Nothing New: Force Majeure Clauses and Proper Construction
Covid-19 may amount to a force majeure event entitling the parties to terminate a commercial relationship. That said, if there is any doubt - normal principles will continue to apply to force majeures provisions within the contract.
A recent ruling1 concerned force majeure in the context of sports media rights but it has relevance for all contractual relationships and should, therefore, be noted.
What’s the background?
The governing body of two major European club tournaments claimed damages from UK broadcaster RDA TV following what it said was wrongful repudiation of a media rights agreement. RDA sought to rely on the force majeure clause within the agreement, claiming it was entitled to repudiate – and made a counterclaim.
The issue was not so much whether covid-19 amounted to a force majeure event – the court made clear that it was - but how the force majeure clause “machinery” was to operate on a proper construction once that machinery was triggered.
Importantly, the court stressed that the usual principles of the construction of commercial contracts applied to this case in the normal way. Furthermore, in the context of force majeure, such clauses are to be read and construed in the context of the contract in which it appears when read as a whole.
Here, the claimant argued that RDA was not entitled to terminate the contract in the way it had tried to do, because it too was a party "… affected by a Force Majeure Event …" under the clause. Instead, it was obliged to " … use all reasonable endeavours to mitigate and/or eliminate the consequences of such Force Majeure Event and inform the other party of the steps which it is taking and proposes to take to do so".
The High Court did not accept this: just because RTA was also affected by the force majeure event did not preclude it from relying on the clause by terminating the contract. As drafted, both parties were entitled to rely on the force majeure machinery as set out in the agreement.
The judge clarified that a force majeure provision is generally inserted to enable parties affected by a force majeure event to avoid contracts that have become financially disadvantageous by reason of such an event. He therefore gave short shrift to the claimant’s suggestion that RDA's reliance on the force majeure machinery in the agreement was somewhat motivated by what the court described as “some impermissible concern” as to the commercial profitability of the agreement.
The outcome was that both the claim and the counterclaim succeeded - but only to a very limited extent.
Key takeaways
Force majeure is increasingly an issue for businesses and for commercial lawyers in light of the global pandemic and we expect to see more court rulings as time goes on. This ruling provides an important reminder to all business organisations that even in the case of force majeure events, the normal rules of contractual construction apply.
1European Professional Club Rugby v RDA Television LLP [2022] EWHC 50
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