Shortly after Hurricane Katrina wrought its devastation, the New Orleans Metropolitan Convention & Visitors Bureau announced that single-hotel meetings had been canceled through the end of 2005 and all citywide meetings and events had been canceled through March 31, 2006. For meetings and conventions scheduled before those dates, the decision to cancel and relocate was made by default.

What about meetings and conventions scheduled for New Orleans after March 31, 2006? The decision to stay put or cancel a future meeting already booked is a serious one. There are legal and financial risks regardless of the decision made. There are no precedents to the devastation, destruction, and long-term effects caused by Hurricanes Katrina and Rita, and there are no easy answers. Before making a knee-jerk decision about staying put or canceling, organizations have a duty to conduct proper due diligence. This means some investigation of the facts and circumstances must take place. Without due diligence, there is nothing to support a decision one way or the other. Here are some suggested steps to follow:

CONDUCT PROPER DUE DILIGENCE

Poll your members, potential attendees, exhibitors, and/or sponsors. These are the stakeholders who will make your convention a success - or a bust. Do they support going forward with a decision to stay put or are they turned off by negative perceptions and want to go elsewhere?

The media images of massive flooding and desperate evacuees standing on rooftops while others were crammed into the Super Dome and the Morial Convention Center will be fresh in the minds of everyone for a long time. Concerns about long-term health hazards that could arise from the toxic water as well as the mold hazards in buildings will not soon dissipate. Health authorities have expressed concerns about the uncertainty of soil and sediment toxicity in the future.

The biggest concern is whether the city of New Orleans will regain its unique character. The news is full of reports about lack of housing for workers and how potential shortages of building and construction supplies will affect the rebuilding process. Potential meeting attendees are also concerned about when the staffing of police, fire, and ambulance services will be complete, as well as availability of personnel for taxi and other transportation services. Concerns about full staffing for the hotels and the convention center are also rampant. All of these challenges will eventually be overcome - but when?

Perceptions and impressions last a long time, particularly negative ones. It will not be easy for meeting and convention sponsors to market New Orleans and the Gulf Coast as a safe and viable meeting destination for some time. No one wants to make a bad situation worse for our friends and colleagues in the city; however, corporate executives and association staffs and officers have a duty to their members and shareholders to makes decisions in the best interest of their organizations. The results of this poll need to be given heavy consideration.

Examine the viability of having the meeting with fewer attendees and/or reduced support from exhibitors, sponsors, and other stakeholders. Does it make sense to keep the meeting in place even if attendance will fall short of original projections? Maybe it does if the meeting is relatively short-term and suitable alternate venues are not available. For many associations, however, a significant shortfall in attendance would mean financial ruin for the organization. Moving the meeting to get full support from all stakeholders may make the most financial sense. A decision in this area should also be factored in with potential liability issues discussed below.

Analyze your contracts regarding termination and cancellation language. The "termination" or "force majeure" clause states the terms under which either party may be discharged from their obligations to perform the contract without liability. The parties can agree on any standard, and on any terms, that define a force majeure event that justifies one or both party's terminating the contract without owing damages.

General contract law provides that, absent wording in the contract to the contrary, one or both parties can terminate their performance obligations if that party's performance is made impossible, impracticable, or is frustrated by supervening events making the value of performance worthless to that party. Here is an explanation of each:

Impossibility of Performance: If the performance obligations of a party have been made impossible by acts or occurrences outside the control of the parties occurring after the contract was made, the performance obligations of the party affected may be terminated without liability. There are five main types of impossibility: 1) destruction, deterioration, or unavailability of the subject matter or tangible means of performance; 2) failure of the agreed-upon means of performance or contemplated mode of delivery or payment; 3) supervening illegality; 4) failure of the intangible means of performance; and 5) death or incapacity of a party in personal service contracts.

Impracticability of Performance: The Restatement of Contracts 2^nd, 261 defines impracticability as follows:

• When, after a contract is made, a party's performance is made impracticable without his (or her) fault by the occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made, his (or her) duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.

Frustration of Purpose: In frustration cases, the party seeking discharge is not claiming that it cannot perform, in the sense of impossibility. Instead, it makes no sense for the party to perform its obligations because what the party will get in return does not have the value expected at the time the party entered into the contract. The four main factors courts have considered in deciding whether to apply the doctrine of frustration of purpose are: 1) the purpose of one of the parties in entering the contract must be frustrated by a supervening event; 2) the other party must also have contracted on the basis of the attainment of this purpose (i.e., it was a basic assumption common to both parties); 3) the principal purpose of the contract must be totally frustrated or nearly total; and 4) the party claiming to use the defense of frustration must not have contributed to the frustrating event or non-occurrence.

