Legal Ramifications of COVID-19: Force Majeure and the Doctrine of Frustration

Legal Ramifications of COVID-19 on the Sports and Entertainment Industries

The most significant incident to impact the planet in the last four months has been the outbreak of COVID-19 popularly known as the novel coronavirus. This outbreak has reinforced the need for appropriate legal and risk management measures and systems.

The pandemic which has now spread to 146 countries and counting, first emerged in Wuhan, Mainland China and yet the world would never have imagined the extent to which the outbreak would travel; becoming classified as a global pandemic by the World Health Organisation. It has caused global disruption of mobility, chaos on the lives of billions around the world and has had a considerable negative impact on macro and microeconomics.

The threat which the novel coronavirus presents to various industries and business sectors has been numerous and far-reaching; from significant disruptions to essential services in banking and finance to disruption to major fixtures in the international sporting calendar from the F1 Australian Grand Prix, cancellation and postponement of a number of high profile sporting conferences and tournaments including the much-awaited Edo Sports Festival 2020, World Football Summit Africa 2020 and a host of others.

Over 110 showpiece sporting events across Europe and Asia stand cancelled or postponed due to the COVID-19 outbreak: affecting over 2,000 highly anticipated match-ups across various sports like football, NBA, Euro basketball, Mixed Martial Arts, Golf, Tennis, Formula One and so on.  The progression or otherwise of the virus in the coming days will determine whether the Olympics event scheduled to take place this summer would go on as planned. The world of Esports has also seen its fair share of cancellation and postponement of events: The Software Association’s 2020 E3 Video Game Convention and the annual Games Developers Conference have been cancelled due to COVID-19.

Famous sporting personalities have also been infected by the virus. Danielle Rugani and Blaise Matuidi of Juventus, Rudy Gobert of Utah Jazz, Ezequiel Garay and five other football players in the Valencia CF roster to mention a few. The virus has also claimed the life of Francisco Garcia, a Spanish Football coach after a pre-existing health condition was exacerbated by the infection- The only casualty in the sporting world as of today.

The entertainment industry has also felt the sting of the virus as thousands of entertainment events have been called off: Music concerts, tours and award shows like the GidiFest scheduled for this April in Lagos, Tribeca Film Festival, Billboard Music Awards, Glastonbury Music Festival, Coachella, Stormzy’s ‘Heavy is the Head’ album tour, The Kid’s Choice Award’s amongst others. Movie productions and Premieres of highly anticipated movies have also been put on hold; theme Parks and Amusement parks are fast shutting down in China, Korea and other hard-hit countries. Top celebrities like Tom Hanks, Rita Wilson and Idris Elba have also tested positive for the virus.

Beneath this mess of cancellations and postponements are complex commercial and sentimental interests arising out of various entertainment and sports contracts. Performance of contracts has become near-impossible as at when due. To be specific, Fans who have bought tickets as well as paid travel costs and made hotel reservations with respect to a certain concert or movie premiere will definitely be affected by its cancellation or rescheduling. Sporting clubs may be liable for possibly breaching their contracts with Season ticket holders who would be robbed of the spectacle paid for, in the event of a cancellation, postponement or a decision to play matches behind closed doors.

Suffice it to say, most businesses around the world big or small will by now be affected in some way by the novel coronavirus and that being said it is still not too late for business owners, leaders, etc to take steps to mitigate the impact or prepare to insulate from shocks at best. There will be legal ramifications and risks arising from the pandemic, which all individuals and businesses will now have to seriously consider. It is highly probable that there will be fallouts and unfortunate contractual disputes as a consequence of the health crisis the world is currently facing: Non-Performance being a major fall out, as the ability to perform contracts will be severely affected and tested in the next few months considering the stringent regulatory policies now in place. These include widespread lock-downs which has curtailed mobility whether domestically or internationally as well as the practice of social distancing to flatten the curve and reduce the transmission rate.

As we will come to find out; the inclusion or otherwise of a Force Majeure Clause in sports and entertainment contracts could prove instrumental in periods like this. So, the question is what exactly is a ‘force majeure’? And what events will give rise to a ‘force majeure or ‘vis major’ as it is also known?

Legal Ramifications of COVID-19: Understanding the doctrine of Force Majeure

The doctrine of Force Majeure takes root in French civil law and applies to situations where an external event or occurrence beyond reasonable control prevents parties or a party from performance of obligations under a contract. It is expressly provided for as a term of the contract between parties and usually lists out a number of acts, the occurrence of which would constitute a force majeure with respect to the contract.

