Hot on the heels of our last article (Playing by the Rules: COVID-19 and the Premier League) another judgment on contract law and sports media rights was handed down in the Commercial Court last week (European Professional Club Rugby v RDA Television LLP).
Once again, the Court considered the contractual position 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 time it is in the context of club rugby union matches, where the European Professional Club Rugby (EPCR), the rugby competition organiser, and RDA Television (RDA), sports media broadcaster, entered into a contract for the provision of live match footage of the European Rugby Champions Cup and the European Rugby Challenge Cup in Europe.
In contrast to the recent Premier League case (where neither party sought to rely on force majeure and instead argued that a material adverse change clause was key), the Commercial Court analysed the construction of the force majeure clause - the 'force majeure machinery' - in the media rights agreement between the parties in order to decide the case.
EPCR claimed for damages as a result of an allegedly wrongful repudiation by RDA of the media rights contract between them. RDA denied this and maintained that it was entitled to terminate the agreement, relying on a force majeure clause within it. It made a counterclaim for prepayments made in respect of the period after the date when it purported to terminate the agreement and for a fee adjustment of the sum paid for the seasons during which it served notice of termination.
The Court decided that the broadcaster had been entitled to terminate the agreement in reliance on the force majeure clause when the rugby organisation suspended its quarter-final, semi-final and final matches at the point when COVID-19 was declared a global pandemic. Judge Pelling KC decided that RTA was not prevented from relying on the clause simply because it, too, had been affected by the same force majeure event. EPCR's claim therefore failed other than in relation to a minimum guarantee payment under the agreement, and the counterclaim succeeded, with the net result being a payment of approximately €200,000 being due from EPCR to RDA.
On 11 March 2020 the World Health Organization declared COVID-19 to be a global pandemic. It was common ground between the parties that the onset of the pandemic was a force majeure event as defined in the media rights agreement.
A force majeure clause is one which excuses or suspends performance of contractual obligations on the occurrence of a specified event e.g. war, legislative or administrative interference, strikes or accidental breakdown of machinery – or a global pandemic (potentially). Usually the event which brings the clause into operation is defined, and the effect of this is also defined. The precise effect of a force majeure clause depends upon its drafting, and like any other contractual clause will fall to be construed by the Courts subject to the usual legal principles of construction. These clauses also usually specify (as the one in this case did) a process by which one party is required to notify the other that the specified event has occurred.
Construction of force majeure machinery
The judge in this case helpfully summarised the principles the court will take into account when undertaking the exercise of contractual construction. Whilst not breaking new ground, the following eight points provide a timely and useful reminder in the context of force majeure provisions:
- The Court construes the relevant words of a contract in its documentary, factual and commercial context.
- A Court can only consider facts or circumstances known or reasonably available to both parties that existed at the time that the contract or order was made.
- 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 they had control over it and must have focussed on the relevant issue at the point of drafting).
- Where the parties have used unambiguous language, the Court must apply it.
- Where the language used by the parties is unclear, the Court can properly depart from its natural meaning where the context suggests that the parties meant something else.
- If there are two possible constructions, the Court is entitled to prefer the construction which is consistent with business common sense (as at the date the contract was made by reasonable people in the position of the parties).
- In striking a balance between the indications given by the language and those arising contextually, the Court must consider the quality of drafting of the clause and the agreement in which it appears.
- A Court should not reject the natural meaning of a provision as incorrect simply because it appears to be imprudent, because it is not the function of a Court when interpreting an agreement to relieve a party from a bad bargain.
This decision highlights that even though the contexts underlying two contracts might be similar, the contractual protection provided to parties is dependent on what the parties actually agreed at the time they entered into the contract. In this case, the parties could rely on the force majeure machinery in the contract because the COVID-19 pandemic amounted to an "epidemic" as defined in the force majeure clause and the clause was drafted non-exhaustively. This contrasts with the Premier League case where the force majeure clause was not pleaded by either party. The force majeure clause was however reproduced in the judgment, and based on the information available it is likely that force majeure was not in issue in that case because the clause had been drafted restrictively (thereby limiting the parties' ability to rely on it when the COVID-19 pandemic affected their contractual relations). It is not often that contrasting drafting results in Court decisions with vastly different results in such a short period of time, but this case (and context) offers an important reminder of the importance of drafting your contracts to ensure that the protection sought is provided, and that the risk is allocated appropriately between the parties to reflect their commercial bargain.
If you have any questions regarding this article, please contact Emma Carr or Sean Adams.