The Act to Mitigate the Consequences of the Covid-19 Pandemic under Event Contract Law, European Company (SE) Law and European Cooperative Society (SCE) Law, which was passed on 20 May 2020, provides relief to sports and concert event organisers and establishments which are suddenly facing numerous reimbursement claims as a result of cancellations due to the Covid-19 pandemic. Permitting them to offer credit in the form of vouchers to consumers rather than cash refunds helps to protect them against the massive financial impact of the coronavirus.
The legal aspects of whether a promotor has an obligation to reimburse the cost of tickets for a cancelled event will have to be reviewed on a case-specific basis, and there can be no blanket solution. In many cases, however, the promotors will have that obligation, which is why vouchers offer them a viable means of avoiding potential liquidity squeezes.
For some unknown reason business events such as trade fairs are not included in the draft legislation and organisers of such events who issue vouchers in lieu of refunds may expose themselves to serious legal risks because the law fails to cover a number of legal aspects.
Which events and establishments are covered by the law?
The law mentions music, cultural, sport and other recreational events, as well as establishments which cannot continue operating as a result of the Covid-19 pandemic.
Although the law itself does not differentiate between consumers and businesses, the explanatory memorandum excludes events which take place “in a business context“. The examples provided are courses, workshops and events such as trade fairs and congresses that mainly target a specialist public.
The provisions of the law only give companies the right to provide customers with vouchers if event contracts were entered into before 8 March 2020.
The fact that business events are excluded is both incomprehensible and dangerous for the live event industry. Trade fair and congress organisers are exposed to exactly the same insolvency risks as concert promoters and gym operators as a result of the spate of reimbursement claims. Ultimately, nobody benefits if business event organisers are forced into bankruptcy because, even in a best-case bankruptcy scenario, consumers will only be refunded a fraction of the money they are owed.
What about events cancelled as a precaution?
It is not clear whether the provisions of the bill only apply to events cancelled to comply with statutory orders or administrative decrees, or whether they also cover events cancelled as a precautionary measure by organisers or customers, even though they were under no legal obligation to cancel. The legislation merely states that the provisions apply if an event “cannot take place due to the outbreak of the COVID-19 pandemic.” The example of administrative decrees is provided. Although this does not rule out other reasons, such as precautionary cancellations, no clarification is given.
What is the value of the vouchers?
The voucher must correspond in value to what the consumer paid to attend the event, including any advance booking fees and other charges. In other words, it has to cover the total amount paid by the consumer.
In the case of events which take place over a period of time, such as language courses or gym memberships, which are based on long-term contracts with customers, the vouchers can have a pro rata value.
However, vouchers cannot be restricted to a specific event or date. In other words, a concert promoter is not allowed to issue a voucher for another concert at another time.
Under what terms can the vouchers be redeemed?
First of all the vouchers can be used like traditional vouchers to pay for another of the promotor’s events or to use an establishment’s facilities.
However, consumers can also claim a cash refund in the value of the voucher if their personal situation prevents them from using the voucher, or if they are unable to redeem them by 31 December 2021.
This is probably the most important provision of the law. Basically, the voucher arrangement allows promoters to postpone refund claim payouts until 31 December 2021 and use the additional time to generate the necessary liquidity.
An example of a personal situation entitling a consumer to refuse a voucher is the person’s inability to pay existential living expenses. A consumer who purchased a ticket for an event during a holiday which was cancelled, and attendance of the rescheduled event would involve substantial additional travel costs, would be entitled to refuse to accept a voucher.
How long are the vouchers valid for?
The explanatory memorandum makes reference to the statutory limitation period of three years in connection with claims for cash refunds equal to the value of the vouchers.
There is no mention of using vouchers to pay for other events in the explanatory memorandum. It would be logical to treat this in the same way and apply the statutory limitation period.
What do the vouchers have to look like?
The voucher designs must make it clear that they were issued in response to the COVID-19 pandemic and state the circumstances under which the holder can request a cash refund equal to the value of the voucher.
What are the legal risks for the affected promoters?
It is not clear to what extent issuing vouchers will affect the consumer’s refund right. The two following legal scenarios, each of which is associated with very different legal consequences for the promoter, are feasible.
One legal approach is to mandate that the issue and acceptance of a voucher results in the contractual deferment of the refund claim. In that case, the voucher would simply be the securitisation of the deferred claim. This could potentially give rise to legal disputes over whether a refund claim actually ever existed. It is often difficult to obtain legal clarification on whether consumers are entitled to a refund in the current situation. In many cases, it will only be possible to solve this problem by applying Germany’s vague statutory provisions on frustration of contract. This approach offers the promoters the chance to not only defer the refund, but also to dispute whether it has to be paid at all.
The other option is to deem the original refund claim voided and a new claim constituted when the voucher is issued and accepted in accordance with the terms set out in the legislation. This option would create a new original claim for the consumer which, for all intents and purposes, is incontestable irrespective of the issue of whether a refund entitlement existed. The risk for the promoter in this case is that vouchers may be issued entitling consumers to a refund who, on closer inspection, would not have been legally entitled to receive one in the first place.