Coronavirus, Force Majeure and Frustration

March 15, 2020

The unprecedented events of the last 7 days, caused by the spread of COVID-19, have led to nearly all elite level sport being cancelled for at least the next two weeks with no Premiership football, Formula One, Six Nations rugby, NBA or PGA golf going ahead.

In the world of professional sport, contracts are king. Think of a sporting event and numerous contracts will be in place. Contracts with athletes, contracts with sponsors, contracts with broadcasters, contracts with suppliers and contracts with governing bodies to name but a few.

Inevitably, the longer the present suspension of events continues, the greater the possibility of disputes and formal litigation.

For example, if top level football continues to be suspended – do they call the season as things stand or void it as whole? If they call it as is, Aston Villa could legitimately complain that they have a game in hand and should not be relegated. If they void it as a whole, will Liverpool claim the c.£150 million prize money set aside for the champions?

Would players and/or intermediaries claim losses as a result of player performance bonuses not being paid if Leeds United or West Brom are denied promotion?

Given we have lost several rounds of the Six Nations, do Guinness seek to reduce the sponsorship fee paid on a pro rata basis? Do the broadcasters of the Six Nations do the same?

Myriad issues and questions arise.

What then can the parties to the contracts that govern these events do? The answer is likely to lie within the contacts themselves and in particular provisions relating to Force Majeure.

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 or an act of terrorism or war.

The events covered by a Force Majeure clause are likely to be important given that there is no standard or legally recognised definition.

It is commonly held that should a party wish protection for a specific event it should be provided for in the contract. Such contracts may also include detailed notice provisions which should be followed carefully by those seeking to rely upon them.

In relation to COVID-19, a Force Majeure clause that covers only “fire, famine or acts of war or terrorism” may not be sufficient. Conversely clauses that include “epidemic, pandemic or disease” may well be.

If the relevant Force Majeure clause does not cover COVID-19, parties may instead seek to rely on the doctrine of ‘frustration’.

A contract may be rendered void on the ground of frustration when something occurs after the formation of the contract which renders it physically or commercially impossible to fulfil, or transforms the obligation to perform into a radically different obligation from that undertaken at the moment the contract was entered into.

The threshold to successfully bring a claim for frustration is high. The fact a contract has simply become more difficult or expensive to perform is unlikely to be enough in itself. The modern authorities suggest the following requirements should exist for an event to be able to be successfully claimed as one amounting to frustration:

  1. It occurs after the contract has been formed.
  2. It is so fundamental as to be regarded by the law both as striking at the root of the contract and as entirely beyond what was contemplated by the parties when they entered the contract.
  3. It is not due to the fault of either party.
  4. It renders further performance impossible, illegal or makes it radically different from that contemplated by the parties at the time of the contract.

The above sets out the position under English law. A number of civil law jurisdictions, such as Switzerland, recognise that parties to a contract may be released from its obligations if they become impossible to perform. As such, the relevant governing law clause is also likely to be important.

In light of the above one can see that the effects of COVID-19 will continue to be felt by those in the sports industry long after its physical symptoms have passed.

For further advice as to how the above issues could affect contracts to which you are party please do not hesitate to contact a member of the LEVEL team for guidance or assistance.