I want to begin this week with an epigraph from an eminent legal philosopher:
"You sign an agreement; you make a contract, you live up to it. You never get what you deserve. You get what you negotiate. You got a right to say 'yay' or 'nay.'"
The jurisprudential titan responsible for this sage advice? He's the kind that can be produced only in America. This guy. Boxing promoter Don King.
Despite Mr. King's colourful reputation, his is good advice to keep in mind when entering into a contract. While I've spent a lot of time in this column talking about contractual duties of good faith, the core of contractual interpretation is still about the meaning of words on paper, and those words don't always have the consequence that the contracting parties anticipate.
Mr. King should know; he was on the wrong end of a contractual interpretation decision last fall in the Southern District of New York. The story is pretty great (and was brought to my attention by Ken Adams's wonderful contract drafting blog). In 2013, Mr. King promoted a boxing match between Guillermo Jones and Dennis Lebedev. They fought a particularly brutal fight that left Mr. Jones victorious and Mr. Lebedev in rough shape (don't believe me? Click this gruesome link, or, better yet, don't). The thing is, Mr. Jones tested positive for furosemide – a prohibited diuretic boxers use to make weight – and was subsequently disqualified.
This being boxing, a rematch was immediately signed between Mr. King and Mr. Lebedev's promoters, World of Boxing LLC. The contract stipulated that Mr. King would cause Mr. Jones to participate in a rematch and that Mr. Jones would submit himself to drug testing the week before the fight.
You can see where this is going. Mr. Jones tested positive for furosemide and was disqualified for the fight. World of Boxing sued, alleging that Mr. King breached the contract by failing to cause Jones to participate in the fight, as he had promised.
The court agreed, finding that, straightforwardly based on the language of the contract, Mr. King promised to cause Mr. Jones to participate, Mr. Jones was not able to participate due to the positive test, and that because Mr. King therefore was not able to cause Mr. Jones to participate, he was therefore in breach.
Don King, however, is nothing if not wily. Even though he was in breach of his contract, he argued that his breach should have been excused by the equitable defense of impossibility. In Anglo-American contract law, if contractual performance becomes impossible, a court will often excuse a breach on fairness grounds. Mr. King argued that, short of imprisoning Jones, it was impossible for him to keep close enough tabs on Jones to prevent him from taking drugs.
Unfortunately for Mr. King, the court also threw out his impossibility defense. Impossibility requires that the event that caused the non-performance to be unforeseeable, and the potential for a repeat violation by Mr. Jones was seen by both parties – not only did Mr. Jones have a history of doping, but the contract mandated testing in the run up to the fight. Mr. King could have bargained for better terms. He didn't. Under the contract, Mr. King held the risk.
A decision that could happen Only in America? Hardly. These contract law principles apply in Canada as well.
The question of who holds the risk is the core question of the impossibility defense. Canadian courts have refused to excuse parties for "impossibility" both where the circumstance was foreseeable to the party claiming the defense and where control over the circumstance was better placed in the sphere of influence of the party claiming the defense. Impossibility is really only useful for circumstances that make it deeply unfair to hold a party to account due to that party's lack of control over an event.
In some way, this seems unfair to Mr. King. Whether you like the other Teflon Don or not, he did do everything he could to get Mr. Jones to participate short of imprisoning him. He exercised good faith and he gave his best efforts. Problem is, he agreed to more than good faith or best efforts: he agreed to make Mr. Jones participate.
But what about the underlying principle of good faith in contractual performance? (New York, much like Canada, operates under a good faith principle.) That doesn't help Mr. King either. Unlike in the Supreme Court of Canada's decision in the Bhasin v. Hrynew case I wrote about in November, the court in Mr. King's case is trying to allocate an economic loss. If Mr. King's breach was forgiven – on impossibility grounds or good faith grounds – World of Boxing would have been left to shoulder the burden of King's breach, and World of Boxing was even less well situated to monitor Mr. Jones than Mr. King was. From a pure efficiency perspective, Mr. Jones' promoter and handler could preserve the value of the contract at the lowest cost. Had Mr. King wanted to allocate some of this burden to World of Boxing, he could have. As it stands, he didn't. Even if there was no entirely fair place to allocate the loss, the fairest place was to make Mr. King bear it.
For Mr. King, it's a tough loss but the court's decision was unanimous – Mr. King got what he negotiated. So far, Mr. King has chosen not to appeal the decision. A good call – this is one rematch Mr. King would not win.
Adrian Myers is a lawyer at Torkin Manes LLP.