In the reported Nigerian case of Diamond Bank Ltd V Ugochukwu, the court held that for a Force Majeure to occur there must be an event which significantly changes the nature of the contractual rights of the parties, such that it would be unjust to expect the parties to perform those rights such as;

• Where the subject matter of the contract has been destroyed or is no longer available.
• Death or incapacity of a party to a contract
• The contract has become illegal to perform as a result of new legislation.
• A contract can be frustrated by the outbreak of war.
• Where the commercial purpose of the contract has failed.

The provision of Force Majeure is one that has strict application and can only be relied upon, based on the express provision in the contract and the qualifying events which successfully triggers the provision. The applicability of Force Majeure can cover any situation, provided that provision has been made for it.

What type of events can give rise to a Force Majeure?

Natural events also are known as ‘Act of God’ can give rise to a Force majeure.  Actus Dei nemini facit injuriam: interpreted literally, an act of God injures no one. To further buttress, the maxim simply stresses that no one is responsible for an act of God and cannot be said to have injured an adverse party by the occurrence of such. Acts of God can include adverse weather conditions e.g. hurricanes, thunderstorms, earthquakes. These are unexpected events which cannot be predicted by contracting parties to a large extent, nor prevented by them.

As this writer has earlier mentioned, Force Majeure is a term of the contract. This means, that it must be provided for expressly in the contract. So, it is the practice for parties to include acts or events which would generally inhibit the performance of obligations in a contract or work hardship in the process of performing the same. These events may not be Acts of God per se, but they are abnormal incidences which are inherently unfavourable to the terms of the contract. These include epidemics, pandemics and other man-made or politically related events such as riots, civil unrest and war due to instability in a government or national leadership or other ‘Acts of Government’.

All in all, these are events that can unduly occur beyond the control of the parties, making it difficult or near impossible for the parties to fulfil a contract. Impossibility in itself is subject to the interpretation given that the circumstances that arise in the event of a medical pandemic will be quite different from that which arises during a riot. Whereas during the war there is a total shut down of operations and clearly normal business affairs will be non-existent, in the case of a medical pandemic, business operations, meetings, etc will be curtailed due to non-movement and not necessarily because the parties cannot perform.

An outbreak of highly Infectious disease, such as COVID-19, H1N1 virus and/or the Ebola virus could fall under the category of medical pandemic or epidemic in a Force Majeure. However, to qualify as such, its category must be included in the Force Majeure clause especially where other acts or events are listed, so as not to be caught up by the ejusdem generis rule. The necessary Government regulations or directives which have been promulgated as a result of the outbreak such as social distancing, and the ban on large gatherings, are strong performance barriers which could bring COVID-19 under the category of Acts of Government, in the ilk of the items mentioned earlier. Careful construction of Force Majeure clauses, therefore, require equally careful consideration and need to be wide enough to accommodate events that may not be life-threatening but clearly not advisable to still carry on normal business operations.

Parties are also at liberty to state the consequences of a Force Majeure. This could include suspension of contractual obligations, renegotiation of terms, non-liability, an extension of time to fulfil obligations, mitigation of losses, and termination of contracts amongst others. Considering the effect of COVID-19 on Sports and Entertainment events, where there is a Force Majeure Clause in the contract, parties may trigger the same.

Broadcasting companies like Supersports which holds exclusive license to broadcast a wide array of sporting events in West Africa could reach out to the organisers and reach a favourable decision on the strength of the Force Majeure clause, Fans who have bought tickets could demand a refund from organisers, and athletes signed up to sports clubs may rely on the Force Majeure clause to justify why it was impossible for them to attend training or partake in games for their teams, which would ordinarily represent a breach of contract.

Recently, Nigeria’s ex-skipper, Mikel Obi ended his contract with his former club, Trabzonspor of Turkey by mutual termination, days after he criticised the Turkish FA for allowing games to go on in the circumstances. While the specific details of termination are not yet public, one may infer from the situation that he would only have been able to walk away from his contract without incurring a heavy cost for breach if there were relevant Force Majeure provisions in the player contract to that effect.

However, in the absence of express Force Majeure provisions in a contract, parties in Common Law jurisdictions have an alternative which is the reliance on the common law doctrine of Frustration.

