Coronavirus and event Cancellation: what is the legal position for stakeholders
The Shanghai Grand Prix, Six Nations rugby, PGA Tour golf, MotoGP and now all Italian sport. You name it, pretty much every sport has been affected by the global spread of coronavirus (Covid-19) since mid-February; with postponements, cancellations and events being held behind closed doors becoming the rule rather than the exception. Indeed, talk of the logistical behemoth that is the Olympics potentially being shifted (although the IOC is presently at pains to stress that this will not happen), underscores that we are in somewhat unchartered territory. In the Middle East, we have seen the cancellation of the UAE Tour cycling mid-event, the postponement of the ITU World Triathlon and a Dubai Sports Council Circular being issued to postpone all sports-related activities until the end of March, to name but a few. Of course, the scope of the issue does not start and end with sport, with scores of concerts, festivals, film premieres (even 007 now has an unexpected free slot in his diary) and conferences of varying shapes and sizes also being put on ice as world health authorities scramble to get to grips with the outbreak.
The scale and pace of these developments have caused significant anxiety and uncertainty, both operationally and financially, for event stakeholders and this will likely continue for the foreseeable future. This is because matters are largely outside of their control. If an international/national health authority or sports governing body directs that an event be postponed or cancelled, the event owner is obliged to comply, which in turn affects participants, ticket holders, event sponsors and downstream suppliers. Event stakeholders are left questioning the status of their contractual obligations with third parties in the context of Covid-19 and amid fears as to where the expected heavy losses in the industry will fall. The answers will largely depend on three factors: (1) the provisions of the contract, (2) insurance coverage, and (3) the underlying law.
We have already been approached by numerous event owners, government entities, venues, sponsors and suppliers based in and/or doing business across the Middle East in recent days to advise in connection with events that have already been postponed/cancelled, forthcoming events that are currently in the balance and proposed events that are in the contract negotiation phase. We have put together the following checklist to address some common queries clients have presented.
1. Check the contract
Depending on the context, this may mean checking the back of ticket terms and conditions or checking a highly bespoke contract governing customer service, food and beverage, sponsorship or security at an event. If the contract is between two commercial entities that are well accustomed to the inherent risks surrounding events, there may be an express event cancellation clause which duly apportions liability between the parties upon the cancellation of an event.
However, as most contracts do not contain express cancellation clauses, the focus will primarily be on ‘force majeure’ clauses. These clauses purport to exclude liability for one or more parties due to the occurrence of certain events beyond their reasonable control. Such contractual provisions are often overlooked, but at times like these they can bring much needed certainty, as they usually prescribe a mechanism for the contract to be suspended for a given period and, if the underlying circumstances causing the force majeure clause to be triggered are not resolved in that period, the contract can be terminated without additional liability to either party. If such a mechanism exists, it should be closely followed, which may require a party to serve formal notice on the counterparty as soon as the relevant circumstances come to their attention and to maintain a clear audit trail to justify their actions.
It must be stressed that force majeure clauses are not a panacea. Whether they are operative in given circumstances will depend on the precise wording of the clause in the context of the broader contract and the factual background. Some clauses specify an exhaustive list of circumstances triggering the clause (which may, or may not, include disease, epidemics and/or pandemics), whilst others are non-exhaustive and seek to cover all circumstances outside a party’s reasonable control.
Many contracts will not contain an express cancellation clause or a force majeure clause and so the legal position will be less certain and may require very careful consideration as to how the contract can proceed, if at all, and how liability will be apportioned if it is terminated.
2. Check insurance coverage
Insurers have been inundated over recent weeks, with some even taking proactive steps to confirm that loss of revenue for cancelled events will not be covered under certain standard insurance policies. Depending on the nature of the event and the sophistication of the insurance coverage, some policies contain ‘notifiable or communicable disease” extensions that may cover business losses (e.g. ticket refunds and the fulfilment of contractual obligations with third parties). The availability of this cover will of course depend on whether the Covid-19 outbreak has been categorised as a notifiable disease in the relevant jurisdiction prior to the event being cancelled. It should also be borne in mind that some policies for future events may now expressly exclude Covid-19 as a ‘pre-existing circumstance’.
Other available insurance coverage can include business cancellation insurance and even express event cancellation insurance (although often the latter is usually expensive). It would therefore be sensible to check relevant policy wording carefully and to open a line of communication with insurers to better understand the scope and notification requirements of any coverage, so as to avoid nasty surprises further down the line.
3. Consider the underlying law
Many common law systems (e.g. English law) do not imply force majeure-type protection into contracts. Such protection must be specifically included in the contractual bargain reached between the parties.
However, in certain civil law jurisdictions, there can be civil code provisions relating to extraneous circumstances that are implied into contracts. This is the case in the UAE, where the UAE Civil Code contains provisions that can entitle a party to certain relief from performance or reimbursement for work done in certain circumstances, for example, in the case of a force majeure event, natural disasters and sudden incidents.
4. Conduct a health-check of template agreements and insurance coverage
In light of anecdotal evidence from the past couple of weeks, we would suggest now is as good a time as any for event stakeholders to conduct a review of their standard terms and conditions and template agreements to ensure that they are adequately protected for proposed events that are not yet under contract. Likewise, a holistic review of insurance coverage (including potential umbrella policies held at parent entity or group level) with the assistance of insurance brokers/providers in order to plug any gaps and de-risk future operations would be a prudent step to take.
Further, now that Covid-19 is a known and quantifiable risk, the parties to an event contract are free to stipulate and agree steps that the parties must take in order to mitigate financial exposure in the event of cancellation (e.g. non-reusable items required for an event must not be purchased more than a certain number of days before an event), as well as appropriate commercial remedies in the event of cancellation due to the outbreak (e.g. a specified percentage of the fee will be payable).
The contractual framework and contractor ecosystem surrounding an event can be broad and intricate, with numerous parties coming together to deliver a seamless event. When matters arise outside the control of either party, the temptation is to go on the offensive in an attempt to realise or safeguard (as the case may be) relevant revenue streams as quickly as possible and to the fullest extent commercially conceivable. However, this approach can cause more problems than it solves, as valuable legal rights can be unwittingly waived, the window of opportunity for formal notices to be served can be missed and relationships between parties can be irreparably damaged.
That said, there have been early signs in the Middle East market that affected parties are acting reasonably and working together to both ameliorate and appropriately allocate the cost of the disruption with a view to preserving ongoing relationships. A continued show of such commercial solidarity could allow the regional events industry to weather the storm of Covid-19 in 2020 and also act as the springboard for what hopefully will be a turbocharged Middle East events calendar in the latter part of 2020 and throughout 2021.
If you are an event stakeholder and are in any doubt as to your legal rights, we would strongly advise that you seek expert legal advice to assess your current position and put in place a strategy going forwards to mitigate the operational and financial impact of Covid-19 on your business.
Our full-service Sports & Events Group is on standby to support from our 17 offices across the Middle East & North Africa. For further information, please contact