The Covid-19 pandemic has been responsible for a multitude of novel conundrums.
How long does it take to sing ‘Happy Birthday’? Which way round should a blue surgical mask been worn? When is a work party not a work party?...
From a legal perspective, lawyers spent the beginning of the first lockdown dusting off rarely used books and cases relating to frustration and force majeure and considering their effects on the contractual relationship between parties.
We are now starting to see a number of judgments from Covid related contractual cases that have made their way through the Courts to trial, several of which appear to arise from a sporting context and more specifically media rights in a sporting context.
Earlier this year, the Commercial Court handed down the judgment of Mr Justice Fraser in the case of The Football Association Premier League Limited v PPLive Sports international Limited (A company incorporated in Hong Kong SAR)  EWHC 38 (Comm).
The case concerned two media rights contracts granted by the Claimant, the Premier League, to the Defendant Chinese broadcaster, PPL, in respect of (i) live and delayed Premier League matches; and (ii) “clips” and highlights of Premier League matches, in both cases for the territories of China and Macau from August 2019 until “31 May 2022 or (if later) fourteen days after the last day of the 2021/22 Season and shall consist of the 2019/20, 2020/21 and 2021/22 Seasons”.
At the time the agreements were entered into, China was a key and lucrative market for the Premier League as is evidenced by the consideration payable under the contacts, being US$701 million and US$8.02 million respectively. Since such contracts were entered into, the appetite among Chinese broadcasters to pay enormous sums for media rights for football in China has diminished somewhat.
By the time of the dispute, PPL had already paid the Premier League the first two instalments of the rights fee due to the Premier League under each of the agreements.
The third instalments due under the agreements for US$210.3 million and US$2.673 million respectively, were due to be paid on 1 March 2020. PPL failed to make these payments.
On 23 March 2020, after the third instalments were due, the UK Government banned all public gatherings including live sports events. On 3 April 2020, the Premier League was suspended and did not resume until 17 June 2020.
On 14 June 2020 PPL sought to commence good faith negotiations with the Premier League seeking to adjust the rights fees payable as a result of “fundamental changes” to the format of the competition. The agreements provided for these negotiations to take place if such fundamental changes occurred – see below.
The 2019/20 season was finished over a much shorter period of time with 92 matches played between the resumption on 17 June 2020 and 26 July 2020. These rescheduled matches were played without fans and with more matches than would normally be the case taking place mid-week with evening kick-off times.
Despite the non-payment of rights fees, the Premier League continued to make the remaining 92 matches in the 2019/20 season available to PPL.
As a result of the third instalments remaining outstanding, the Premier League terminated the agreements and issued proceedings against PPL on 3 September 2020, shortly before the start of the 2020/21 season. Proceedings were issued in the London Circuit Commercial Court but subsequently transferred to the Commercial Court.
On the same day as the Premier League served its notice of termination, but after the Premier League’s notice has been served, PPL served its own notice purporting to terminate the agreements.
Summary Judgment Application
On 9 April 2021, the Premier League applied for summary judgment against PPL, pursuant to CPR Part 24, on the basis that the claims in debt were straightforward in that it was admitted that the payments had fallen due, had not been made by PPL and that the defences raised were not sound in law or fact such that PPL had no realistic prospect of successfully defending the claim.
PPL resisted the application on the following grounds:
- The impact of Covid on the 2019/20 season was substantial and financially detrimental to PPL given the conditions under which the season resumed were different to those envisaged by PPL when it entered into the relevant contracts in February 2017. As such they constituted a “fundamental change” to the format of the competition as a result of which PPL was entitled, under the terms of the agreements, to seek a reduction in the rights fees payable.
- The rights fees already paid by PPL were more than one third of the total consideration meaning it had overpaid for the one season of matches it was entitled to show prior to termination of the agreements by the Premier League, and that these sums amounted to an “unjust enrichment” for the Premier League .
- A “circularity defence”, linked to the advance payment defence above in that any sums awarded to the Premier League would be the same as those awarded to PPL by way of refund of the advance payment.
