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How to score in force majeure – recent cases on Covid-19 related claims in England8 March 2022

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Introduction

"English courts have consistently refused to relieve a contracting party from bad bargains and the global pandemic has not changed that approach."

UK businesses faced disruption from the public health measures used to fight Covid-19 and many companies have suffered significant economic losses as a result. English courts have consistently refused to relieve a contracting party from bad bargains and the global pandemic has not changed that approach. There is no general legal principle of force majeure in English law; it can only be agreed in the express terms of a contract. The wording of such clauses varies widely and will be construed in relation to its own terms.

Two recent cases from the English courts highlight the importance of mitigating pandemic risk by the careful drafting of the relevant clauses and show how courts may reach different legal conclusions depending on the language in a contract.

[1] European Professional Club Rugby v RDA Television LLP [2022] EWHC 50 (Comm)

The claimant (“EPCR”) entered into a contract with the defendant (“RDA”) to license media rights for two European rugby competitions. The contract started in the 2018/2019 season and extended until the 2021/2022 season, with RDA paying EPCR c. US$15m in fees, together with a percentage of revenues received from sub-licences.

The contract defined force majeure as “any circumstances beyond the reasonable control of a party affecting the performance by that party of its obligations under this Agreement including […] epidemic”. Should a force majeure event occur, RDA’s fees for that season would be reduced pro-rata. Further, clause 26 (the force majeure clause) provided:

26.1. If either party is affected by a Force Majeure Event which prevents that party from performing its obligations under this Agreement, the affected party shall promptly notify the other of the nature and extent of the circumstances in question.

26.2. Subject only to clauses 1.7 of Schedule 2 and 26.3 […] neither party will be liable neither for any delay in performing its obligations nor for failure to perform its obligations under this Agreement if and to the extent that the delay or failure is caused by a Force Majeure Event […]

26.3. If either party is affected by a Force Majeure Event, it shall use all reasonable endeavours to mitigate and/or eliminate the consequences of such Force Majeure Event […]

26.4. If the Force Majeure Event prevents, hinders or delays a party’s performance of its obligations for a continuous period of more than 60 days, the party not affected by the Force Majeure Event may terminate this Agreement by giving 14 days’ written notice to the affected party.

In March 2020, EPCR postponed the quarter-final, semi-final and final matches due to the pandemic, with the intention of rescheduling them in September/October 2020 (these matches were due to be played in April/May 2020). RDA served a notice of termination pursuant to clause 26.4. ECPR alleged wrongful termination by RDA and commenced proceedings for damages. RDA counterclaimed for the return and/or adjustment of payments.

Decision

The court held that RDA was entitled to terminate the contract under clause 26.4. It was not disputed that the pandemic constituted such a force majeure event. The court rejected ECPR’s argument that since clause 26.2 exempted them from liability due to force majeure, clause 26.4 could not be triggered. It emphasised that the two clauses served distinct features: clause 26.2 was an exclusion of liability clause that meant RDA could not claim damages for breach of contract (aside from under clause 1.7), whereas clause 26.4 gave RDA the right to terminate the contract.

"Performance was delayed for more than 60 days and the conditions under the termination clause had been fulfilled."

The question was whether EPCR was delayed from performing its obligations due to a force majeure event for a period of more than 60 days, as the termination clause required. The judge concluded that the matches had to take place within the expressly agreed ‘season’, namely from 1 July 2019 to 20 June 2020. EPCR had made clear that the matches could/would not be played or rescheduled before 20 June 2020 due to the pandemic, therefore performance was delayed for more than 60 days and the conditions under the termination clause had been fulfilled.

The court rejected EPCR’s further arguments, including that RDA could not terminate because it was not “the party not affected by the force majeure event”. When reviewed against the other clause 26 provisions, the right to terminate was clearly granted to the party entitled to the performance that was prevented, hindered or delayed by the force majeure event, which was RDA, rather than the party whose performance was prevented, hindered or delayed by the force majeure event, which was EPCR. In this regard, RDA was not deprived of its right to terminate the contract, simply because it had been generally affected by the pandemic.

"RDA was not deprived of its right to terminate the contract, simply because it had been generally affected by the pandemic."