The "cancellation clause" in a contract states what damages the injured party will be entitled to if the other party cancels the meeting for reasons other than a force majeure event. Cancellation clauses can be based on "actual damages" or on "liquidated damages." Liquidated damages can be either a fixed amount or a formula for determining how damages will be calculated. Liquidated damages must be a close approximation of actual damages and cannot be a penalty to be enforceable. A liquidated damage clause is a penalty if enforcing it would put the injured party further ahead financially than if the contract were performed as agreed. Cancellation clauses that require 100 percent of the anticipated revenue are always suspect. If the clause is unenforceable, the injured party is still entitled to its actual damages as long as the canceling party has no defense to the cancellation.

If the cancellation clause is enforceable, calculate the potential cumulative damages from all future contracts in place with hotels, the convention center, and other suppliers. If the loss is not covered by cancellation insurance, consider the impact full payment would have on the operating funds and reserves of the organization. If the loss is proportionately small compared to the potential gains from moving the meeting, then that should factor into any decision made.

If the organization wants to stay in New Orleans but is concerned about low attendance, negotiate with the facilities under contract to reduce or eliminate performance guarantees in return for keeping the convention in place. This has advantages for both sides.

Contact major suppliers to the event to get their assessment of the situation on an ongoing basis. Statements from major suppliers such as hoteliers, convention center management, and shuttle bus companies about their future readiness during your convention dates are critical. Weigh their statements against their potential bias towards keeping the meeting in place.

Have someone local do periodic assessments regarding the actual rebuilding progress by the city, hotels, and the convention center. Compare the reality with the projected dates for completion given publicly or privately. Are they in sync or were the projected timelines unrealistic?

Contact other organizations scheduled to meet in New Orleans to discuss their decision-making process. Many companies and associations with meetings scheduled for New Orleans in 2006 and 2007 have already canceled their meetings and moved them to other cities. A number of organizations have decided to stay in the city and move forward with their plans. What criteria did the companies and associations on both sides of the decision use? Are their meetings similar to yours in size and near your contracted dates?

Monitor Web sites, including FEMA, EPA, CDC, and New Orleans Metropolitan Convention & Visitors Bureau, for status reports regarding the rebuilding progress.

Analyze your insurance coverage. Does your organization have convention cancellation insurance? If not, the organization will bear all of the losses that may accrue from relocating the meeting, including cancellation or attrition fees and the increased cost of moving your meeting on short notice. If convention cancellation insurance is in place, contact your broker to discuss the facts and circumstances of your situation to determine whether losses would be covered under your policy.

There are various convention cancellation policies sold in the industry. In general, they all cover loss of revenue or expenses due to a cancellation, interruption, or postponement of an event. They also provide coverage for reduced attendance to a continued event as long as the reduced attendance was caused by a covered peril. The reasonable and necessary cost for remedial action to avoid or minimize a loss is also covered, as well as the extra cost required to reschedule an event because of damage to the venue or facility where the event is to be held.

Cancellation, interruption, or postponement of an event caused by terrorism is covered also with different levels of protection. Recent policies cover cancellation, interruption, or postponement due to labor disputes. Most provide coverage for physical loss of personal property and door registration receipts up to a certain limit. There is also coverage for workshops, seminars, and planning meetings. Finally, convention cancellation policies will cover the non-appearance of a principal speaker or entertainer and the failure to vacate the event facility on time. If your organization does not have this insurance, consider purchasing it for future meetings. (See sidebar on page 72.)

ADEQUATE ASSURANCES OF PERFORMANCE AND ANTICIPATORY BREACH
Every party to a contract has the right to assume that the other party will perform its obligations as contracted. This obligation to perform, imposed on both parties, continues from the date the contract is effective through the date of anticipated performance. In short, both parties to an agreement have a duty not to repudiate or breach the agreement.

This duty imposed by law can be breached, even though no express promise has been breached.

The duty not to repudiate one?s obligation to perform has been clarified by the Restatement of Contracts, 2nd. Under the Restatement, if a party to a contract has reasonable grounds for concern or reasonable grounds for insecurity that the other party is unable or unwilling to perform its obligations, that party may demand adequate assurance of performance from the other party. Failure to give adequate assurances within a reasonable time after assurances are sought operates as a repudiation of the contract and an anticipatory breach. A repudiation is a total breach by the party whether or not performance is due now or in the future.

