Break in Play: A Sporting and Entertainment Perspective on the Legal Effects of the Coronavirus Pandemic

Introduction

Former Liverpool manager Bill Shankly once famously said that “some people believe football is a matter of life and death… I can assure you, it is much, much more important than that.” This statement perhaps demonstrates the initial hardline stance taken by the English Premier League regarding the coronavirus pandemic, which had the entire sporting and entertainment world reeling from its effects, grounded economic activity, and cast a forlorn shadow over the entire entertainment industry. Billboard published a list of over 70 events cancelled since the outbreak of the virus in January 2020, and reported that over 20,000 music shows had been cancelled or postponed worldwide between late 2019, when the virus was first discovered in Wuhan, China, and March 2020, with China’s entertainment industry alone losing over 2 billion yuan ($286 million). In total, the sports industry recorded the cancellation of over 2,000 sporting events scheduled to take place within the year, affecting sports, fans, sponsors, sport company owners and the world at large.

As at Friday, 13 March 2020, the Italian Serie A, the German Bundesliga, the French Ligue 1 and the Dutch Eredivisie had all suspended their respective leagues. At about 9:00pm BST, the Premier League released a statement insisting the weekend’s games would go ahead as scheduled; two hours later, Arsenal Football Club confirmed on social media that its manager, Mikel Arteta, had tested positive for the illness, and Chelsea Football Club almost immediately confirmed forward Callum Hudson-Odoi had also tested positive. With these developments, the Premier League endured an anxious wait on next steps in a season already blighted by games played behind closed doors, and was eventually forced to announce on the Friday morning that games would be suspended until 3 April 2020.

In the music and movie industry, a similar wave of cancellations followed. Mulan, set to premiere globally on 27 March 2020, was suspended from premiering in China on 4 February 2020; The Falcon and the Winter Soldier, then being shot in Prague, halted production following travel restrictions on 10 March 2020; the new James Bond film, No Time to Die, originally set to premiere on 31 March 2020, was postponed until November. In music, South by Southwest (SXSW) was cancelled on 6 March 2020; Coachella was postponed to the weekends of 9 and 16 October; Adobe cancelled its annual live summit; and Facebook cancelled its annual Global Marketing Summit in San Francisco, moving the entire event online, among others.

More telling is the fact that at the root of these developments are subsisting contractual relationships with event sponsors, kit sponsors, title sponsors and broadcast sponsors. With no reprieve in sight, what becomes of these contractual relationships? Put differently, should the sporting season be cancelled, what becomes of existing contractual relationships with the likes of BT Sport and Sky Sports, standing to lose as much as £1 billion from their existing TV rights deal? With UEFA set to hold crisis talks on the next steps for the remaining rounds of the Champions League, the footballing world faced the grim prospect of cancelling an entire football season. This article examines the commercial and legal implications of the coronavirus pandemic in sport and entertainment, discussing the common law concepts of frustration and force majeure in sports.

The common law doctrine of frustration and force majeure

The most fundamental rule of contract law is pacta sunt servanda — a contract must be observed. A party that fails to perform as promised is strictly liable for breach, “even if he is without fault and even if circumstances have made the contract more burdensome or less desirable than he had anticipated.” He must perform as promised, come what may, or pay damages economically equivalent to performance; that legal liability for failure to perform is what makes a contract a contract, and not merely a promise. Nevertheless, over the centuries the common law developed doctrinal exceptions to the strict rule, impracticability and frustration among them. The impracticability doctrine excuses a party from performing when events make performance impossible or exceedingly difficult; the frustration doctrine excuses a party from performing when events render the other party’s counter-performance worthless to it.

Both doctrines operate to excuse a party for whom the anticipated value of a contract is destroyed by an unexpected event during the executory period — impracticability governing a radical rise in the cost of performance, frustration governing the reverse case of a radical drop in the value of counter-performance. A forward standard clause analysis of the impracticability doctrine is a simple matter: a party may be excused from performing when events during the executory period render performance impossible or exceedingly difficult. It has long been recognised that the force majeure clause is the standard clause analog of the impracticability doctrine — addressing the same issues the default doctrine would, and resolving them in the manner expressly described.

