COVID-19, Force Majeure, and a common-sense approach to an odd ball sport
On Saturday 9 April 2022 Ulster Rugby will travel to Toulouse for the first leg of their European Rugby Champions Cup (“ERCC”) knock-out tie. Both teams will have the chance to lock horns once again, two years after their last meeting at the knock-out stage in the competition was postponed by six months, due to COVID-19.
On 11 March 2020, the World Health Organization (“WHO”) declared that COVID-19 was a global pandemic. The Board of European Professional Club Rugby (“EPCR”), following the WHO announcement, decided to postpone all upcoming games stating the decision was made “amid growing public health concerns due to the COVID-19 pandemic“. As the world went on to find out, this would not be the only sports fixture to be postponed or cancelled due to COVID-19 over the following two years.
The decision by the EPCR to postpone the final stages of the 2019-2020 season due to the pandemic resulted in RDA Television LLP (“RDA”), who was the broadcaster engaged in a Media Rights Agreement (the “Agreement”) with EPCR, to terminate the Agreement. In turn this led to claims from EPCR that this termination was unlawful. The decision in this case was handed down earlier this year. European Professional Club Rugby v RDA Television LLP ( EWHC 50 (Comm)). The decision in this case is fact specific and highlights the importance of careful drafting when it comes to force majeure clauses. A force majeure clause is a contractual mechanism allowing a party to be relieved from liability for breach of contract if the breach is caused by an event outside the party’s control.
The principal right licensed to RDA under the Agreement was the right to transmit footage of live rugby cup matches (namely, the European Rugby Champions Cup and the European Rugby Challenge Cup). The Agreement would subsist across four consecutive seasons from 2018 to 2022.
ECPR’s obligations under the Agreement were to stage the matches each season and make these matches available to RDA for live transmission. RDA’s obligation was to make a minimum guaranteed payment to ECPR throughout each season. It was understood by all parties that RDA would sub-licence footage to a number of their broadcast partners as a means of generating revenue.
Following the outbreak of the COVID-19 pandemic, the final stages of the rugby cup matches could not conclude as planned for the 2019-2020 season. Due to the uncertainty of the pandemic and whether the matches would be able to go ahead, RDA eventually terminated the Agreement on 5th June 2020 under force majeure.
EPCR claimed this termination was unlawful and sued RDA for losses suffered due to their decision to terminate the Agreement. RDA claimed it was entitled to rely on the force majeure clause and counter claimed for the sums they paid to EPCR during the 2019-2020 season.
The Force Majeure Clause
The force majeure clause under the Agreement was as follows:
“Force Majeure Event: any circumstances beyond the reasonable control of a party affecting the performance by that party of its obligations under this Agreement including inclement weather conditions, serious fire, storm, flood, lightning, earthquake, explosion, acts of a public enemy, terrorism, war, military operations, insurrection, sabotage, civil disorder, epidemic, embargoes and labour disputes of a person other than such party”.
“26. Force Majeure
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 of this Schedule 6, 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 affecting its performance of the relevant obligations.
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 and inform the other party of the steps which it is taking and proposes to take to do so.
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.”
As set out under clause 26.4, if a party has been unable to fulfil their obligations for a continuous period of more than 60 days due to a Force Majeure Event, the other party is entitled to terminate the Agreement. This is the clause which RDA relied on when they issued their notice of termination.
‘Epidemic’ was expressly referred to in the Force Majeure Event definition and the court was satisfied that epidemic includes a ‘pandemic’ in the context of a force majeure event. The pandemic was beyond the reasonable control of the EPCU in performing their obligations under the Agreement.
There was a disagreement between the parties on how to interpret the force majeure clause. EPCR attempted to argue that as per 26.3, both parties were affected by the force majeure event and therefore both parties had to use all reasonable endeavours to mitigate or eliminate the consequences of the event, arguing that as RDA had decided to terminate prior to attempting to mitigate then their termination was invalid. In contrast, the RDA argued that 60 days had passed since the rugby matches were due to broadcast. Additionally, they added there was no reliable indication of when these matches would take place and by 5 June 2020 there was no possible way for the matches to occur before the end of the season, therefore they were entitled to terminate for force majeure.
Interpretation of the Force Majeure Clause
In addressing how exactly to interpret force majeure clauses, Judge Pelling QC highlighted the precedents set in former cases: “In arriving at the true meaning and effect of a contract, the departure point in most cases will be the language used by the parties because the parties have control over the language they use in a contract and the parties must have been specifically focussing on the issue covered by the disputed clause or clauses when agreeing the wording of that provision.”
Where there is unambiguous wording in an agreement then the court must apply it, but if there are two possible ways of interpreting a clause then the court is entitled to prefer the construction which is consistent with business common sense. Commercial common sense is to be determined subjectively, by considering how matters would have been perceived by reasonable people in the same position as EPCU and RDA. It was also highlighted that it is not the function of the court to relieve a party from a bad bargain when interpreting an agreement.
The court concluded that EPCU’s argument was a commercially absurd interpretation of force majeure and, “the wording of the force majeure clause is not construed in a way as to deprive the parties of recourse when both parties are affected by the force majeure event.” Instead clause 26.3 merely imposes an obligation to use all reasonable endeavours to mitigate or eliminate the consequences of the force majeure event which is preventing performance of the contracted obligations. It does not create a pre-requisite to termination.
EPCR alleged that RDA were motivated to terminate as they were dissatisfied with the commercial terms set out in the Agreement. EPCR claimed the termination was a ‘threat’ and the RDA were underhandedly attempting to pressure them into re-negotiating financial terms. This was not accepted by the court who asserted that RDA were fully entitled to terminate by way of Force Majeure.
If EPCU had been correct in their prediction, the fact would still be immaterial in bolstering EPCU’s claim. Further, the court concluded that it would likely be the case that RDA might hope to negotiate revised terms and if they did, it would not invalidate their right to terminate under the Force Majeure clause in the Agreement.
This case is a helpful summary and reminder of the principles that courts will apply when interpreting force majeure clauses in contracts. In terms of points to note for those involved in drafting and negotiating contracts it is worth remembering the following:
- Force Majeure clauses are not implied as a matter of law, if the parties wish this protection to apply they must draft a specific clause to cover the circumstances they are concerned about;
- Force Majeure has no established meaning as a matter of law, rather the context depends on the words used in the actual contract;
- While COVID-19 was held to fall within the scope of the Force Majeure clause in this case, there is no guarantee that that will be the case in all contracts, the specific drafting of the relevant clause will need to be reviewed; and
- The specific language used in this case, “beyond the reasonable control of a party” is potentially very wide in relation to the scope of Force Majeure events that it covers and if this language is used needs to be carefully considered by the parties.
If you have any queries or questions concerning the points raised in this note, or the terms of your contracts generally, please get in touch with a member of our Corporate Commercial team, who would be happy to help.