AUGUST 12, 2002

The legal issues surrounding Arrows

The current situation with regard to the Arrows team has highlighted once again the flaws that exist in the Concorde Agreement, the secret contract by which the sport is governed.

The current situation with regard to the Arrows team has highlighted once again the flaws that exist in the Concorde Agreement, the secret contract by which the sport is governed. The Concorde Agreement is a deal between the FIA, Formula One Management and the 12 teams engaged in F1 in 1997. One of them, Prost Grand Prix, has since disappeared.

Under the agreement FOM is contracted to pay the teams based on their appearance at all the races and on their performance (historical and actual). However this is restricted by Clause 10.3 of the Agreement to teams which participate in each event in the previous year unless prevented from doing so by "force majeure". It is up to the FIA to decide what actually constitutes "force majeure" but lack of money is not considered to be an acceptable reason. There are also penalties to be paid by any team missing an event although these can be waived by the Formula 1 Commission.

It is arguable whether negotiations for a change of ownership is acceptable as "force majeure". If the FIA rules that this is acceptable then Arrows will, in theory, be able to claim the FOM benefits in 2003. However, there is one other important issue that must be addressed and this is whether or not the team is missing a race at the same time as being insolvent. Arrows is still in business and thus cannot be said to be officially insolvent, despite the fact that the sale of the team has been made necessary by acute financial problems. Tom Walkinshaw says that the team is not insolvent.

Much will depend on the attitude of creditors because when it becomes clear that the team is not going to Hungary (and at the moment there are only rumors to this effect) there could be a move made to get the team placed in administration in an effort to recoup some of the money that is left in the team's assets. If that happens and the team does not appear in Budapest the remaining value in the team evaporates. This will be decided when scrutineering ends on Thursday.

Up until that point the rights of the team can be transferred to a new owner who can then claim force majeure because the purchase of the team occurred at a point at which it was impossible for them to get the cars to the race track in time.

The story of Arrows, therefore, is not over yet. But certainly it is fair to say that the future is not looking good.