Disarming Meeting Risk: The Force Majeure Contract Clause

This is the third in a three part series entitled Disarming Meeting Risk. The first focused on ways to access and mitigate against potential mishaps (read article). Last week, we looked at some legal steps planners can take. (read article) Here, we focus on the importance of the Force Majeure contract clause.

You’ve planned your client’s meeting a year in advance.  All the contracts are signed, everything is arranged. A week before the meeting commences, the press starts reporting about an impending hurricane that might hit the area.  Another set of reports discuss an ongoing flu epidemic that’s hit the region where your group is headed.  Cancellation calls start flooding in. Is your group going to be hit with massive attrition charges? It all depends on how you structured that contract months before.

John Foster, Esq., CHME of the law firm of Foster, Jensen & Gulley, L.L.C.., deals with these matters year round and counsels travel sellers on how to protect their clients through the use of a “force majeure” clause, one that protects both parties in the case of a catastrophic situation that is uncontrollable and affects attendance at meetings, such as the war in Iraq, SARS, the H1N1 pandemic, Hurricane Katrina, and even threats of strikes by hotel workers.

Foster feels that the terminology used in many contracts is insufficient to protect meeting planners. “The typical force majeure clause in the convention industry limits termination of the contract without liability to situations where it is impossible to perform.  Instead, consider wording the force majeure clause to include a lesser standard of commercial impracticability and frustration of purpose of the contract,” he said.

Commercial impracticability means that while it is not impossible for the meeting to be held under the present conditions, it is substantially more difficult to stage the meeting as planned or attract the attendance originally anticipated. Frustration of purpose occurs when an unforeseen event undermines a party’s principal purpose for entering into a contract, and both parties knew of this principal purpose at the time the contract was made. For example, if a meeting is being arranged for the purpose of global team-building and events transpire that make it impossible for employees from abroad to attend, the purpose of the meeting has been frustrated. If this purpose is not expressly outlined in the hotel contract in a “purpose of meeting” clause, you may be out of luck when trying to avoid attrition or cancellation fees.

Foster also said that it’s important to make the force majeure clause broader in scope to provide for partial termination of performance as well as total termination of performance. For example, if the clause is written as Foster suggests, a client wouldn’t be held responsible for 100% of performance in the case where 30% of attendees are prevented from traveling to the Caribbean for a meeting due to a snowstorm at home that closed the airport. In such a case, “the sponsor should be able to partially terminate its obligations and not be held responsible for performance guarantees for the 30% of attendees unable to travel to the meeting. Unless the contract provides for total termination in this circumstance, the meeting sponsor is still responsible for holding the meeting with the other 70% of the attendees that could travel. Of course, both parties must agree to the percentages in advance.”

One other tip offered by Foster is to 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 planner the right to terminate the contract and cancel or move the meeting without liability based on a specific threat of events or occurrences beyond its control, like the threat of a hurricane based on weather forecasts, the threat of a terrorist act based on warnings from the Department of Homeland Security or the threat of a major strike based on bulletins issued by labor unions,” he said.

Foster added that the contract should address the possibility of epidemics and diseases, as well as 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 with airlines as well as to city workers in the location of the meeting,” he said.

Interested travel sellers can learn more about force majeure clauses in Foster’s books, such as “Meeting & Facility Contracts, Meetings & Liability” and “Independent Meeting Planners & the Law”. He can be reached at (404) 873-5200 or by e-mail at john.foster@fjglaw.net.