1 June 2020
The cancellation of sports and other large events has impacted existing broadcast licence agreements. For those governed by Dutch law, there are a number of options to terminate or amend them.
One of the many measures governments have taken in efforts to control the spread of COVID-19 is to ban mass gatherings, including events drawing large crowds. In the Netherlands, large events are banned until at least 1 September 2020 and as a result, several sports events, the Dutch Eredivisie (Premier League), music festivals, and the Eurovision Song Contest have been cancelled. The ban means there are no new matches or other sports events to broadcast on TV under existing licence agreements – for example those covering an entire season, multiple seasons or agreements covering multiple events.
The doctrine of unforeseeable circumstances is a Dutch law characteristic separate to force majeure, which may allow amendment or even partial termination of an existing licence agreement. Here, we'll look at its application to a hypothetical multi-year media licence agreement for broadcasting major annual Dutch sports events.
If the licence agreement contains a force majeure or unforeseeable circumstances (material adverse change) clause, the question is whether COVID-19 measures qualify as a force majeure or unforeseeable circumstances situation. This has to be answered based on interpretation of the specific agreement and the question of what the parties intended when entering into the agreement. Pandemics are sometimes expressly referred to in agreements, but one of this size and impact is unlikely to have been envisaged by any company entering into licence agreements, so let's assume that no applicable clauses were included in the agreement to cover a pandemic.
The force majeure doctrine under Dutch law is set out in Article 6:75 of the Dutch Civil Code (DCC). In the scenario we're considering, the doctrine is relevant in that, when a contracting party is unable to perform an agreement in a timely manner as a direct result of the COVID-19 measures, force majeure could arguably apply.
Having said that, our view is that the current prohibitions on sports events do not result in a force majeure situation for a licensee because, strictly speaking, the licensee is still able to perform (ie pay the licence fee to the licensor for the right to broadcast the relevant event on TV) under the agreement. For the licensor the situation is different, and in most cases they will be able to rely on the force majeure doctrine under Dutch law. This means that the licensee cannot require performance of the licence agreement by the licensor and is not entitled to claim damages from the licensor (relying on force majeure). The licensee is, however, entitled to suspend its own obligations during the force majeure situation and it might be entitled to (partly) terminate the licence agreement – for example for the period of time that it cannot broadcast the live sports events for which it is paying licence fees.
Where the contractual balance has been severely disturbed after contractual agreement is reached (eg because of the COVID-19 crisis) but it is still possible for a licensee to perform (make payments), and where the licensor cannot or prefers not to rely on force majeure – for example where partial or total termination is not a desirable option – there is another possibility. The Dutch law doctrine of unforeseeable circumstances may come into play to allow the agreement to be amended.
Article 6:258 DCC contains the principle of unforeseeable circumstances under Dutch law. It stipulates that at the request of one of the contracting parties, the courts can either amend or (partially) terminate an agreement as a result of unforeseeable circumstances that (based on the principle of reasonableness and fairness) mean a party cannot perform. In terms of a broadcasting/licence agreement for sports events, it might apply as follows.
First of all, it should be noted that there is a general obligation for parties to take into account each other's legal interests and, in that regard, they should be open to renegotiating an agreement based on the principle of reasonableness and fairness. Going to court should therefore not be the first step, and it could backfire on the contracting party to take such action without trying to renegotiate the agreement first.
The next question is whether the COVID-19 crisis and government-imposed measures qualify as unforeseeable circumstances under Dutch law. Basically it comes down to the question of whether the parties had anticipated such a situation when entering into the agreement. In our example of the media licence agreement (and in most other cases), the answer to that question is probably 'no'. However, individual circumstances – such as a severe change in contractual value and balance between parties – can also qualify as unforeseeable circumstances. In the example of the licensee of broadcasting rights for sports events, the licensee probably has good grounds for claiming that the COVID-19 circumstances qualify as unforeseeable.
The next issue is whether the licensor can reasonably and fairly expect the licensee to fully perform under the agreement despite the circumstances. The basic principle in Dutch case law is that the doctrine of unforeseeable circumstances should be applied restrictively. For example, the economic crisis of 2007/2008 did not qualify as unforeseeable circumstances. However, the COVID-19 measures are in another league and, in our view, do qualify as unforeseeable. The licensor cannot reasonably expect its licensee to perform (fully) under the media licence agreement.
The final consideration is how the agreement should be amended by a court or the parties. The possibilities are numerous: termination, partial termination or suspension of certain obligations (eg for a certain period of time). Since the COVID-19 measures are (hopefully) temporary, the most logical way to amend an agreement is to agree on a suspension of the payment obligations for as long as the measures are in place. The amount can be calculated pro rata based on, for example, the yearly (minimum) royalty due under the licence.
Another option would be to extend the term of the agreement by the same period of time that the current COVID-19 measures have an impact on organising sports events, keeping the royalty payments in place for now but agreeing a royalty free extension down the line. This would help avoid potential liquidity issues for licensors and third parties relying on the income of broadcasting rights, for example, the actual organisers of events or sports clubs. Which measure is most reasonable will depend on the specific circumstances.
Both the force majeure and the unforeseeable circumstances doctrines can be useful legal tools for licensors and licensees when it comes to Dutch law media and broadcasting agreements impacted by COVID-19 measures. Reasonableness, fairness and the willingness to (re)negotiate with your contracting party remain the starting point in each case and these principles are also reflected by the prevailing view that the parties should be prepared to share the pain equally at this time given that neither is at fault in this situation.