Legal Ramifications of COVID-19: Understanding the Doctrine of Frustration

The doctrine of Frustration is based on the English common law doctrine which seeks to set aside the obligation of parties under a contract due to unforeseen events. It can apply in circumstances where there is no underlying provision for Force Majeure. The doctrine of frustration was well propagated in the case of Taylor v Caldwell From the decision in this case; the following elements of Frustration may be gleaned where:

• External events not contemplated by the parties arise which are beyond their control.
• The event was unforeseeable and it occurred post-formation of the contract.
• The unforeseeable events make the contract impossible to perform

Thus where a force majeure clause has not been included in a contract and no risk has been allocated by such a clause in the occurrence of stated mishaps, where an unforeseeable event occurs which may render the contract impossible to perform, parties may rely on the doctrine of frustration to bring an end to the contract or obtain a remedy from the court where due.

An example of such an event would be where the subject matter or the crux of the main condition of the contract ceases to exist. This was established in the celebrated case of Henry v Krell, where the Coronation event, which was the foundation of the contract between the parties, was cancelled due to the unexpected sickness of the incoming king; the Courts deemed the contract as impossible to perform due to the non-existence of the subject matter of the contract. Thus, parties were excluded from any future obligations arising from the contract.

Also, frustration could also occur where there is a delay or interruption which duration is indeterminate and was unforeseen by contracting parties. This was the decision of the Court in The Sea Angel Case. Thus, when applied to sport and entertainment events that have been postponed indefinitely, for now, this could constitute an act of frustration of the contract. Fans could get refunds; Insurance policies for players could be terminated with future obligations cancelled. Footballers who are in their last few months of contracts with their clubs – especially clubs in the top five leagues where the season ends in the summer- could exercise the option of cancelling their contracts to the club where the season is resumed and the matches drag beyond June 30, the final day of contracts for most players.

Event planners of concerts may have to refund all or a part of the funds received from artists and their managements due to cancellation of events. The fallouts are endless.

A change of law can also qualify as an unforeseeable event, which can also act as an additional layer to another unforeseeable event such as a medical pandemic. A change of law may be temporary or long-lasting such as the temporary imposition of travel restrictions, self-isolation measures and quarantine to name a few which can further make the contract impossible to perform; likely resulting in termination of a contract.

The consequence of invoking the doctrine of frustration is that it brings the contract automatically to an end and either maintains the status quo or restores the parties to the status quo antebellum as the justice of the case demands.  In the event that a contract is frustrated, one party will be relieved of the obligation to perform and another, who would have relied on the service or goods emanating from the contract, will be left disappointed. It is ideal that both parties reach a mutual agreement and fair conclusion. However, the law of damages which is normally applicable in contract, will not be applicable under frustration, due to its strict Common law background.

Conclusions

The instance of COVID-19 gives rise to a series of unpredictable and unfortunately, dynamic changing events. So far, we have witnessed industries, notably the international aviation and sports industry, take initiatives to secure the health and safety of millions which would otherwise be compromised through gatherings and continuous mobility. This means that businesses will need to take more care when entering into any contracts from this point onwards until the threat abates, especially whilst other obligations persist such as payment of wages, medical insurance. Adopting a cautious approach and obtaining full legal clearance on new contracts will be highly advisable at this point.

It is evident that in one form or another, individuals and businesses will be affected, not only directly by COVID19 but also by the disruption emanating from it.  Practical steps to stem this threat include:

1. Carefully reviewing all existing contracts. This applies to main and subcontracts with third parties, to determine the level of risk exposure involved and what performance is expected.
2. Review the contracts/agreements and check if the relevant force majeure clauses are already in place and determine if they are couched properly.
3. During the intense period of social distancing and travel bans, the performance of contracts will likely be negatively impacted. It is necessary to ascertain to what degree performance is affected and what remedies are available. Can the contractual performance be delayed or postponed? Or will it have to be cancelled, leading to a significant reliance on force majeure contracts in order to minimize further liabilities or losses? This activity should typically be handled by the legal officer within your organisation or the company secretary.
4.  Prompt communication of non-performance must be made as soon as it is clear contractual obligations cannot be performed by one party to the other party in the contract. This is necessary to mitigate losses as well as seek remedies such as refunds, etc.
5. It is necessary to correctly ascertain whether the event arising falls under the provision of Force Majeure or frustration, in order to be released from performing obligations under existing contracts.
6. There is also the need to explore ADR mechanisms, especially negotiation, in case of conflicts over the performance of contracts. Parties like sports clubs and player unions or Sports Organisations could also commence negotiations as a pre-emptive measure in order to arrive at solutions for more extreme situations.

Written By: Beverley Agbakoba-Onyejianya, Senior Associate/ Head, Sports Entertainment and Technology Practice Group 

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