The coronavirus pandemic has put the spotlight on the legal concept of force majeure, clauses in agreements that govern what happens when an event occurs beyond the control of the parties and, according to one side, makes it impossible to perform a contract. Guest columnists Marc H. Simon and Rom Bar-Nissim of American law firm Fox Rothschild LLP take a look at some implications for the entertainment industry.
The Covid-19 crisis has resulted in the issuance of force majeure notices across the entertainment and media industry. In one notable example, Warner Bros sent notices to many of its television writers suspending their agreements, but some writers objected, arguing that the pandemic does not prevent their ability to write.
Why is this legal concept, which is ubiquitous in industry contracts, causing disputes over its application in these trying times? This article provides basic legal and practical guidance to navigate issues relating to force majeure clauses during this unprecedented pandemic.
As a legal concept, force majeure, which means “superior force” in Latin, was first introduced in French jurisprudence and means something occurred outside the control of the contracting parties that seriously impacted the performance of the contract.
Generally, there are two types of force majeure events: (1) acts of god (e.g. earthquakes, hurricanes, volcanoes); and (2) man-made acts (e.g. war, riots, union stoppage).
Covid-19 certainly appears to represent a quintessential force majeure event. But the analysis is not so simple. Force majeure is a legal defense that may excuse performance of a contract. Whether the defense applies involves examining (1) the law governing the contract; and (2) how the purported force majeure event affects the purpose and terms of the agreement.
Determining the law governing the contract is critical to the force majeure analysis because states interpret the doctrine differently. New York takes a narrow approach, applying it only when the force majeure event destroys the entire subject matter of the agreement or makes performance of a condition objectively impossible. California takes a broader approach and examines whether, despite the parties’ good faith efforts, continued performance in light of the force majeure event would be unreasonably expensive.
Applying law to facts helps to illustrate. Let us begin by examining Warner Bros exercising its force majeure provisions to suspend its writers’ agreements due to the studio’s inability to produce television shows during the lockdown. New York courts could take a dim view of Warner Bros’ attempt to invoke force majeure because the pandemic is not rendering the agreed upon writing services impossible. California courts may take the view that, notwithstanding the ability to create virtual writing rooms, continuing writing services could be prohibitively expensive because there are no shows to produce, and no actor performances to affect story arcs (i.e. that writers’ services are speculative and prohibitively expensive in the absence of production). Of course, shows like Saturday Night Live, The Daily “Social Distancing” Show, and other late night shows demonstrate that writers can render services under Covid-19, but it is not one size fits all.
Production considerations also illustrate the complexities. Suppose a sitcom set and shot in New York City is scheduled to film in the summer of 2020. New York’s stay at home order is likely to prevent filming during this period. However, other jurisdictions, like Georgia, may allow filming. If the show primarily films on sets and in interiors, under New York law the ability to shift filming to Georgia could preclude the application of the force majeure doctrine. However, under California law, the cost and expense of moving the production to Georgia might warrant applying the force majeure doctrine. If the show requires extensive exterior filming in New York City, Covid-19 might constitute a force majeure under New York law because a prohibition on exterior filming serves to destroy the subject matter of the production agreements.
The force majeure analysis also requires determining whether one aspect of the agreement is affected by the force majeure event, while another is not. For example, let’s take a two year model endorsement contract with services and usage provisions through July 31, 2020. Neither a New York nor California court will likely agree that a suspension of the services provision (which may be appropriate in light of Covid-19), should result in suspending the usage provision, if the brand was not prevented from utilising previously photographed material through July 31, 2020.
When a force majeure event applies, the right of suspension should be used in good faith to bridge the force majeure event – particularly before the right of termination is invoked. The parties should consider, “Does the force majeure event truly affect performance of the agreement?”, “Do easing restrictions allow performance of the agreement in alternative ways, even at added cost?”, and “Does the force majeure event prevent performance of all or part of the agreement?”. Answers to these questions are critical to avoiding litigation.
Force majeure provisions are intended to address the unexpected. But contracting parties must realise that courts will not treat Covid-19 as a rubber stamp to invalidate contracts. Rather, parties should closely examine whether the force majeure event applies to the agreement under existing law and, if it does, explore all options to achieve the objectives of the contract before seeking to terminate.
Marc H Simon is Chair of Fox Rothschild’s Entertainment Law Department. Rom Bar-Nissim is a media and entertainment litigator at Fox Rothschild.