Reed Smith Nick Breen

Riding out COVID-19: Reed Smith’s Nick Breen talks force majeure

Nick Breen, senior associate at Reed Smith, the international law firm, talks of events, sponsorship, force majeure clauses and COVID-19

In the first part of this series on the legal implications of the COVID-19 crisis for the events industry, I explored the potential ramifications for sponsorship deals, and the nuances of cancellations compared with postponements. In this second part, we now turn our attention to a legal term that few outside the legal profession may have been entirely au fait with prior to the pandemic, but which is now hanging on the lips of brands, promoters and sponsors alike: Force majeure.

It is a legal provision that is attracting increasing scrutiny like never before as promoters and sponsors hastily pour over the clauses in their contracts, to navigate a way through the crisis.

The force majeure provision is an often-over-looked clause that is frequently – and mistakenly  described as merely a “boilerplate”. The basic concept of the provision is that a party to a contract will not be liable for a delay in performance or non-performance of its obligations where such delay or failure is caused by a “force majeure” event. In some circumstances, a party may even have the right to terminate an agreement for prolonged force majeure events.

Sophisticated promoters and sponsors will have negotiated this clause carefully, however it is often overlooked or sometimes even omitted altogether. If there is no force majeure provision in a contract then a court will not imply one and so it is always important in the first instance to make sure one is included.

It certainly also pays to be scrupulous about the details. Force majeure provisions should detail with specificity what amounts to force majeure. However, it is common for short-form versions to simply refer to “events outside of a party’s control”.

How does this apply to the coronavirus crisis? Of course, it may be the case that a force majeure provision in a contract does not specifically call out epidemics or diseases. If so, then a promoter wanting to rely on the force majeure provision will need to try to apply the coronavirus situation to a listed event. It remains to be seen with what success this can be carried out, and promoters should be keeping a close eye on any possible precedents that could unfold.

Another potential route that could offer hope may be the “Act of God” term. A hangover from the insurance industry, an “Act of God” is a term commonly found in force majeure provisions. However, Acts of God are typically linked with natural disasters, such as floods and fires, and so it remains to be seen how coronavirus can fit into this kind of categorisation, if at all.

Whether the coronavirus can fall under these types of clauses will depend on examining the specifics of individual contracts. One thing is for sure – sponsors of major events will be anxiously checking their contracts for a force majeure provision.