Interesting Analysis by Autosport

This appears in Autosport.com


Analysis: Last Tangle in Paris

By Thomas O'Keefe Wednesday, July 25th 2007, 19:15 GMT


Tomorrow's FIA World Motor Sport Council hearing in Paris poses unprecedented legal questions for the governing body and defendants McLaren. Lawyer Thomas O'Keefe, who studied the FIA judicial system over the years, analyses the challenges and potential outcomes of this case

Are you looking for the guilty party in the spying scandal surrounding Ferrari and McLaren?

Easy. It is all Michael Schumacher's fault. If he had not announced his retirement from Ferrari last year, none of what has transpired in this sordid affair would have happened.

Instead of fly-fishing through middle age and traveling the world on sabbatical as he is now, Ross Brawn would have been under an umbrella at the Nurburgring last weekend munching on a banana, figuring out how to win the "wet" race, working on Schumacher's eighth world drivers championship.

Nigel Stepney would have been right there next to him earlier in the race weekend, as Brawn and Stepney drilled the mechanics in practice pitstops, in the pitlane, stopwatches in hand, Stepney uttering "Bene, Bene" when the boys did well.

We would never even have read about Mike Coughlan (or his wife Trudy, ex-Tyrrell): who knew McLaren had such an anonymous Chief Designer? And who knew that the copy service companies in Surrey were peopled by embedded Tifosi whistle-blowers?

Beyond Schumacher, all the others are claiming their innocence. Stepney has flatly denied ever sending to his friend Coughlan the 780 pages of purloined Ferrari drawings and other technical papers. Coughlan, in turn, could not deny the fact that he held those documents, but whether or not he shared them with others at McLaren is key to this whole affair.

By Thursday night, though, the speculation as to McLaren's fate under the auspices of the FIA will all be over. If history is our guide, McLaren are in for a shellacking, and the only question is the degree of punishment that will be imposed on the team.

Respondeat Superior

In Latin, Respondeat Superior means "let the master answer", and as a legal doctrine in common law countries, it is used to impose liability on an employer for the negligence or other misdeeds of an employee, acting within the scope of his or her employment.

This is the rub in these respondeat superior cases, however: was the employee acting within the ambit of his job when things went wrong, or was the employee an "agent on a frolic", as lawyers put it, for whom the employer was no longer responsible.

In modern times, this ancient common law doctrine has evolved in regulated industries to impose liability on an employer for actions that are not, strictly speaking, within the scope of an employee's position. This is because, for policy reasons, regulators have concluded that to impose employer liability for an employee's actions helps promote overall compliance with the objective of the industry being regulated.

To be less abstract, the best example is the brokerage industry in the United States, regulated by the Securities Exchange Commission (the "SEC"), where the owners of an investment firm are subject to what is called "controlling person" liability for the actions of agents like its brokers, who act on receipt of material non-public information.

The SEC uses its enforcement powers to impose controlling person liability on the owners of the investment houses to promote the policies and objectives of the SEC, which include protection of investors and the integrity of the capital markets.

In several celebrated cases and private civil litigation, the brokerage firms have been held liable for the behavior of their brokers, even though the firm did not benefit from the transactions at issue.

In one case in 1992, the SEC provided guidelines to financial executives in the brokerage firms, and commentators have synthesized the learning in these leading SEC cases to stand for the following principles, drawn from that 1992 case:

"It is imperative, especially in large organisations, that those in supervisory positions exercise particular vigilance when indications of irregularity reach their attention.

"It is important for those in supervisory positions to take prompt action, in the face of credible claims of wrongdoing by an individual employee, to place limitations on the employee's powers and responsibilities with a view toward preventing future acts of misconduct.

[...]

"Once those in supervisory positions become aware of the wrongdoing, it is imperative that they take prompt and unequivocal actions to define the responsibilities of those who are responding to the wrongdoing."

In effect, in implementing this "failure to supervise" doctrine, the SEC has enlisted the entities it regulates to augment and assist the SEC in the enforcement of its rules, some of which are intended to root out dishonesty in the securities markets.

Because of the significant sanctions involved, the brokerage houses have gotten on board and have developed their own internal compliance procedures to run herd on their employees to forestall "controlling person" liability that would otherwise be imposed on the firms for "failure to supervise" their miscreant employees.