- Finally, on grounds that the relevant clauses, if upheld, amounted to a penalty, and thus were unenforceable, or that it should benefit from ‘relief from forfeiture’, an equitable remedy which allows the court to relieve parties from terms which forfeit their rights in order to secure some lesser primary obligation.
Also of note is the fact that PPL represented itself at the hearing and was not represented by specialist counsel.
When considering the above, the Judge highlighted what he considered to be the relevant provisions from the contracts, in paragraphs 30 to 54 of the Judgment.
Amongst the clauses that the Judge considered to be particularly important were the definitions of “Season” (see paragraph 32 of the judgment), that relating to “Kick-off times” (see paragraph 45 of the judgment) and the “Warranties and Undertakings” provided by the Premier League (see paragraph 47 of the judgment) in particular clause 12.1(d) which stated:
"12.1 Subject to Clauses 14.2 and 14.6(b) the Premier League hereby warrants and undertakes that:
(d) during the Term the format of the Competition will not undergo any fundamental change which would have a material adverse effect on the exercise of the Rights by the Licensee and, for the purposes of this sub-clause, a fundamental change shall include any change which results in:
(i) the total number of Clubs being reduced to less than eighteen (18); or
(ii) the Competition ceasing to be the premier league competition played between professional football clubs in England and Wales.
If any such fundamental change to the format of the Competition occurs during the Term, then (without prejudice to its other rights and remedies) the Licensee shall be entitled to enter into a period of good faith negotiations with the Premier League in order to discuss a possible reduction of the Fees payable by the Licensee pursuant to Clause 4 in order to reflect the effect of that fundamental change on the exercise of the Rights granted to the Licensee hereunder;”
The Judge found in favour of the Premier League and granted summary judgment for the full amounts claimed on the basis that the conditions and changes to the Competition imposed as a result of Covid when the 2019/20 season resumed were not “fundamental changes” to the “format of the competition” for the purposes of clause 12.1(d) of the contract.
In making this finding the Judge concluded “it is not necessary to go on to consider whether such changes had a “material adverse effect on the exercise of the Rights” by PPL, which, as I have explained, would require a trial and cannot be resolved summarily.”
As such there was no obligation on the Premier League to enter into negotiations with PPL regarding a potential reduction in fees and PPL’s obligation to pay the instalments was unaffected.
The Judge also rejected all of PPL’s secondary arguments on the basis that none had “anything other than fanciful prospects of success” and going on to say a number were in his judgment “practically unarguable.” In particular, in respect of the unjust enrichment argument, he ruled that this was an “attempt to use the principle of unjust enrichment to override, rather than complement, the express contractual obligations” between the parties – see Dargamo Holdings Limited and another v Avonwick Holdings Limited and others  EWCA Civ 1149
On matters of construction, as in this case, the starting point is to identify the intentions of the parties. This is an objective test by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean” – see Chartbrook Ltd v Persimmon Homes Ltd  UKHL 38, para 14.
The answer to whether the format of the Premier League had been fundamentally changed as a result of the rescheduling of the matches in the 2019/20 season is less clear-cut than the judgment in this case makes out. In our view, there were reasonable grounds to argue in support of the primary defence advanced by PPL in response to the summary judgment application, namely that in relation to clause 12.1(d), the changes that the Premier League were forced to make to the 2019/20 season as a result of Covid did amount to a fundamental change to the “format”, an undefined term, of the competition. Further that these changes de-valued PPL’s rights or, as per the contract, had a “material adverse effect on the exercise of the Rights by the Licensee”.
Whilst it is right “there was no provision or warranty provided by the Premier League that kick off times (or the days of matches) would be chosen to suit the Chinese market” (paragraph 46), the Premier League did warrant that “The Competition will not undergo any fundamental change which would have a material adverse effect on the exercise of the Rights by the Licensee…” (emphasis added)
The fact that 92 matches (the remaining quarter of the season’s fixtures) had to be played within a very short period of time (40 days), with a much higher percentage of mid-week games (up from 21% to 57%) played at a significantly more unsociable times (67% of matches played after midnight in China after the lockdown compared to 33% of matches prior to lockdown) was a fundamental change to the format of the Competition that PPL envisaged it would have to sell to advertisers and subscribers at the time it entered into the agreements. Further, it is in our view arguable that these changes would likely have had a materially adverse effect on PPL’s ability to successfully exploit the rights in China and Macau. Indeed, the judge ruled that the question of such material adverse effect would be a matter that would have to be decided at a full trial, however he ruled that this question did not need to be considered because of his ruling that the format was not in fact fundamentally changed.
