The COVID-19 pandemic, rising in late 2019, has now influenced every sphere of our life. Sports have been most affected. Starting mid-March 2020, many sporting events were cancelled. In India, the first event to be cancelled was the South African Cricket team's tour to India, while the Indian Super League was cautiously conducted behind closed doors. The 2020 edition of IPL has shifted to the UAE, to be played sans spectators.
With the pandemic increasing unremittingly, there is a considerable ambiguity surrounding on whether sporting event will be held and, if yes then how? Many financial and legal issues related to cancellation/ postponement of these events are surfacing now.
This article spotlights the legal obligations one party has to another in case of the cancellation of an event due to Covid-19. This scenario is likely to bring about a rise to catena of lawsuits globally, with the parties, be it a broadcaster, ticket holder, player, sponsor or another, already having filed suits for the implementation of contractual obligations or discharging one of the parties from its contractual obligation.
We shall first examine the (a) Force Majeure clause (contractual remedy) and then, (b) the Common Law principle of Frustration of Contract as set out under S. 56 of the Indian Contract Act, 1872 ("ICA").
THE FORCE MAJEURE (SUPERIOR FORCE) CLAUSE – CONTRACTUAL REMEDY
The force majeure clause can ordinarily be found in the general/standard clauses of a commercial contract. It excuses the performance of a contract in case of an event 'which is beyond the reasonable control' of the party and thereby precludes such party from fulfilling its contractual commitments. This concept stems from the Civil Law Countries, for example, Art. 119(1) of the Swiss Code of Obligations provides that an "obligation is deemed extinguished where its performance is made impossible by circumstances not attributable to the obligor".1 In cases like that of English Law, where this principle is not acknowledge and recognized, the parties can instead entail such a clause in their contracts, which incorporates events which are beyond one's proximate control such as war, act of god, strikes, change of Govt./law and policies/rules like, imposition of nationwide lockdown to contain the spread of Covid-19.
THE COMMON LAW SYSTEM HAS ITS OWN WAY TO TACKLE SUCH CONDITIONS - THE DOCTRINE OF FRUSTRATION
This doctrine renders impossible the recital of contract due to an event which could not have been foreknown at the time of entering the agreement, consequently the contract is rendered void (terminated) and the party cannot be held accountable for the non-performance of its obligations as the ultimate purpose of the contract is rendered impossible due to that vary event which was beyond the pragmatic anticipation of the parties while entering into the pact.
Indian courts have in the recent past stated that an arduous method of performance of a contract would not frustrate an event and a paltry rise in price which makes the performance of the contract not viable commercially, would not constitute frustration of contract,2 hence, impossibility to perform will in no condition include the facet related to commercial impossibility. For example, as stated earlier IPL was initially postponed to an uncertain date but now the same will be conducted in UAE behind closed doors therefore BCCI chalked out an alternative to impossibility of performance. Taking such a scenario into consideration one should carefully apply this principle of frustration and only when-
- Some part is yet to be performed
- Having entered the contract, the performance has become impossible due to this pandemic
- The impossibility could not have been averted realistically and that it was not due to the neglect of the promisor
On the contrary, Force Majeure excuses performance for the time being and does not terminate the contract in toto, these clauses must be narrowly construed.3 The overarching event beforehand which impelled the parties to cancel the event should seriously hinder the performance. In case of Covid-19 where nationwide lockdowns were imposed to contain the spread of the disease, transportation/hotels/stadium etc. were also closed and non-performance of contract was not merely on the context of inconvenience caused due to economic constraints/hardships but because of the fact that extra precautions had to be taken.
For example, consider the case of Royal Moroccan Football Federation when it withdrew from the African Cup of Nations - 2015 due to the outbreak of Ebola in Africa (which was later found to be incorrect on their part), the conditions were unlike Covid-19 pandemic. Ebola is neither airborne nor it spreads from touching another person; they were required to take additional hygienic measures and play games without live audience. The Ebola epidemic did not make the conduct of the tournament impossible, just economically onerous.4 Thus, special care should be taken before exercising such clauses during Covid-19 contagion, including but not limited to:
- Whether Covid-19 or its momentous actions like lockdown/curfew etc to curb the infection impede the execution.
- Whether the clause spares the momentous actions as mentioned under point 1.
- Whether Covid-19 made the performance impossible or made it unviable commercially.
- Whether Covid-19 impacted a definite element/ event or in totality.
- Finally, what remedies are offered under the clause of Force Majeure, like non-performance for a spell longer than projected earlier.5
If a party is able to submit its particular case under force majeure/frustration principle, they should contemplate all the perils and mitigating factors which would lessen the risk in terms of payments which are to be made to the vendors, players, broadcasters etc. and whether they will be able to re-negotiate the contracts with such parties involved. The football leagues in Europe made changes to the terms, like extending sponsorship deals till the end of season and extending player loan deals, slashing down salaries (as much as 70%)6 so that the non-playing staff can be paid. For India, IPL is leading by a prime example by shifting the league outside India and making its conduct possible.
Many sporting events are likely to remain deferred in the near future. Therefore, it is essential for the stakeholders to develop a crisis management strategy, which would evaluate different possible scenarios and also cover impact on employees, athletes, their contractual obligations with and not limited to sponsors, television/media rights, insurance pay-out etc. Parties can also initiate internal dialogues with concerned partners and re-negotiate specific clauses and/or come out with alternative plans to provide discount to the broadcasters, sponsors etc.
1. COVID-19: sport & the law of frustration and force majeure, available at: https://www.lawinsport.com/topics/dispute-resolution/item/coronavirus-sport-the-law-of-frustration-and-force-majeure?category_id=397
2. Energy Watchdog v. CERC, (2017) 14 SCC 80
4. Royal Moroccan Football Federation (FRMF) vs. The CAF, CAS Bulletin, available: https://www.tas-cas.org/fileadmin/user_upload/Bulletin_2016_1.pdf
5. COVID-19: the impact of postponing or cancelling sports events in India: https://www.lawinsport.com/topics/covid19-impact/item/covid-19-the-impact-of-postponing-or-cancelling-sports-events-in-india?category_id=727
6. Messi agrees 70% pay cut amid Covid pandemic, https://www.espn.in/football/barcelona/story/4079940/barcelonas-lionel-messi-agrees-70-pay-cut-amid-coronavirus-pandemic
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