegation of failing to pay but has instead released a statement referring to its decision to “implement cost-saving measures” as a result of economic challenges in Europe.
INEOS claims that it “sought to reach a sensible agreement with the All Blacks to adjust our sponsorship in light of these challenges”.
This does not seem much of a defence.[1]
On the contrary, it would seem to be an admission that INEOS simply no longer wishes to comply with the terms of the contract it agreed back in 2021. Whilst there may be more to it than meets the eye, based merely on the parties’ respective public statements, INEOS would seem to be in breach of contract.
Indeed, NZR’s statement indicates that NZR is treating INEOS’ failure to pay as a repudiatory breach – i.e., a breach which evinces an intention no longer to be bound by the contract, and which thus gives the innocent party the right to terminate the contract (and to sue for damages). Notably, NZR says that it is now seeking alternative sponsorship.
Whilst a failure to pay will not always amount to a repudiatory breach, if INEOS has made clear that it no longer intends to comply with the contract (as its public statement suggests), NZR would seem to be within its rights to terminate the sponsorship agreement and sue for damages.[2]
The damages claim would primarily be for the remaining value of the contract (NZ$24 million), in addition to the monetary value of any other benefits NZR were entitled to from INEOS. However, NZR will be subject to an obligation to mitigate its losses, meaning that it will need to act reasonably to minimise the impact of INEOS’ breach of contract. This may include, for example, taking steps to obtain alternative sponsorship (as NZR appears to be doing).
Ultimately, damages for breach of contract are compensatory – a court will not allow the innocent party to profit from the breach; it will only be put in the position that it would have been in had the contract been properly performed. Therefore, whilst NZR should be able to recover the costs of finding alternative sponsorship, any such alternative sponsorship revenue will be deducted from the total claim.
If NZR instead rejected INEOS’ apparent repudiation of the contract, it would be entitled to insist on INEOS performing the contract in full and could then straightforwardly claim the outstanding sums as a debt, without needing to worry about mitigation. This could be more profitable. However, it seems that a decision has been taken by NZR to part ways with INEOS and end the agreement.
It therefore seems that the quantum of damages will be the primary battleground in this case.
Indeed, the doctrine of mitigation may well underpin INEOS’ legal strategy – to settle the claim for less than the remaining value of the contract and thus achieve its cost-saving objective.
It is a strategy which is unlikely to endear INEOS to the public or to other rights-holders in sport, but it seems likely to work in purely numerical terms, as NZR will, presumably, not struggle to conclude an alternative sponsorship deal (though it may not be as lucrative as the INEOS contract). INEOS would then just need to pick up any shortfall.
Given the legal costs which will mount on both sides of any litigation – which are typically not recoverable in full – a settlement in a dispute of this nature seems likely. However, it will likely take some time.
Article by Ben Cisneros. Ben is an Associate at Morgan Sports Law with a dedicated rugby practice. This article reflects only the author’s personal views. Please email ben.cisneros@morgansl.com with any enquiries.
Footnotes
[1] It remains to be seen where any legal proceedings may be brought – whether in the courts of England, New Zealand or elsewhere – and which national law the dispute is subject to. However, given that INEOS is based in London and NZR is based in New Zealand, it seems likely that common law principles will apply. This article thus proceeds on that basis.
[2] If the position is more nuanced, INEOS might argue that NZR had no right to terminate and could counter-sue for breach of contract itself.