By Rafael Braegger, Attorney-at-Law, Pachmann Attorneys-at-Law, Zurich, Switzerland
The COVID-19 pandemic is having a dramatic impact not only on people’s everyday lives and on the activities of businesses, but also on major international sports events, such as the UEFA Euro 2020, which, having been postponed for a year, is now the UEFA Euro 2021; the Roland Garros Tennis Tournament or the Formula 1 World Championships, which have been postponed in the last days.
Other events have even been cancelled, such as the Cycling Spring Classics; the final races of the Ski World Cup; or the playoffs in the European Ice Hockey Leagues.
The postponement or cancellation of such events has, of course, several legal implications with many different stakeholders involved: sports federations; local organisers; athletes; broadcasters; marketing and merchandising companies; and so on.
The relationships among these stakeholders are governed by a set of contracts, all of which ultimately face the same question: what happens to the rights and obligations under a specific contract? In this regard, since most international sports federations are domiciled in Switzerland (for example, IOC, FIFA, UEFA, FIS, UCI, and many others), Swiss law is particularly relevant.
The starting point for answering the above question is the doctrine of freedom of contract (art. 19 para. 1 of the Swiss Code of Obligations, CO). Also, Swiss law is no exception from the general principle that contracts must be respected (“pacta sunt servanda”). As a principle, this remains the case even if the circumstances change.
However, it is acknowledged that there can be situations where the circumstances change to such an extent that it would be against good faith – the overarching principle of contract law (art. 2 of the Swiss Civil Code, CC) – to maintain the contract.
An example of such a situation is “force majeure” or “Acts of God“.
Under Swiss law, there is no legal definition of “force majeure”. However, legal doctrine defines it as unforeseeable and extraordinary incidents which may not be prevented or guarded against through economically adequate means.
When it comes to determining the legal consequences of “force majeure”, the starting point is, again, the contract between the parties. Contracts related to major international sports events typically contain a clause which governs the occurrence of “force majeure”. Regularly, such clauses will, in the first-place, state what “force majeure” entails and whether pandemics are considered to be a case of “force majeure”. If they do not, there is a need to interpret the contract. In this connection, Swiss legal doctrine and case law generally accept pandemics as a typical case of “force majeure”.
As to their content, most contract clauses on “force majeure” will, on the one hand, release the parties from the duty to perform their obligations, for example, the host does not have to hold the event anymore; the broadcaster does not have to pay for television rights; and so on. On the other hand, the clauses will most likely exclude the right of a party to claim damages from the other.
In the case that a contract does not provide a “force majeure” clause, in turn, the CO provides a rule that jumps in. According to art. 119 para. 1 CO, if the performance of an obligation is made impossible by circumstances not attributable to the obligor, the obligation is deemed extinguished. Without a doubt, a pandemic, such as COVID-19, constitutes circumstances not attributable to the obligor; and since in a mutual contract (synallagma) both parties are at the same time obligor and obligee, both are released from their obligations. See also art. 119 para. 2 CO.
There are, however, two qualifications to be made:
Firstly, art. 119 para. 2 CO obliges the obligor to return any payments etc. he has already received from the other party (such as upfront payments for television rights, money received for tickets already sold). Secondly, the principle of the “substitutional commodum” applies, which provides for the obligor to hand out to the obligee any compensation the former receives from a third party, such as, in particular, from an insurance company.
Under Swiss law, there is also the “clausula rebus sic stantibus” principle. This principle dictates that, in case the ratio of equivalence between the duties of the parties becomes heavily distorted due to unforeseen external circumstances, the contract may be adjusted by the court. However, this principle is mainly applicable to long-term contracts, such as a tenancy or lease agreements, employment contracts. As a matter of fact, the legal consequences of applying art. 119 CO and of the “clausula rebus sic stantibus” will, in most cases, if at all, not differ substantially and, in both cases, will lead to a release of the parties from their contractual duties.
In conclusion, for contracts on major international sports events governed by Swiss law, the COVID-19 pandemic will, in most cases, create the legal situation as if the contract was never concluded and, therefore, as if the sports event was never organised. No party has to perform and no party is entitled to damages.
As a side note, it needs to be highlighted that organisers of, and participants in, major international sports events postponed or cancelled will most likely not be successful in trying to address governments (who will formally be responsible for the postponement or cancellation, by banning all public events during the pandemic) with claims for damages; nor, according to the Federal Act on Pandemics, for instance, any liability of the Swiss Confederations for measures enacted, based on that Act, being excluded.
Rafael Braegger may be contacted by e-mail at ‘firstname.lastname@example.org’