On 11 January 2022, the England and Wales High Court handed down a decision in an enlightening case on whether or not a material adverse change clause will be found to have been triggered by the Covid-19 pandemic.
The court held that the answer to this question is highly fact-dependent, contingent on the wording of the clause and the relevant context.
This case examined how the disruption caused by Covid-19 affected PPLive Sports' contract with the FA Premier League for television rights to broadcast Premier League football matches in China and Macau.
In the context of a summary judgment application the court considered, in particular, the interpretation of the words "fundamental change", the format of the "competition" and "material adverse effect".
It was held that the material adverse change clause was not triggered, despite the huge disruption to the 2019-20 football season. The clause would only have been triggered with a fundamental change to the format of the competition which, as the court determined, did not include the timing of matches or whether spectators were present.
PPLive Sports (PPL), a Hong Kong company, had agreed with the FA Premier League to buy the rights to televise English Premier League football matches.
There were two contracts: the live package agreement relating to live and delayed matches (worth US$701 million) and a clips package agreement relating to match highlights (worth US$8 million). The agreements granted rights to PPL to broadcast the matches in China and Macau.
The 2019-20 English football season was severely disrupted due to the Covid-19 pandemic. It was temporarily suspended on 13 March 2020 and formally suspended on 3 April 2020.
When the Premier League resumed in June 2020, it was under markedly different conditions (including matches played in empty stadiums). The season was completed by the end of July 2020 through a condense timetable of matches.
Following these restrictions on matches, PPL declined to pay two instalments under the contracts it had with the Premier League. Despite the non-payment, the Premier League continued to provide PPL with the relevant feeds of matches under both contracts for the remainder of the season.
In September 2020, the Premier League terminated its agreements with PPL for non-payment and sought summary judgment for £212 million.
A number of defences were advanced, but the key one was that PPL relied upon a warranty that the format of the competition would not undergo any "fundamental change which would have a material adverse effect" on the exercise of the rights by them.
In the event of such fundamental change, PPL would be entitled to enter good faith negotiations with the Premier League to discuss a possible reduction in the licence fees.
The live package contract also had a force majeure clause, defined as:
"[A]ny 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…".
Neither party relied on this force majeure provision, because even an event as significant as a global pandemic was not directly covered by the wording in the clause.
The court's decision
The High Court granted the Premier League summary judgment on its claims. The judge stated that there was no doubt that, after the 2019/2020 season resumed in June 2020, there were significant changes to how the remaining matches were played.
For example, no fans were permitted to attend, the fixtures were condensed into a five-week (instead of nine week) period, a significant number were re-scheduled from weekends to weekdays; and kick-off times were modified so that many more matches began late at night (China/Macau time).
However, the judge noted that it did not necessarily matter that the conditions under which the Premier League season resumed were different to those anticipated when the contracts were first entered into, stating that:
"The English law of contract does not require, or expect, contracts to be renegotiated or rewritten simply because events transpire differently to what is expected. This would lead to confusion and indeed chaos."
The judge said that the words used in the written agreement, the facts and the context in which the agreement was reached must all be considered when construing the agreement to see if the changes could be characterised as a fundamental change, and then whether those changes had a material adverse effect.
The judge concluded there was no fundamental change to the format of the competition, as it did not include kick off times, the days matches were played, or whether there were spectators present.
All the key elements of the format (such as how many matches were played or how many points were awarded for different results) remained unchanged.
The judge also stated that this conclusion was supported by the Premier League's rules, and made commercial sense, given the number of variables that could occur as any season unfolded and which might affect scheduling.
If PPL were to be given some form of involvement in scheduling decisions, it could have been very problematic. The conclusion was also consistent with the examples of "fundamental change" given in the contract itself, such as a reduction in the number of clubs.
This is one of two High Court judgments handed down in January 2022 considering the impact of the Covid-19 pandemic on the licensing of media rights for sport.
The High Court also considered whether the postponement of European rugby union competitions constituted a force majeure event (see our analysis here), and held that it did trigger the force majeure clause, which enabled the claimant (another broadcaster) to terminate its rugby broadcasting rights agreement with European Professional Club Rugby.
These two cases illustrate the importance of the specific wording of the contracts and the differing outcomes that can arise as a result, even though the parties were dealing with the same factual circumstances (the disruption caused by the Covid-19 pandemic).
This decision shows how crucial it is for clauses in contracts to be drafted carefully to ensure risks are allocated in accordance with the parties' intentions. It is likely that many disputes may arise outside the context of TV rights where pandemic-related restrictions interfered with the performance of a contract.
This article was authored by James Lewis, partner and Bhavul Haria, associate in Fieldfisher's dispute resolution team.
Sign up to our email digest
Click to subscribe or manage your email preferences.