Contractual Interpretation: Covid 19 restrictions do not trigger material adverse change provisions

The Football Association Premier League Ltd v PPLive Sports International Ltd [2022] EWHC 38 (Comm)

The question

Did Covid 19 restrictions amount to a “fundamental change” to the “format of the Competition” which had a “material adverse effect” on the rights granted?

The key takeaway

Although there were significant changes to the scheduled matches, these did not amount to a “fundamental change” to the “format of the Competition”. The fact that events has transpired differently to what was expected did not require the agreement to be renegotiated or rewritten.

The background

The Premier League entered into two contracts (totalling $701m) with PPL, granting them rights to broadcast Premier League football matches in China and Macau for 3 seasons, starting with the 2019/2020 season.

The 2019/2020 season was significantly disrupted by the Covid-19 pandemic. The 2019/2020 season was completed in July 2020, with the remaining games being played on a shorter timetable.

PPL failed to make payments under both of the contracts. Under the Live Package Agreement (LPA), US$210.3 was payable by 1 March 2020 and under the Clips Package Agreement (CPA) US$2.673 was payable by 1 June 2020. The Premier League continued to provide the rights to PPL for the remainder of the 2019/2020 season, notwithstanding PPL’s non-payment. 

The Premier League served a termination notice on PPL in September 2020. Proceedings were then issued by the Premier League for the outstanding payments.

PPL’s argued that the suspension of the Premier League in March 2020, and its eventual resumption but under different conditions amounted to a breach of warranty by the Premier League. Specifically, PPL claimed that the Premier League had breached its warranty at clause 12.1(d) of the LPA that the Premier League “would not undergo any fundamental change”. In the event of a “fundamental change” the parties to the LPA were to enter into a period of “good faith negotiations” in order to discuss a possible reduction in the fee payable under the agreement. 

The decision

The High Court agreed with the Premier League and granted summary judgment on its claim. While the judge recognised that there had been a change to the format of the Premier League (no fans, more mid-week games, compressed into a 5-week period, games played later at night for China/Macau audiences, etc), he concluded that there had not been a fundamental change to the “format of the Competition”. The example given in the agreement of a reduction in the number of teams gave an indication of what the parties had in mind.
It was only if the changes amounted to a “fundamental change” to the “format of the competition” for the purposes of clause 12.1(d) that the court would go on to consider whether those changes amounted to a “material adverse effect on the exercise of the Rights” by PPL. 
The LPA made clear that termination under the terms of the agreement did not affect any obligations before termination. PPL was therefore required to pay the instalments.

Why is this important?

This case highlights that, although Covid 19 caused significant disruption to many sporting events, whether or not material adverse change or force majeure provisions apply is determined by the usual principles of contractual interpretation. It also shows the difficulty of providing for unforeseen circumstances. 

Any practical tips?

When drafting material adverse change provisions, consider the circumstances in which they should apply, which party should bear the risk of those circumstances, and whether there should be mechanisms to adjust the agreed price or other provisions (eg the grant of additional rights). Once triggers are agreed, consider whether the thresholds are sufficiently clear (eg what is meant by “fundamental”, “material” or “substantial” change).