RDA’s termination notice was in line with the contractual provisions, which meant that EPCR’s claim failed and RDA succeeded in its counterclaim.

[2] Football Association Premier League Limited v PPLive Sports International Limited [2022] EWHC 38 (Comm)

The claimant (“the Premier League”) entered into two contracts granting the defendant (“PPL”) rights to broadcast live matches and highlights of Premier League football matches in China and Macau. The payments under both contracts exceeded US$700m.

Both contracts ran for three seasons, commencing from the 2019/20 season. Due to the pandemic, matches were suspended between 13 March and 14 June 2020. Later, some matches were rescheduled to weekdays, though no spectators were allowed and kick-off times were changed. PPL said this affected their viewing numbers, not least because many of the games were scheduled for the early hours of the morning on weekdays in China.

In March and June, PPL failed to pay instalments totalling more than US$200m. While the Premier League continued to provide PPL with the packages until the end of the 2019/2020 season, it subsequently terminated both contracts before the start of the following season.

"The force majeure clause did not assist PPL because the clause did not refer to epidemic or pandemic."

The Premier League then sued for the sums and asked the High Court for summary judgment (a procedure allowing judgment to be obtained quickly). In contrast to the EPCR case, the force majeure clause did not assist PPL because the clause did not refer to epidemic or pandemic. Rather, PPL defended the application on the basis that the Premier League warranted that “the format of the [Premier League season] will not undergo any fundamental change which would have a material adverse effect on the exercise of the Rights by … [PPL]”. Since there was a fundamental change to the format of the competition, PPL argued the Premier League had to enter into good faith negotiations to reduce the sums due, as provided under the wording of that clause.

The Premier League disputed that the amendments resulted in a change to the “format” of the competition, as required under the relevant clause, still less a “fundamental” one.

"The fact there were no fans at the stadiums, whilst potentially affecting the result, could not be said to change the “format” of the competition."

Decision

The High Court held that for a fundamental change to the format, under the specific wording of the contract (including the definitions and the warranty), there had to be a reduction in the number of teams to less than 18, changes to the points system and to relegation and so on. The fact there were no fans at the stadiums, whilst potentially affecting the result, could not be said to change the “format” of the competition. The matches still consisted of Team A playing against Team B.

Further, while there were changes to kick off times and fixture dates, that was something within the discretion of the Premier League and could not constitute a change to the “format” of the competition. For obvious reasons, overseas broadcasters’ input on such matters would be problematic. In addition, fixture changes in the Premier League are common, for example, at the request of the police due to a local rivalry or to cater for cup competitions, but that does not mean there is a change to the “format” of the competition.

As PPL’s defence had no real prospect of success and there was no other compelling reason for a trial, summary judgment was given and the Premier League was granted the full sums, plus interest.

"As PPL’s defence had no real prospect of success and there was no other compelling reason for a trial, summary judgment was given."

Finally, the judge made a non-binding, passing remark that if there had been a fundamental change (which there was not), there would have been an enforceable obligation for the Premier League to enter into good faith negotiations with PPL. Enforcement of such an obligation may, depending on the terms of such clauses, amount to a court preventing a party from litigating or arbitrating until the period for such negotiations had passed.

Comment

Force majeure provisions are useful tools to hedge against the inevitable complexities of the commercial venture. If the force majeure clause in the Premier League case was wider in scope (including wording such as ‘quarantine’, ‘disease’ or ‘epidemic’ or ‘any circumstances beyond the reasonable control’), then PPL would not have had to rely on the fundamental change clause and the judge may have reached a very different conclusion under the force majeure clause.

Whichever pandemic related clause a party relies upon, it is clear that English courts will not easily depart from the plain reading of the language when making sense of such clauses. Where necessary, a court will consider relevant wording in light of other provisions in the contract and apply commercial common sense (as discussed in Arnold v Britton [2015] UKSC 36). Therefore, at the time of contracting, parties should consider whether additional or bespoke wording is required throughout the contract (including incorporated contracts and in definition clauses), to ensure their position is adequately protected in the event there is a force majeure event. WFW can advise on matters relevant to the above cases, be it during the drafting stage, or when a dispute arises.

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