The FIA's Controlling Person Doctrine

Moving from the common law respondeat superior doctrine to the FIA's International Sporting Code and the Formula One regulations, we find that the FIA has a full arsenal of "controlling person" enforcement powers, including, most specifically, Article 3.1 of the Formula One Sporting Regulations, which states as follows:

"It is the competitor's responsibility to ensure that all persons concerned by his entry observe all the requirements of the Agreement, the Code, the Technical Regulations and the Sporting Regulations."

In addition, Appendix 2 of the Entry Form for the F1 Sporting Regulations, contains the following undertaking:

"We confirm that we have read and understand the provisions of the International Sporting Code, the 1998 Concorde Agreement (including its Schedules), the 2007 Formula One Technical Regulations and the 2007 Formula One Sporting Regulations. We agree to be bound by them [...] and further we agree on our own behalf and on behalf of everyone associated with our participation in the 2007 FIA Formula One World Championship to observe them."

This acknowledgement makes the team responsible for the actions of their employees. The FIA has been emphatic that its jurisdiction is over the "teams", not necessarily the individual employees of the team, so its enforcement powers are exercised against the teams.

Earlier this month, in the wake of the disclosures about Mike Coughlan having Ferrari materials in his possession, the FIA began investigating the affair. Just a few days later, the FIA announced an Extraordinary Meeting of the World Motor Sports Council, where representatives of McLaren have been requested to appear, to answer the following charge:

"...that between March and July 2007, in breach of Article 151c of the International Sporting Code, Vodafone McLaren Mercedes had unauthorized possession of documents and confidential information belonging to Scuderia Ferrari Marlboro, including information that could be used to design, engineer, build, check, test, develop and/or run a 2007 Ferrari Formula One car."

Section 151c states that "any fraudulent conduct or any act prejudicial to the interests of any competition or to the interest of motor sports generally" shall be deemed a breach of the rules.

What evidence will be before the World Motor Sport Council? In their defense, McLaren presented a dossier to the FIA that the team are convinced will vindicate them of any wrongdoing.

The FIA, in turn, also has information supplied to the World Motor Sports Council on a confidential basis with the consent of the English High Court, including the affidavit of Mike Coughlan.

And, it is apparent from the strictness of prior enforcement actions taken by the World Motor Sport Council and precedents from the International Court of Appeal (to which the decisions of the World Motor Sport Council are appeal-able), that the World Motor Sport Council will make short work of this case. The only question will be whether the International Court of Appeal will lessen the sanctions on appeal - which has sometimes (but not often) happened.

Prior Sanctions

Alfred Lord Tennyson once called the Law "a wilderness of single instances" and it is true in this McLaren/Ferrari case as well: there is no bright-line precedent on the books that gives us a sure basis for predicting the outcome, so we can only reason by analogy from existing precedents applied to other fact patterns.

In the most recent monetary penalty FIA case, the World Motor Sport Council thought nothing of imposing a hefty US $5 million against the National Sporting Authority of Turkey for the stunt of using the podium ceremony for Turkish/Northern Cypriot political purposes. The fine was later lowered in order not to bankrupt all concerned, but the sanction so destabilized the situation that Bernie Ecclestone stepped in to take over the Turkish GP.

Speaking of podium ceremonies, when Michael Schumacher made a mockery of the podium ceremony after the 2002 Austrian Grand Prix, the FIA levied a fine of US $1 million, one-half payable immediately, and one-half payable only if a similar offense occurred within the following year.

It therefore goes without saying that McLaren will be fined heavily if the charges against them are proved, probably in the millions.

But money aside, there is a real fear of disqualification for both the team and their drivers.

In the International Sporting Code, Article 153, there is a special rule for disqualification that states: "For the FIA Formula One World Championship and the FIA World Rally Championship, a penalty consisting of the withdrawal of points over the whole of the Championship may be imposed."

In a recent case involving the 2006 CIK-FIA World Karting Championship, the FIA International Court of Appeal handed down an ultimate penalty in a situation where the competitor, Vortex SRI, an Italian kart team, had violated several rules, including having more than one mechanic work on the kart, as well as doing unauthorised work on the kart (other than changing wheels or verification of tyre pressure).

Result? In a decision rendered just last December, Francesco Antonucci and his team, Vortex SRI, were excluded from the 2006 CIK-FIA World Karting Championship.

In a recent Rally case, the FIA International Court of Appeal excluded competitor Per-Gunnar Andersson from an event in the 2006 FIA Junior World Rally Championship, when the Stewards reported that Andersson's car "entered a light fitting zone and that team's mechanic had carried out works which were not permitted within that zone."

