Premier League postponement: A different kind of 'penalty' than the type usually scrutinised

With the COVID-19 situation becoming more serious by the day, news broke late on Thursday 12 March that both Arsenal manager Mikel Arteta and Chelsea winger Calum Hudson-Odoi had tested positive for the virus.

On the morning of Friday 13 March, a unanimous decision was taken following a meeting of the Premier League’s key stakeholders to suspend the competition until 4 April – a move that is broadly in line with measures taken by the GAA and IRFU who have ceased all activity (including grassroots fixtures and training) until 29 March at the earliest.

A statement released by the Premier League outlines that they 'aim to reschedule the displaced fixtures, including those played by academy sides, when it is safe to do so.’ This ended weeks of speculation that the competition might be run behind closed doors in the absence of fans. However, doubts soon arose as to whether this would even be possible given the significant risk post to players and staff themselves who would be risking exposure to individuals who have tested positive for the virus.

The idea of moving fixtures behind closed doors and distributing one-off TV passes seemed initially to be the most likely outcome, as this would have protected revenue streams for Premier League clubs, all the while avoiding the reportedly large penalty clauses which are said to exist in contracts with the league's main broadcasters. As we know, the law has traditionally harboured a distaste for penalty clauses – particularly where the amount stated as being payable in cases of non-performance seems disproportionate to the actual loss sustained. 

As outlined in Ch 14 of my recently published textbook, the test governing the use of penalty clauses has changed recently following the UK Supreme Court decision in Cavendish v Makdessi; ParkingEye v Beavis [2015] UKSC 67. The original test, as laid out in the case of Dunlop Pneumatic Tyre Co v New Garage Motor Co Ltd [1915] AC 847, was as follows:

  • The sum will be held to be a penalty clause if the specific sum is ‘extravagant and unconscionable’ in comparison with the greatest loss that could conceivably be proved to have followed from the breach;
  • The sum will be a penalty if the breach consists only in paying a sum of money, the sum stipulated being greater than the sum which ought to have been paid;
  • There is a presumption that the clause is penal when a single lump sum is payable on the occurrence of one or more or all of several events, the events occasioning varying degrees of loss;
  • If the consequences of breach are difficult to estimate in financial terms this, far from being an obstacle to the validity of the clause, will point in favour of upholding it, the courts taking the view that it is better for the parties themselves to estimate the damages that will result.

The UK position has deviated from this position somewhat, with Lords Neuberger and Sumption leading the creation of a new test in Makdessi. Here, it was decided that a clause would be considered an unenforceable penalty where it creates ‘a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.’ The court went on to that that ‘the innocent party can have no proper interest in simply punishing the defaulter’ but rather should be seeking ‘performance or some appropriate alternative to performance’.

This revised test will surely inform the response of the Premier League to any potential legal action by broadcasters in the event that they are deemed to be in breach of contract for failing to facilitate the broadcasting of matches. However, in the view of this author, it is imperative that in any such action, the possibility that these contracts have been frustrated is raised. After all, the doctrine of frustration historically developed as a means of dealing with these kinds of force majeure situations where a failure to perform contractual obligations has arisen owing to the fault of neither party but rather to an external change in circumstances. A global pandemic would surely fit into this category, provided it has reached such a scale as to render performance of the contracts impossible.

It remains to be seen whether it will even come to this, as the suspension of EURO 2020 until next year means that domestic competitions will have extra time to be completed during the summer months - either behind closed doors or in the presence of fans. We may only hope that the COVID-19 situation will be contained by then. Either way, it will be a while yet before we hear the familiar hum of the Match of the Day soundtrack on our television screens.

 

 

My new book, Contract Law for Students is out now - order your copy here. If you would like to place a bulk order or check if you are eligible for a discount, please email me at: eoin.molloy@bloomsbury.com.

 

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