COVID-19 and the Entertainment Industry: Part 2 - Contractual Issues
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In just over one month since social distancing measures were put into place in Ontario, the entertainment industry has been dramatically affected. Due to the rise of COVID-19, television and film production has been halted, live performances have been cancelled, and it has been projected that large-scale gatherings will not return until 2021.
It is our responsibility as entertainment lawyers to address the issues for our clients that stem directly from this new reality, including the logistical issues concerning the production and release of content, contractual issues for both talent and producers, and financial issues that affect all of the creative industries.
In this three-part series, we will address these topics as well as reasons to be optimistic about the outlook of the entertainment industry and the new opportunities that may arise. In Part 2, we’ll look at the contractual issues that have arisen as a result of COVID-19. Part 1, which dealt with the major logistical issues for the entertainment industry stemming from COVID-19, can be read here.
With COVID-19 bringing a great deal of uncertainty into the entertainment industry, many creative professionals have been left unable to fulfill or enforce contractual obligations. This uncertainty is being felt at every level - for example, a cancelled live music tour affects the artist who signed contracts with worldwide venues, but it also affects the venue that sold tickets to customers, and the crew members employed by the artist and venue who were promised payment. If the tour is cancelled, can the artist insist on being paid any guaranteed fees by the venue? What if a guaranteed fee was paid in advance - does the artist need to return it to the venue? Will the venue be on the hook to refund ticket sales to customers?
All of the above questions depend on what is written in the relevant contract, but many contracts are not drafted with the foresight to account for unprecedented situations such as the ongoing global pandemic. In these circumstances, there may be no contractual way out of an agreement without breaching it for failure to perform obligations or inability to make payment. There are also situations where a single party has several affected contracts, but is now only able to fulfill a limited number of its obligations due to the financial constraints being felt all around the industry. In these situations, commitments will need to be prioritized based on the potential consequences of not performing, including the impact on reputation and relationships, and how your business may be affected in the future.
Where a contract does not allow for lenience, or where there is no written contract at all, communication with the other party will be key in trying to establish creative solutions. For example, it may be possible to negotiate new timelines, reduced rates or extended payment terms, or even cancellation of contracts altogether. If a party is willing to negotiate, it would be a good idea to engage an entertainment lawyer to put your agreed upon terms into writing.
Force Majeure and Other Provisions
In some situations, a contract does provide a way out of obligations that are no longer feasible. One such provision is called a “force majeure” clause, which makes it so that parties may not be held to a contract if their performance is prevented by certain events beyond their control.
Force majeure clauses generally account for natural disasters such as floods and earthquakes, as well as government regulations or civil disturbances. Broader force majeure clauses will also include epidemics and occasionally “plagues”, but it is possible that parties would disagree on whether the COVID-19 pandemic falls into either of those categories. In the past, courts have held force majeure clauses to a high standard of strict interpretation, refusing to infer broader meaning from specific terms, which could create “escape hatches” out of contracts when things go sideways. However, there is reason to believe that an unprecedented event such as COVID-19 would not be held to that standard and that the governmental restrictions that have been imposed may be widespread enough to be considered an event of force majeure even if it is not necessarily listed in writing.
The effect of triggering a force majeure clause is typically either the suspension or termination of a contract after a certain amount of time. That amount of time generally begins upon notice from the party invoking the clause, making it important that contractual notice requirements are followed, even in these unprecedented times.
Even if there is no force majeure clause in a contract, there are circumstances where parties may still be relieved of duties that are no longer possible to perform. For example, there is the legal doctrine of “frustration” which can clear a party of its payment obligations (or even recover amounts already paid) under a contract if an unforeseen event, through no fault of either party, renders the performance of the contract impossible. There are also a number of terms that are often used in contracts, such as “best efforts” or “good faith”, that can potentially be interpreted so as to release a party from commitments that can no longer be fulfilled in light of the global pandemic.
In general, dealing with contracts during this time will require a high level of communication and transparency between parties. However, we have seen that this is not always realistic and contractual disputes can quickly become contentious. If you find yourself in this situation or need consultation as to what rights and remedies you may have under a contract that can no longer be performed due to COVID-19, the entertainment lawyers at Hall Webber LLP are well equipped to assist.
This article is for informational purposes only and is not, nor is it intended to be, legal advice. Please contact Michael Sniderman at Hall Webber LLP (firstname.lastname@example.org) if you wish to consult a lawyer for advice regarding your individual situation.