The frustration doctrine

The frustration doctrine is closely related to impracticability but conceptually distinct: it excuses a contracting party not because performance has become more difficult or impossible, but because the other party’s counter-performance has become worthless. When an unexpected event totally frustrates a party’s primary purpose in making the contract, the doctrine provides grounds for walking away from it: “where, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged unless the language or the circumstances indicate the contrary.”

While impracticability operates to the advantage of parties bound to furnish goods, land, services or similar performance, frustration operates to the advantage of parties paying money in return for those performances. The contracts detailing the legal relationship between event sponsors, kit sponsors and broadcast sponsors would usually contain a force majeure clause expressly stating the events that would constitute force majeure — literally, from the French, “greater force,” an expression that has acquired a commercial usage widely recognised by businessmen and lawyers: the general principle being that a party should not be liable for non-performance due to an unexpected event outside its control.

The position of the law is that it is not possible to benefit from force majeure if a party has not expressly included it in the agreement — it possesses no magic wand of automatic application upon the occurrence of an event. A party desirous of pleading force majeure must have expressly inserted it into the contract; it does not, by the widest stretch of the imagination, apply automatically. With the humongous investments made by event organisers, broadcast sponsors and kit suppliers, the commercial landscape for existing legal relationships appeared bleak, with the likes of Sky and BT Sports set to lose over £1 billion from a TV deal only signed in 2019 should the Premier League season be cancelled — both companies contemplated seeking a refund from the League, as did BNP Paribas, the events sponsor for the Indian Wells tennis tournament. To successfully rely on a force majeure clause, the clause must contemplate an epidemic or pandemic and expressly stipulate how liabilities would be apportioned between the parties in the event of its occurrence.

The English case of Krell v Henry was the first to recognise the doctrine. A grand procession commemorating the coronation of King Edward VII had been planned for 26–27 June 1902, passing along Pall Mall; a week before, Krell agreed to rent his apartment overlooking the route to Henry for those dates. Edward then fell ill and the coronation was postponed; Henry, having no use for the flat, refused to pay the rent, and Krell sued for breach of contract. Henry’s impossibility defence did not directly apply, since cancellation had no effect on his ability to pay the rent — but the court ruled in his favour by analogising from impossibility to create a new excuse doctrine, that of frustration: because the apartment was rented for the specific “purpose of seeing the Royal procession,” once it was cancelled, the “foundation” of the contract was “frustrated,” and Henry was excused from paying rent.

This position was affirmed in the 1904 case of Chandler v Webster, almost on all fours with Krell. Chandler had hired a hotel room for the coronation procession and made a down payment of £100, with the balance due just before the event; the procession was cancelled, and Chandler sued for return of his down payment while Webster counterclaimed for the balance. Both the High Court and Court of Appeal held that Chandler was not entitled to recover his £100, nor was Webster entitled to the balance — where a contract has been frustrated by a supervening event releasing the parties from further performance, the loss lies where it falls.

Doctrinally, frustration requires the party seeking to be excused to show that its principal purpose in making the contract was totally frustrated (or nearly so) by an extraordinary and exogenous event; the case law sets a very high bar for each element, and parties seeking to avoid performance on this ground rarely succeed in making the extremely strong showing demanded. However, forty years on, Chandler was overturned to recognise situations where a party who has paid money may recover it after a frustrating event, in Fibrosa SA v Fairbairn Lawson Combe Barbour Ltd. There, the defendant had agreed to manufacture and supply flax hackling machines to a Polish company for £4,800, one third payable with the order; the plaintiff paid £1,000 but never paid the remaining balance following the German invasion of Poland, since delivery could not take place. The House of Lords overruled Chandler v Webster and gave judgment for the plaintiff, holding it was entitled to recover its down payment not because of an implied term but as a matter of quasi-contract — money paid for a consideration that had totally failed. Fibrosa’s case was decided on the basis that where consideration has completely failed and a party has paid money, notwithstanding the frustrating event, that party may recover its money — a decision that has also been applied by the Nigerian courts.

