High Court finds Covid-19 pandemic did not trigger a material adverse change clause in a contract for Premier League broadcasting rights

A recent High Court decision shows that whether or not a material adverse change clause will be found to be triggered by Covid-19 is a highly fact-dependent question which will depend on the wording of the clause and the relevant context: The Football Association Premier League Ltd v PPLive Sports International Ltd [2022] EWHC 38 (Comm).

In this case, involving contracts for the rights to broadcast Premier League football matches in mainland China and Macau, it was held that the clause was not triggered despite the significant disruption to the 2019/20 season due to the Covid-19 pandemic. The clause in question was only triggered if there was a "fundamental change" to the "format" of the Premier League competition - which, as construed by the court, did not include the timing of matches or whether there were fans present. The court therefore did not have to consider whether the changes that had occurred had had a "material adverse effect" on the exercise of the rights.

The decision shows how important it is for such clauses to be drafted carefully to ensure that risks are allocated in accordance with the parties' intentions - but how difficult it is to do so when (by definition) the clause is meant to cater for unforeseen events.

Background

The claimant, the Premier League, entered into two contracts granting the defendant, PPL, rights to broadcast Premier League football matches within mainland China and Macau for three seasons starting with 2019/20. The first contract, the Live Package Agreement (LPA), related to live and delayed matches and provided for a total payment of US$701 million. The second contract, the Clips Package Agreement (CPA), related to "clips" or highlights and provided for a total payment of US$8.02 million.

The 2019/20 season was severely disrupted by the Covid-19 pandemic. It was temporarily suspended on 13 March and formally suspended on 3 April. When the competition resumed in June 2020 it was under very different conditions, though the season was completed by the end of July 2020 through the remaining games being played to a compressed timetable.

PPL failed to pay two instalment payments under the contracts: US$210.3 million under the LPA which was due on 1 March 2020; and US$2.673 million under the CPA which was due on 1 June 2020. 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 served notice terminating both contracts under their terms. It then brought proceedings seeking payment of the two outstanding instalments. It applied for summary judgment on the basis that PPL had no real prospect of successfully defending the claim.

Under clause 12.1(d) of the LPA contract, the Premier League warranted as follows:

"(d) during the Term the format of the Competition will not undergo any fundamental change which would have a material adverse effect on the exercise of the Rights by the Licensee and, for the purposes of this sub-clause, a fundamental change shall include any change which results in:

(i) the total number of Clubs being reduced to less than eighteen (18); or

(ii) the Competition ceasing to be the premier league competition played between professional football clubs in England and Wales."

If there was such a fundamental change, PPL was "entitled to enter into a period of good faith negotiations with the Premier League in order to discuss a possible reduction of the Fees payable" to reflect the effect of that fundamental change on PPL's exercise of the rights granted under the contract.

The LPA also had a force majeure clause, defined as "any 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 force majeure.

PPL's primary argument was that clause 12.1(d) had been triggered and that provided it with a defence to the claim under the LPA so that summary judgment should not be granted. PPL also sought to rely on a number of other arguments in defence to the claims under both the LPA and the CPA, including arguments based on unjust enrichment, the law of penalties and set-off, all of which the court dismissed in short order. This blog post addresses only the primary argument based on construction of the LPA.

Decision

The High Court (Fraser J) granted the Premier League summary judgment on its claims.

The judge said there was no doubt that, after the 2019/2020 season resumed, there were significant changes to how the matches that remained to be completed were played, particularly as: no fans were permitted to attend; the remaining fixtures were condensed into a five week (instead of nine week) period; a significant number were rescheduled from weekends to weekdays; and kick-off times were modified so that many more matches began late at night (in China/Macau).

The judge noted, however, that it did not necessarily matter that the conditions under which the season resumed were different to what had been anticipated when the contract was entered into. As he put it:

"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 question was whether the changes were properly characterised as a "fundamental change" to "the format of the Competition" for the purposes of clause 12.1(d). It was only if they could be so characterised that the court would have to consider whether those changes had a "material adverse effect on the exercise of the Rights" by PPL. The judge said that, if it was necessary to consider that latter point, it would not be suitable for summary determination so a trial would be needed (although he did say that, in his judgment, PPL would have a realistic prospect of success at trial on the material adverse effect issue).

Fraser J noted that, as established by the Supreme Court's judgment in Wood v Capita Insurance Services Ltd [2017] UKSC, construing a contract is a "unitary exercise [which] involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated". So the words used in the written agreement, the factual matrix, and the context in which the agreement was reached must all be considered in the balance.

Performing that exercise, the judge concluded that there was no fundamental change to the "format of the Competition". Format did not include kick off times, the days matches were played, or whether there were fans present. The expression referred to the way the competition was undertaken between the member clubs, ie: how often they played one another; the total number of matches; the fact they play home and away; how points are awarded; how the league table is organised. None of these were changed when the season resumed.

The judge considered that this result was clear from the words used in the LPA (including in the definition of "Competition"), and was also supported by the Premier League's Rules which formed part of the factual matrix known to both parties at the time the LPA was agreed. It also 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. There were simply no provisions in the LPA that gave PPL the right to be involved, and the detailed provisions that existed demonstrated that it was for the Premier League to choose.

That conclusion was also consistent with the examples of "fundamental change" given in the contract itself, being a reduction in the number of Clubs or the Competition ceasing to be the premier league competition in England and Wales.

If there had been a fundamental change to the format of the competition, contrary to the judge's finding, the judge said (obiter) that he would have rejected the Premier League's submission that the good faith negotiation requirement in clause 12.1(d) was unenforceable based on Walford v Miles [1992] 2 AC 128. As the judge put it, "the concept of good faith in contracts in English law has moved on a great deal" since that case. Such provisions are now common and, as Teare J observed in Emirates Trading Agency LLC v Prime Mineral Exports Private Limited [2015] EWHC 2104 (Comm) (considered here), the reason for considering such clauses enforceable is that it is in the public interest for expensive and time consuming arbitration or litigation to be avoided. Accordingly, such a term should not simply be ignored.

The LPA made clear that, if it was terminated under its terms, that would not affect any obligation falling due for performance prior to such termination. Accordingly, the instalments had to be paid and it was appropriate to grant summary judgment.