OCA to Consider Contractual Termination Right Due to Tarnished Reputations

The Ontario Court of Appeal will consider whether a party to a sponsorship agreement can terminate the agreement where the counterparty suffers a loss of public reputation.

This case involved a sponsorship relationship between the Canadian Soccer Association and Hyundai Auto Canada Corporation. Hyundai agreed to be a sponsor of the Association, agreeing to pay annual fees for broadcast and related rights.

In late 2007, the Association suffered adverse media coverage after it hired and then within a very short period of time terminated its chief operating officer. The president of the Association resigned shortly thereafter, leading to press reports calling into question the professionalism of the Association. Ongoing turmoil within the organization was laundered in media coverage describing the Association as dysfunctional.

Following this adverse media coverage, Hyundai terminated the sponsorship relationship, arguing that the Association materially breached the agreement by engaging in conduct that had tarnished its name and reputation, thereby harming the benefit that Hyundai was entitled to receive under the agreement.

Decision Below

The Superior Court, in its decision, rejected Hyundai’s argument and found that it had breached the agreement by purporting to terminate. If reputation was so fundamental to the relationship, Hyundai should have insisted on an express provision within the sponsorship agreement requiring the Association to maintain a good reputation throughout the relationship.

Moreover, the Court focused on the fact that internal governance matters of the Association were not fundamental to the sponsorship relationship, in the sense that reputational difficulties did not relate to the promotion of soccer and the activities for which the sponsorship related.

The Court also refused to imply a term into the agreement requiring the Association to maintain a good reputation.

Potential Significance

This case will provide the Ontario Court of Appeal with an opportunity to consider whether certain contractual relationships, such as sponsorship relationships (which by their nature relate to the reputation of the sponsored company and require confidence between the parties), contain implied terms allowing the parties to terminate in the event of tarnished reputations.

Case Information

Canadian Soccer Association v. Hyundai Auto Canada Corporation, [2011] O.J. No. 672

Hearing Date:  October 12, 2011

agreement implied term material breach Ontario Court of Appeal reputation sponsorship termination

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