English 101

By Jeff English, CFEE

THE COVID-19 CONTRACT CONUNDRUM

With every spring and early summer event being cancelled or postponed, our entire industry has universally had to explore the implications of force majeure and whether it applies to a pandemic. The scope and breadth of the implications of postponing or cancelling your firework shows, concerts, beer gardens, and parades strikes right at the heard of what we do. I mean, what in the world is going on?

The coronavirus is causing a true Friday the 13th nightmare scenario for every single one of our festivals today. In mid-March, the country began ardently practicing social distancing and self-quarantining to a degree never seen before, and it caused our industry to face an uncertain future.

The Kentucky Derby Festival postponed its events until August. This forced an examination of our sponsorship, performance, and vendor contracts to see what the cancellation clauses included and the extent of the refunds we would owe. A normal KDF sponsorship contract includes a provision where the fee is earned upon receipt and there are no refunds. This is because of all the advertising and expenses that are necessary in the lead up to the event. The actual event, in many ways, is the icing on the cake compared to the preparation it takes to produce it. So, from a legal standpoint, we were mostly well positioned. However, there’s the law and then there’s the reality of not setting your relationships with your sponsors on fire with a bag of napalm. Any strict reading of a contract, meaning “we are not producing this event and are refusing to refund any portion of your money per the language of the contract,” means the sponsor simply won’t return once we’re open for business again. That’s why, from the outset, I urge you to please work with your sponsors to reach a compromise rather than argue legal details with them. Nobody wins when the lawyers get involved.

So, what is force majeure and what can we learn moving forward about specific protections you can include in contracts? Black’s Law Dictionary explains that a force majeure clause “is meant to protect the parties in the event that a contract cannot be performed due to causes which are outside the control of the parties and could not be avoided by exercise of due care.” Force majeure clauses allocate risk between the parties when an unanticipated event makes performance impossible or impracticable. Sounds a lot like a pandemic!

As it pertains to the coronavirus, any broad force majeure clause language should apply since March 11, when the World Health Organization declared it a pandemic. It is unlikely any court would decide that any private party has caused the coronavirus. And, many force majeure clauses specifically include “epidemic” or “pandemic” in its laundry list of qualifying events. An example of a “force majeure” clause includes Acts of God, strikes, lockouts, or other industrial disturbances, acts of the public enemy, wars, blockades, riots, epidemics, lightning, earthquakes, explosions, accidents or repairs to machinery or pipes, delays of carriers, inability to obtain materials or rights of way on reasonable terms, acts of public authorities, or any other causes. Even without that specific reference, the coronavirus should qualify under most force majeure clauses due to the government-imposed travel bans and quarantines.

Most courts require the party claiming force majeure to show that the event was not foreseeable and directly caused the failure to meet its contractual obligations. While this is often a close call in weather-related natural disasters—the geographic scope and actual impact on the stream of commerce of a storm is often debatable—a pandemic resulting in mass closures of all public events and schools should not be a close call. This is not a normal risk of doing business.

In summary, it’s my belief that force majeure applies to the coronavirus and those provisions would be activated in your contracts. However, neither party should look to them as a reasonable remedy. Sit down with your vendors and sponsors and negotiate. Find a resolution that includes a reasonable refund for the expenses your festival has already incurred. And as we’ve found with some of our sponsors, even if we can’t produce our events in August, they have said that we can keep their sponsorship fee to help keep our Festival afloat until 2021. That’s a win-win for all parties involved!

About the Author

Jeff English, CFEE is the Sr. Vice President of Administration/General Counsel of the Kentucky Derby Festival. After graduating from Washburn University School of Law (Topeka, KS) in 2004, Jeff worked in politics and practiced law before joining the KDF staff. He is charged with overseeing all of Festival’s legal issues and serving as its risk management officer. He also manages the Merchandise Department and the 501(c)3 not-for-profit Kentucky Derby Festival Foundation.

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