If repudiation and anticipatory breach occurs, the party seeking assurances has three possible options, depending on the circumstances. These options are: 1) continue performance; 2) suspend or withhold performance; or 3) change position or declare that the contract is canceled and hold the other party in breach of contract. Before either options may be taken, the party seeking assurances must be able to show that it would have been ready, willing, and able to perform but for the other party?s repudiation. A repudiation by one party may be retracted, and a prospective unwillingness or inability to perform can be cured, unless the other party has already informed the retracting party that it has canceled or materially changed its position.

A "reasonable grounds for insecurity" occurs when the willingness or ability of a contracting party to perform materially declines between the time of contracting and the time of performance. A "material decline" can be caused by any number of acts or occurrences, including a natural disaster or a change in a party's financial condition. Obviously, the reasons for insecurity must not be known to the party demanding assurances at the time of contracting. Per the Restatement of Contracts, 2nd, the reasonable grounds for insecurity must also "call into question the other party's willingness or ability to perform without a breach that would so substantially impair the value of the contract as to give the party seeking assurances a claim for total breach." A party's mere inability to perform is not a repudiation or anticipatory breach. That party must state by its words or its actions, unequivocally, that it cannot or will not substantially perform.

The legal principles of adequate assurances of performance and anticipatory breach apply to the meetings and conventions industry any time a disaster occurs that affects future performance obligations of one or both parties. The disaster can be man made, such as by terrorists flying into buildings, or by acts of God (hurricanes, floods, and earthquakes). The legal principles certainly apply to the current situation along the Gulf Coast and New Orleans.

Meeting and convention sponsors with future events contracted either in New Orleans or with any other venues affected by a disaster, have the right - and maybe the obligation - to seek adequate written assurances from their vendors to the meeting. The timing of this request to vendors depends on the date of the event, number of attendees anticipated, and, if necessary, the reasonable time needed to find alternate space and to start promoting the meeting. Such activities in the meetings and conventions industry are not conducted overnight. Although a decision to cancel and relocate to another city should be made as close to the meeting as possible, event sponsors have a right to make decisions on the information they have at the time a decision has to be made. A reasonable time to react could be anywhere from 24 months to 90 days prior to the event, depending on the circumstances. A one-hotel meeting could wait the longest. A citywide convention with 10,000 attendees or more needs to react as far in advance as possible.

If a hotel, convention center, or other vendor responds with assurances that they will be able to perform their obligations in full, the event sponsor will have to determine if the assurances are "adequate" under the known facts and circumstances. If a meeting sponsor decides that assurances are not adequate, then cancels its meeting and relocates it to another city, that decision will have to be defended if challenged later. This is why due diligence is important. If a meeting sponsor decides to accept the assurances and move forward with plans to keep the meeting in place, the vendor cannot later use "force majeure" as a defense if it fails to substantially perform, unless another supervening event occurs that affects its performance - such as another hurricane.

Adequate Assurances of Performance

Any correspondence with a hotel, convention center, or other vendor requesting adequate assurances of performance should: 1) specify the reasons for seeking adequate assurances of performance (i.e., hurricane); 2) ask for an assessment of damage to the facility and the projected timeline for repair; 3) ask for assurances that the hotel?s physical facilities and service levels will be the same or better on the dates of your event as if Hurricanes Katrina and Rita had not occurred, or a statement to the contrary; 3) specify that decisions regarding the location of that will be made based on the vendor?s clarity of response or lack thereof. Include in the correspondence that a late or vague response is the same as a negative response; and 4) list a reasonable date by which a response is expected.

Insurance Resources

ASAE-sponsored Showstoppers Event
Cancellation Insurance
AON Association Services
Contact: Eileen Hoffman (800) 424-8830 ext. 333
www.asae-aon.com

Showdown Event Cancellation Insurance
John Buttine, Inc.
Contact: John Buttine (212) 697-1010
www.buttine.com
ExpoPlus Convention Cancellation Insurance
Marsh Affinity Services, division of
Seabury and Smith
Contact: Paulette Norman (800) 323-2106,
ext: 34271

Novick Group, Inc.
Contact: Louis Novick (301) 795-6610
www.novickgroup.com