Breach of Contract is no Mickey Mouse matter

2 September 2021

Actress Scarlett Johansson is suing Disney for breach of contract concerning their new film ‘Black Widow’, which features Ms Johansson in its starring role.

Ms Johansson has brought the claim to the Los Angeles Superior Court. She claims that Disney deliberately breached a contract term stating that the film would have an exclusive theatrical release for a set time before being placed on Disney’s streaming service, Disney+ and that Disney’s decision to release the film both in theatre and on the service at the same time resulted in a loss of earnings for Ms Johansson as her pay was determined partially by theatrical box office figures.

Disney claims that there was no breach of contract and that the decision for the joint release was due to the ongoing COVID-19 pandemic. However, Ms Johansson claims that she attempted to renegotiate her contract several times to account for the pandemic release and was ignored.

This situation may seem distant to the law of England and Wales. However, it prompts the opportunity to consider the effect that the Covid-19 pandemic has had on our contracts, especially regarding breach of contract.

What is a breach of contract?

A breach of contract is often defined as a failure to perform contractual obligations without a valid legal excuse. What amounts to a failure to perform will depend on the terms of each specific contract. In the event of a breach, the claimant is within their rights to try to enforce the contract or sue for damages.

However, the Covid-19 pandemic may cause two of the circumstances that are considered a valid legal excuse for breach of contract:

–         Force Majeure

–         Frustration

What is Force Majeure?

In general terms, Force Majeure is an event or circumstance beyond the control of the contracting parties that prevents the completion of a contract, such as a war or natural disaster. However, technically in English and Welsh law, there is no specific definition of what amounts to a Force Majeure event. Therefore to have effect in law, Force Majeure needs to be defined by a ‘force majeure clause’ in a contract. For this, the following requirements need to be met:

–         There is a clear definition of an event that the parties consider a Force Majeure, typically using a list

–         This list does not need to be exhaustive or specifically mention an event or circumstance

–         However, if an event is not listed on the list, it needs to be relevant or in the spirit of the rest of the contract to be considered

–         An event doesn’t necessarily need to have been unforeseeable, but it does need to be out of the control of the parties

–         The parties need to take reasonable action to negate the effects of the event

–         The event needs to take place after the contract was formed to be considered out of the parties’ control

If the Force Majeure clause is triggered, the parties can suspend the contract as a whole or just the part most affected by the event, and a party will not generally be liable for failure to perform their contractual obligations. However, the burden of proof lies with the party trying to rely on the clause.

What is Frustration?

Frustration occurs when something that happens after a contract is formed makes it either commercially, legally or physically impossible to carry out the contract terms.  Unlike Force Majeure, there does not need to be a specific clause in a contract to make it legally valid.

To argue that a contract has been frustrated, the claimant would need to prove that:

–         The frustrating event happened after the contract was made

–         The event struck at the root of the contract

–          Either party could not have anticipated the event

–         The event is not the fault of either party

If a contract is frustrated, the parties will not be liable for failure to perform the contract. However, the contract will not just be suspended; it will be considered null and void, and a new contract may be needed to account for the frustrating event.

What does this mean during the Covid-19 Pandemic?

The Covid-19 pandemic was an unprecedented event that has affected nearly every part of people’s lives. However, whether or not it amounts to a valid legal excuse, via force majeure or frustration, to suspend, revoke or vary a contract will depend on the specific contract and business terms.

It may be wise to assess your position regarding the effect the pandemic has had on your contracts or whether the Covid-19 pandemic should be a consideration in future contracts.

If you have any concerns regarding your contracts or how your business has been affected by the pandemic, please feel free to contact our team at Red Kite Law for independent legal advice.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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