Liability to fans and season ticket holders

Apart from sponsors, contractors or service providers who would ordinarily have signed a written contract incorporating a force majeure clause, the vast majority of spectators in the sport and entertainment industry are fans who have bought a single ticket for a live show or sporting event, or season ticket holders. The direct consequence of the suspension, indefinite postponement or cancellation of a live event will equate to an indirect termination of the contract.

At common law, a ticket is generally accepted as a limited licence to enter a premises, and accordingly a venue operator or event organiser may impose terms and conditions on that ticket and its holder — a principle supplemented, in many countries, by statutes governing the sale and resale of event tickets. Manchester United, travelling to Austria to play the first leg of a UEFA Europa League round of 16 tie against LASK, refunded ticket costs to its over 2,000 travelling fans after the game was ordered to be played behind closed doors; while commended, this gesture may equally have reflected the terms of the contract on the ticket or compliance with UK consumer protection legislation, and it is notable it was the only club to take this step.

The common law principle of privity of contract would prevent a ticket holder who repurchased a ticket from a prior holder from claiming a refund — only fans and spectators who purchased from the club or an authorised agent would be able to get a refund from the club, though such fans of a cancelled event may be able to recover directly from unauthorised resale outlets depending on the refund policy in place. In sum, and from a legal point of view, a ticket is a contract between the producer or broadcaster of the show and the audience member; any change related to the show means the producer or broadcaster does not fulfil its end of the contract and must refund the viewer if they so wish. This reasoning is unaltered by the fact that a show is postponed, moved forward, or its venue changed — ultimately, the holder of a ticket may recover for a total failure of consideration.

Ramifications for employment contracts in sports

Like other businesses, sports clubs employ or otherwise engage a host of individuals for different types of work. Aside from coaching staff and players, a sports team is likely to employ medical staff, catering staff and academy staff, most of whose terms are expressly provided for in their employment contracts — duration, salary, notice period, garden leave and restrictive covenants among them. These express terms are not exhaustive; other terms are implied regardless of whether the parties expressly provided for them.

An employee’s implied duties include good faith and fidelity and the duty to obey reasonable instructions; the employer owes a duty to take care of the employee’s health and safety, with players owing an additional duty to train to remain fit for selection. Both parties owe an implied mutual duty of trust and confidence — breach of which by a football club amounts to a repudiatory breach entitling the employee to terminate without notice and claim constructive dismissal, just as breach by an employee entitles the club to summary dismissal.

What happens where players are compelled to continue playing on the instruction of the league or regulatory body despite the palpable threats posed by a pandemic? Would players allege a breach of the duty to take care of their health and safety, and be able to claim constructive dismissal? Brazilian club Grêmio had its players wear face masks during a match to protest the non-suspension of the Brazilian league amid the coronavirus scare. Conversely, can a club summarily dismiss a player or coach who refuses to train and play on grounds of the risks posed by the pandemic? Even where there is an understanding to suspend games to protect players and staff, is there still an obligation to train and maintain fitness — and would a refusal to do so amount to a breach of the duty to obey lawful instructions? Would a player or manager be excused because a supervening event has rendered performance impracticable? It is also not unusual for players’ contracts to include appearance-based bonuses and performance incentives, such as for winning a trophy or qualifying for a continental place — would it be reasonable for players to demand such bonuses should the season be cancelled as a result of the pandemic? Much would depend on the facts of each case.

Conclusion and recommendation

The strict application of the frustration doctrine is entirely proper, for it strikes right at the heart of the core principle of contract law, pacta sunt servanda. The future is inherently unpredictable; were courts to regularly excuse parties from their contracts because events turned out differently than expected — which presumably happens in nearly every case where a party has come to view a contract as unprofitable or imprudent — it would undermine the fundamental nature of a contract as a legally enforceable promise. For this reason, courts and commentators agree the frustration doctrine should only be applied in deserving cases.

Chandler’s case heralds the common law position that where a party successfully pleads frustration, the status quo is maintained and parties are only entitled to liabilities that inured prior to the supervening event; Fibrosa has thankfully ameliorated what was viewed by some jurists as a harsh principle of law. In any event, the salutary lessons of the Covid-19 pandemic should teach sports teams, franchises and entertainment outfits the need to include appropriate force majeure clauses in their contracts to deal appropriately with such situations.