Whilst it is accepted that the carefully drafted definition of “Season” and wording of clause 5 relating to “Kick-Off Times” provided the Premier League with a large amount of protection and leeway regarding the scheduling of fixtures, this did not mean that there was no reasonable prospect of arguing that the changes brought about because of Covid amounted to “fundamental changes” for the purpose of clause 12.d(1).
Accordingly, in our view this judgment is of great interest in terms of the discussion and decision as to whether the format of the Premier League competition for the 2020/21 season was fundamentally changed after it was rescheduled following Covid. We do not necessarily agree that the competing arguments on this point were sufficiently cut and dry to have correctly met the standard required for a summary judgment to be given in favour of the Premier League. Nonetheless, that is the judgment that was in fact made and so it is perhaps unfortunate that PPL chose to represent itself at the hearing instead of engaging specialist counsel. Had these arguments been presented more persuasively, there could possibly have been a different result.
Further, in light of the defences advanced by PPL, primarily the detrimental effect of Covid on the contracts, it is of note that there appears to have been no reliance on the force majeure clauses within the agreements.
Force majeure provisions are designed to excuse a party’s performance under an agreement to the extent its failure to perform is due to certain extreme circumstances outside that party’s control, for example, due to the occurrence of a natural disaster, an act of terrorism or war, or, in respect of Covid, a epidemic or pandemic.
The events covered by a force majeure clause are likely to be important given that there is no standard or legally recognised definition.
Part of the force majeure clause in the agreements is set out in paragraph 52 of the judgment and shows that it covered “any strike, lockout, labour disturbance, government action, riot, armed conflict, Act of God, period of mourning as a result of the death of a reigning monarch, accident or adverse weather conditions…..”. There does not appear to be any reference to ‘epidemic’ or ‘pandemic’ which may explain why force majeure was not pleaded in PPL’s Defence and Counterclaim meaning the Judge disregarded this issue as one that did not arise on the pleadings. In any event, since the primary obligation of PPL was to pay its fees, it is hard to see how pleading force majeure would have helped it, unless such clause provided for suspension of payment obligations in the event of force majeure (which in our experience is highly unlikely to have been the case).
Where the relevant Force Majeure clause does not cover Covid, as would appear to be the position in this case, parties may instead seek to rely on the doctrine of ‘frustration’.
However, in this case, the ability of PPL to rely on frustration was lost as soon as the Premier League confirmed its ability to resume the competitions in June 2020. Had it sought to rely on this doctrine earlier, it may have had greater luck in seeking a reduction in the fees payable.
For further thoughts on frustration – see here.
Together with the above there appear to have been a number of other issues that led the Judge to conclude he was able to grant summary judgment in favour of the Premier League. These include, issues regarding pleaded matters (such as force majeure), issues concerning the proper pleading of the relevant factual matrix (something specifically required for cases in the Commercial Court), the fact no permission had been sought or granted in respect of the use of expert evidence (something PPL had sought to rely upon) and the lack of involvement of specialist counsel on behalf of PPL who were represented, with permission, by their in-house legal team.
All cases concerning the construction of contracts, including those relating to force majeure, will need to be considered subjectively in the context of the specific terms of the contracts entered into.
A party who wishes to be able to re-negotiate the terms of a contract as a result of a significant change of circumstances, including as a result of force majeure, will need to ensure that the necessary rights and mechanisms are built into their contract using the correct language.
In these circumstances, the party wishing to exercise its right to re-negotiate must do so carefully and quickly to ensure further changes in circumstances do not amend their rights or prevent them from exercising their right to re-negotiate.
For PPL, whilst summary judgment may have been avoidable, once the Premier League had stated its intentions to resume the 2019/20 season in June 2020, and it successfully did so, its ability to seek a reduction in the fees payable was significantly weakened and therefore payment of all or a very significant proportion of the fees was likely to have become inevitable in any event.