When does the FIA tend to resort to the ultimate sanctions in a Formula One setting?

In the celebrated case involving Michael Schumacher in the context of the 1994 World Championship, Schumacher was disqualified from two races for ignoring the black flag for three laps in the 1994 British Grand Prix. Of course, Schumacher still won the 1994 world championship. This is one of the rare cases where a driver's "personal responsibility" for his actions on the track was highlighted as the basis for this very stiff sanction.

In tomorrow's case, however, the personal responsibility of the drivers is not in question, and therefore a two-race exclusion is probably too draconian an outcome.

An example where no race disqualifications happened was the 2005 United States Grand Prix, where the seven Michelin runners were found "guilty" of failing to ensure they were "in possession of suitable tyres," and yet, in the end, no further sanctions were imposed on the teams.

A more recent two-race exclusion was imposed on BAR-Honda during the 2005 world championship, when the gas tank on the Honda was found to be against regulations.

In this case, although the drivers presumably had no personal responsibility for the out-of-spec gas tank, the two-race exclusion hurt both the team and the drivers in their respective championships.

On the other hand, though rare, it has happened before that a team were punished but their drivers were spared.

In the 1995 Brazilian Grand Prix, Michael Schumacher, then driving for Benetton-Renault, and David Coulthard, driving for Williams-Renault, were initially disqualified post-race by the stewards of the meeting because the Elf fuel "fingerprint" - the fuel submitted by Elf pre-race - did not match the fuel in the Benetton and Williams cars post-race.

As it happened, Schumacher had finished first and Coulthard second in that race. Upon appeal, the FIA Court of Appeal somewhat unusually made a distinction between the team's culpability and the driver's, and also took into account that although the fuel was out of spec "no advantage was given to the drivers or the cars in terms of performance."

FIA president Max Mosley, in commenting on this 1995 Elf fuel case at the time, stated that "It would be open to the court of appeal to say, should they so decide, that the penalty (imposed by the stewards) was excessive.

"They can do anything. They have complete liberty. But in the usual traditions of motor racing, the innocent mistake that takes you outside the regulations always result in you being excluded."

In the Elf case, after the Court of Appeal decision overruled the stewards and reinstated the drivers, Max Mosley explained the rationale for making the distinction:

"The point was the fuel was legal in the sense that had it been submitted for inspection before the race, it would have been perfectly all right. The offence was to run the fuel without first submitting it. As the fuel was legal in itself, it did not seem right to penalise the drivers."

Could the same distinction be made in tomorrow's case, with Fernando Alonso and Lewis Hamilton unaffected while their team penalised?

Conclusion

Most likely, tomorrow's hearing at Paris is just the first step in the legal process, with McLaren not likely to accept any form of punishment for a charge they refuse to accept.

The FIA's World Motor Sport Council, however, could well impose a multi-million dollar fine, perhaps taking away constructors points or even handing down a two-race exclusion from the world championship.

Any of this will be swiftly followed by a McLaren appeal to the International Court of Appeal, where the elements of sanctions could yet be changed - for example, a fine cut in half (like with Turkey) or a points penalty for the team but not for the drivers (like with the 1995 Brazilian GP).

Should the case go that far, Ron Dennis will have a decision to make: whether or not to appeal further from the FIA's court to McLaren's national court, which in this case is the High Court in London, where all this began, when Ferrari brought its initial Stepneygate proceeding.

 

While the beginning of the article is somewhat tongue in cheek, it is not out of the realm of possibility. MS has been very quiet other than to say that he knows more than what has been reported. We know that MS is good friends with NS. We know that both MS and NS are less than pleased with Ferrari, one having been edged out of the team, the other passed over. It is not illegal for NS to have said document and NS has stated that the document that MC received did not come from him.

Let's see, MC a head designer with Ferrari documents, NS a Former Bennetton mech turned Technical Manager who moved to Ferrari with MS, and MS a driver who still might like to drive. If one were to put all three together, it might make a very tempting package for Honda or any other team with the finances to build a competitive car for a competitive driver.
I would hope that it would not be true but it is food for thought.

 

I think this is very very far fetched..

 

Ross Brawn is available as well.
I believe Honda is serious about F1 it just doesnt know where to turn.

 

oh, please: every thing was MS' fault even now that he drives near the arenas.....

personal responsibility: look to MM, and those that passed, took and messed with corporate data.