Commercial Disputes - What's New? May 2022
In two recent cases the High Court has considered the contractual positions where sports competition organisers, due to the COVID-19 pandemic, were unable to hold live events and were therefore unable to provide their broadcast partners with contractually agreed media rights.
This update illustrates how similar factual circumstances can give rise to very different results depending on the protections the parties were able to negotiate and agree at the time they signed their contracts.
In the first case, the broadcaster successfully relied on a wide force majeure clause. A force majeure clause is one which suspends or excuses performance of contractual obligations because of the occurrence of an identified event e.g. war, government interference, industrial action or a global pandemic. Like any other contractual clause the precise effect of a force majeure clause will depend on its drafting, and the clause will be construed by the Courts subject to the usual legal principles of construction.
In the second case, where the force majeure clause was drafted more restrictively the broadcaster relied upon, unsuccessfully as it turned out, a separate ‘material adverse effect’ clause.
In the first case mentioned above, the broadcaster, RDA Television (RDA) had entered into a media rights agreement with European Professional Club Rugby (EPCR) relating to the screening of European club rugby competitions which were cancelled as a result of the pandemic. The High Court held that RDA was entitled to terminate the agreement as the postponement of the play off stages of the 2019-20 Champions Cup and Challenge Cup by reason of the Covid-19 pandemic was a force majeure event.
The relevant clause in the agreement provided that, if a force majeure event prevented, hindered or delayed performance by a party of its obligations for a continuous period of more than 60 days, the “party not affected by the force majeure event” could terminate the agreement on 14 days’ written notice. First, the court found that the clause was triggered, because the COVID-19 pandemic amounted to an "epidemic" as defined in the force majeure clause and the clause was drafted non-exhaustively.
Second, the court found that RDA was entitled to terminate the agreement given that 60 continuous days had passed without EPCR making the playoff matches available for live transmission.
In contrast to the RDA/EPCR case above, the High Court in this second case held that disruptions caused by the Covid-19 Pandemic were not a ‘material adverse change’ in a contract for Premier League broadcasting rights. Neither party in this case sought to rely on force majeure because the clause was drafted more restrictively.
The facts were that PPLive Sports International had entered into an agreement with the Premier League for three years’ worth of broadcast rights to football matches in China and Macau, starting with the Premier League season from August 2019 to June 2020.
As a result of the disruption caused by the COVID-19 pandemic, especially when the Premier League season was suspended on 13 March 2020, PPLive failed to pay a number of instalments due to the Premier League under the agreement amounting to more than $200m. In spite of their payment default, the Premier League continued to provide feeds to all remaining matches and when the season was completed, the Premier League terminated the agreement and issued a claim against PPLive seeking payment of the missed instalments.
PPLive’s defence was based on a warranty given by the Premier League that: “the format of the Competition will not undergo any fundamental change which would have a material adverse effect” on PPLive.
PPLive argued that a ‘fundamental change’ had occurred and that this had resulted in a material adverse effect on the exercise of its rights. First, the 2019/2020 season was interrupted. Second, when it resumed in June 2020, there were no fans in attendance, and the compression of the remaining fixtures into a five week period meant that several games were played on weekdays rather than weekends, and kick off times were sometimes delayed into the late evening hours in China. These conditions were very different to what PPLive had envisaged when the contract was agreed.
The High Court agreed that when the season resumed there were significant changes to how the remaining matches were played, but concluded that the meaning of the word ‘format’ in the context of the competition was not intended by the parties to include kick off times, the days when matches were played, or whether there were fans at the stadium. Rather, it referred to the way that the competition was undertaken between the 20 member clubs competing that season: how many times they played one another; the number of matches between all of them; the fact they played one another home and away; how many points were awarded for different results; and how the league table was organised. These were all elements of the ‘format’ of the competition, in the opinion of the High Court, and none of these fundamentally changed when the season resumed, meaning the material adverse change clause relied upon by PPLive was not triggered.
It isn’t very common for the Courts to grapple with similar facts in such a short space of time, and arrive at such vastly different decisions. The difference was purely down to the drafting of the respective contracts and specifically the legal protections negotiated by one but not the other. These cases illustrate how important it is for contracts to be carefully drafted at the outset, to reflect the parties’ intentions as clearly as possible, but they also recognise the difficulties when clauses are intended to cater for unforeseen events.
We hope you found the above cases interesting. If you have any further questions or comments or need advice on a new or ongoing commercial dispute please contact our commercial dispute resolution team.
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