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Force Majeure Clauses


Posted on May 17, 2006

By John S. Foster, Esq., CHME

Recent events and catastrophes around the world like terrorism attacks, hurricanes and earthquakes, a worldwide SARS epidemic, tsunamis, strikes and labor disputes by hotel workers, and power outages in major cities are a reality that planners and suppliers must consider when planning meetings.

The controversy surrounding force majeure clauses and their wording stems from the different viewpoints that planners and suppliers approach the entire concept of what has to happen before the meeting sponsor is allowed to terminate the contract  without liability.

From the suppliers perspective, the force majeure clause should only refer to acts or occurrences that totally prevent the meeting sponsor from holding the meeting.  From the meeting sponsors perspective, holding the meeting is the second concern, not the first.  The first concern for meeting sponsors is their ability to attract attendees to the meeting when certain acts or occurrences intervene after the contract is signed that materially affects its ability to do so.  With the exception of certain corporate events where employees are commanded to attend, many meetings are planned and specific groups of people are invited to attend with no guarantee that anyone will show up. Additionally, meeting sponsors are required by law not to subject their attendees to unreasonable risks of harm. Holding a meeting in a city that has recently been devastated by a hurricane, or is experiencing a disease epidemic, potentially violates the meeting sponsors legal duty to its potential attendees. Meeting professionals understand that first-rate meeting planning starts with the contract language in client-supplier agreements. Good contract language should address the consequences of a potential catastrophe and its negative influence on event attendance.

Contract law provides that, absent wording in the contract providing otherwise, one or both of the parties can terminate their performance of the contract if that party's performance is made impossible, impracticable, or is frustrated by supervening events making the value of performance worthless to that party. These legal principles apply by default when a supervening act or occurrence affects the meeting and the parties did not allocate the risk and consequences in the contract. If parties do not want the risk of unintended consequences from future acts or occurrences outside their control, the contract should comprehensively address what standards will apply and what the consequences will be.

Following are some contracting tips for meeting sponsors and suppliers based on lessons learned by the industry from recent catastrophes:

*  The typical force majeure clause in the convention industry limits termination of the contract without liability to situations where it is impossible to perform. Consider wording the force majeure clause to include the middle standard of commercial impracticability and frustration of purpose of the contract.

*  Make the force majeure clause broader in scope to provide for partial termination of performance
as well as total termination of performance.

*  Write clear and inclusive force majeure clauses to cover known, as well as unknown, hazards that could materially affect the performance of either party. Specificity and inclusiveness are particularly important in both domestic and international contracts. The law in this area may vary according to what state, province, or country controls interpretation of the contract. When parties are clear about their intentions regarding what will happen under certain circumstances, their clear intentions will supercede and take the place of any ambiguities in the law. Foreseeability is a critical issue in whether the law will allow a party to terminate their performance under the contract for supervening events not mentioned in the contract. Disease epidemics, terrorism, strikes and labor disputes, hurricanes, earthquakes and tsunamis, and power outages are now forseeable as potential acts or occurrences that could materially affect travel and attendance at a meeting. These, and other similar events, must be provided for in the contract.  On occasion, some jurisdictions have held that failure to provide for a foreseeable event in the contract means the parties accepted the risk from such event and waived the right to use the occurrence of that event as a valid reason to terminate their performance. Since contracts can't list every potential catastrophe that might occur, attorneys preparing contracts list the obvious ones preceded by the words "Š. including, but not limited to: Š".

*  Address the possibility of epidemics and diseases in the contract. Foreseeable occurrences like the SARS outbreak and the forecasted Bird Flu can affect travel and safety and the ability of the meeting sponsor to attract attendees. If a dispute arises, failure to address the possibility of these occurrences could lead to a waiver of an epidemic or disease being a defense to performing a contract.

*  Include the occurrence of strikes, lockouts, work stoppages or other labor activity that, in the reasonable opinion of the party whose performance is affected, could have a material effect on the provision of services and the success of the meeting. Strikes and labor disputes are not limited to hotels. They can occur to airlines as well as to city workers in the location of the meeting. The issue here is to determine what effect the labor dispute will have on attendees and their perception of the situation. Many attendees won't want to be subjected to the hassles of crossing picket lines to check-in or be subject to potentially subpar service at the facility.

*  Provide for threats of a force majeure event as a valid reason for a meeting sponsor to terminate a vendor contract. Time is a luxury in this industry. Frequently, decisions have to be made before all relevant facts can be known. The contract should give the meeting sponsor the right to terminate the contract and cancel or move the meeting without liability based on events or occurrences beyond its control. For example, such occurrences may include: specific threat of a hurricane based on weather forecasts; the threat of a terrorist act based on warnings from the Department Homeland Security; or the threat of a major strike based on bulletins issued by labor unions.

*  State the purpose of the meeting and list other contingencies on which occurrence or non-occurrence is critical to its success. If the performance of third parties is critical to the success of a meeting, that contingency should be listed in every vendor contract.

*  Include "failure to provide adequate assurances of future performance" as a valid reason for termination without liability by the party seeking the assurances.  This term becomes important if a destination city, or supplier in that city, is affected by certain events and the other party has reasonable apprehension about whether the supplier will be able to honor its contract obligations in full. It also applies if a supplier reasonably believes that the meeting sponsor's ability to perform has been materially affected by specific events including financial problems.

*  Consider buying convention cancellation insurance for large meetings and conventions. Read the fine print. Know what's covered and what isn't. Acts of terrorism are covered but the coverage is expensive and has limitations. SARS and other epidemics are now specifically excluded from coverage as an insured peril under cancellation policies because of the worldwide SARS outbreak in 2003. Other perils are still covered in convention cancellation policies, which make purchasing this insurance worthwhile in certain circumstances. Facilities can also obtain insurance for the risks that they take.

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Comments

Kathleen Wolff

Looking for input on hurricane clauses that protect the organization from holding event in a severely damaged area. Any wording that has been effective for you or your organization is much appreciated.

Mark McCulley, CMP

Re: Force majeure, most of our discussions are focused on the ability of a party to terminate the agreement due to the impossibility of performance.
What's the legal theory, or the standard, behind the duty of a hotel, or other provider of critical resources such as food, during an emergency? For instance, if an ice storm strikes during a multi-day meeting, stranding the attendees in a hotel, does the law requires the hotel to protect and provide for the guests until they can depart? Would other vendors have the duty to perform in view of risk to our attendees' safety, even if performance was more difficult due to the stated conditions? Should we consider any of that in our force majeure clauses?

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