BY:Rip Beyman, Eve Nguyen, Neil Rosini and Michael Rudell
Originally published in the Entertainment Law column in the New York Law Journal on July 31, 2020.
The COVID-19 outbreak has wreaked havoc on the entertainment industry. Productions have been halted and distribution channels disrupted, causing a massive shift for both industry insiders and consumers alike. Live events now are being experienced via various streaming platforms as the doors to movie theaters, Broadway houses and concert venues remain shuttered. Unsurprisingly, numerous entertainment contracts have been thrown off course, due to governmental orders prohibiting production activities, the expiration of unmet payment and delivery deadlines, cast and crew fears of becoming ill, and the costs inherent in resuming activities in this new environment.
In the midst of this pandemic, one big question for contracting parties is whether force majeure will excuse or postpone a party’s obligations without liability. A force majeure, or a so-called “Act of God” clause, generally allows a party to suspend and also terminate a contract without liability if an unforeseen event beyond the party’s control makes performance of the party’s obligations impossible or impractical. Before the entertainment industry was turned upside down by COVID-19, force majeure clauses were not a primary focus, and were likely buried in the boilerplate language, often ignored and rarely negotiated. Now, as actors, writers, producers, directors, and production companies alike have found their income streams disrupted and their services deferred by letters invoking force majeure clauses, the entertainment industry is paying much closer attention.
Here are five things to bear in mind about a force majeure provision and its implications:
Force majeure derives from the common law doctrine of impossibility, which has very narrow application. Under the doctrine of impossibility, to excuse a party’s non-performance, the subject matter of the agreement or the means of performance must become objectively impossible. A typical example is destruction of property that makes performance of a contract impossible. But whether or not COVID-19 in given instances will meet the stringent criteria of impossibility is far from predictable. A well-drafted force majeure clause could remove that uncertainty, but just like the doctrine of impossibility, courts interpret force majeure clauses narrowly, and it is important to draft them with specificity.
A force majeure clause allows contracting parties to allocate risks relating to unforeseen events beyond their control. Generally, force majeure clauses: (i) identify events that, should they occur, would excuse a party’s non-performance (so-called “force majeure events”); and (ii) specify the scope of recourse available to an affected party (e.g., to suspend production or the obligation to furnish services). Force majeure events typically include a list of specific events like “war, fire, flood, and governmental order or regulation.” In entertainment contracts, they may also specifically include reference to events that would delay or impede the development, production or exhibition of a given project, such as union or guild strikes and the death, incapacity, unavailability or default of the director or any principal cast member of the project. Many clauses also include a catch-all specifying that force majeure events include any event “outside the control” of the parties, but the particular wording of such clauses determines whether and how they apply.
The list of force majeure events should be as exhaustive and specific as possible because of courts’ narrow interpretations. However, even if a clause does not expressly identify a particular force majeure event (e.g., by referring explicitly to a “pandemic”), it may still include an event that is close enough to excuse non-performance under the force majeure clause (e.g., by referring to an “epidemic”). In the absence of a detailed clause, or one that does not precisely specify the event, a court might conclude that a party affected by a particular event assumed that risk and cannot suspend or terminate its obligations.
The scope of recourse permitted by a force majeure clause depends to a large extent on how it is drafted. It might allow the breaching party to suspend or terminate all obligations under a given contract, or it may allow only partial recourse. For example, for a contract entered into before the initial COVID-19 outbreak under which a producer is obligated to deliver a documentary feature by a certain deadline, the producer may be able to invoke a force majeure provision that includes an epidemic as a force majeure event if, due to COVID-19, the producer’s crew can no longer travel to film the documentary’s subjects in the intended locations. Depending on the text of the clause, the producer may have the right to deliver a different version of the project than was originally intended, postpone delivery for a certain period of time, or terminate the agreement altogether.
If a force majeure clause allows for obligations under the contract to be suspended, typically the duration for suspension will be for as long as the applicable force majeure event continues, and perhaps even for a reasonable time following the event to allow for the resumption of normal activities.
Sometimes, however, parties negotiate for the force majeure suspension period to be limited to a maximum time period (e.g., six months). After that period expires, the contract might entitle either party to terminate the agreement, or it might reinstate certain obligations even if the applicable force majeure event continues.
Without clear details in the clause, it may be difficult to know when the duration of a force majeure event has ended and contractual obligations are restored, such as payment and delivery deadlines. This is especially the case for the current pandemic. Unlike a discrete event such as work stoppage caused by a union strike that would have a clear resolution, the end date of the current crisis may not be indisputable.
As parties negotiate new agreements for rendering services or granting rights, both sides need to consider how their expectations might be affected by COVID-19 and address them explicitly within the contract. This is the best way to avoid uncertainty, particularly because courts generally require force majeure events to be unforeseeable, and the pandemic is no longer an unforeseen occurrence.
One approach might be to agree—separate from other force majeure contingencies—that certain obligations can be suspended due to COVID-19 effects but with an outside date for their performance, failing which either party would have the right to terminate the agreement. A licensor may agree to an extension of a license period at least for a period of time, perhaps if some payment is still being made, but will want to know that a suspension will not tie up a property indefinitely.
Other obligations might be required to continue. For example, a production agreement might require strict adherence to a timeline for activities that can be done remotely, like script writing and preproduction planning notwithstanding COVID-19 issues, while allowing for postponement of principal photography. A more complicated scenario would allocate the risk of a shutdown once production has commenced particularly if COVID-19 effects are not covered by insurance.
Parties would be wise to consider such possibilities in the current environment and specify directly and separately the effect that COVID-19 will have on their obligations, either within a force majeure clause or in a distinct contractual provision.
Neil J. Rosini and Michael I. Rudell are partners in Franklin, Weinrib, Rudell & Vassallo. Both practice entertainment law and have written and lectured extensively on the subject. They gratefully acknowledge the assistance of Richard A. Beyman, a partner of the firm, and Eve Nguyen, an associate of the firm, in the preparation of this article.