Recent events and catastrophes around the world - terrorism attacks, hurricanes and earthquakes, a worldwide SARS epidemic, tsunamis, strikes and labor disputes by hotel workers, and power outages in major cities - are harsh realities that planners and suppliers must consider when planning meetings. Catastrophic acts or occurrences that have shaken the world in the last few years make it incumbent upon planners to objectively consider in advance how these events, collectively referred to as force majeure events in contracts, may impact their meetings.

Meeting professionals understand that first-rate meeting planning starts with the contract language in client-vendor agreements. Good contract language should address the consequences of a potential catastrophe and its negative influence on event attendance. This section in the contract is generally referred to as the Force Majeure clause.

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. (See box on p. 59.) 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.

Legal Lessons for the Industry

What lessons should the convention industry learn from recent catastrophes like the ones previously mentioned? What risk management steps should meeting sponsors and facilities take? What terms should be negotiated and included in contracts to address the real possibility that bad things happen to good meetings? The following are some suggestions:

• 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 a lesser 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. For example: A winter meeting is being held in a warm climate. Thirty percent of the attendees are scheduled to fly from the Midwest. Chicago O'Hare airport closes due to a snowstorm. The meeting sponsor should be able to partially terminate its obligations and not be held responsible for performance guarantees for the 30 percent 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 percent of the attendees that can travel. Both parties must agree to the percentages.
• 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 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 its performance under the contract for supervening events not mentioned in the contract. Disease epidemics, terrorism, strikes and labor disputes, hurricanes, earthquakes, tsunamis, and power outages are now foreseeable 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 " including, but not limited to:"
• Address the possibility of epidemics and diseases in the contract. Unforeseeable occurrences like the SARS outbreak can affect travel and safety. 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. It is always easier to negotiate complex and controversial terms in a contract before a dispute occurs. References to warnings and advisories issued by the World Health Organization (WHO) and the Center for Disease Control (CDC) can also be included in the contract to differentiate from a disease outbreak that is "insignificant" versus one that is considered a far-reaching epidemic affecting many people.
• 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 with 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 sub-par service at the facility. Planners fear that negative reactions from attendees will potentially lead to attrition and/or cancellation damages. Since they cannot control the perceptions and fears of their attendees, meeting sponsors should reserve the right to move the meeting to a different hotel without liability if the success of the meeting is threatened.

Clearly, not every labor dispute and union action will have a material impact on a meeting or its attendees. Some union activities may be totally disruptive; some may be merely a nuisance. This will depend on the type of union activity planned and the type of meeting. Planners can keep up with union activities by researching Web sites dedicated to this activity. (See box on p. 58.)

• Provide for threats of a force majeure event as a valid reason for a meeting sponsor to terminate a vendor contract. The convention industry has always been challenged with planning an event that is to take place at a future date. 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 a specific threat of events or occurrences beyond its control. 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. If the meeting involves international attendance, specific threats of events in countries attendees will be traveling from could affect travel to the meeting site and should be covered in the contract. (See box on this page.)
• 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. Suppose a convention sponsor has a contract with a headquarters hotel for housing and is still negotiating with the local convention center to host the trade show. The contract with the headquarters hotel should have a contingency provision that the convention sponsor is not obligated to perform the hotel's contract if: (1) the convention sponsor cannot negotiate a mutually agreeable license with the convention center within a certain timeframe; and (2) the convention center is unable or unwilling to provide the facility on the dates contracted after the license is executed and a suitable alternate facility cannot be found. The convention center license should contain similar contingencies involving the willingness and ability of the hotel to provide housing on the contracted dates. Hotels and convention centers can negotiate contingencies for their obligations as well if they are dependent on the performance of third parties. This would include the availability of gas and electricity from local utility companies and delivery of supplies from food vendors.
• Obtain convention cancellation insurance for large 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. Convention sponsors should do a risk-benefit analysis to see if the expense of the insurance is worth the amount at risk. Facilities can also obtain insurance for the risks that they take.

The force majeure clause in a contract is not intended to be an ?easy out? for either party to terminate their contractual obligations. A party claiming the defense of impossibility, impracticability, or frustration of purpose must be able to substantiate the legitimacy of its claim based on the facts and the terms in the contract.

Web Sites that Track Union Activity

www.UniteHere.org (Hotel Employees and Restaurant Employees)

www.Hotelworkersunited.org IUF.org (International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Worker?s Association)

www.ALPA.org (Airline Pilots Association)
www.TWU.org (Transport Workers Union)

Legal Principles Governing Force Majeure Events

Impossibility of Performance. The performance obligations of a party may be terminated without liability if the performance has been made impossible by events outside the control of the parties occurring after the contract was made. 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.

Impracticability of Performance. Termination of obligations under a contract may be granted when performance has been rendered excessively difficult or harmful by an unforeseen act or occurrence outside the control of either party. The Restatement of Contracts 2nd, ?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 (s)he "cannot" perform, in the sense of inability. Rather, (s)he is claiming that it makes no sense for him/her to perform, because what (s)he will get in return does not have the value expected at the time (s)he entered into the contract. The four main factors courts have considered in deciding whether to apply the doctrine of frustration, are: (1) the object of one of the parties in entering into the contract must be frustrated by a supervening event; (2) the other party must also have contracted on basis of the attainment of this object, 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 seeking to use the defense must not have contributed to the frustrating event or non-occurrence.

2005, John Foster, Esq., All Rights Reserved

John Foster, ESQ., CHME is an attorney and counsel whose firm specializes in the legal aspects of meetings and conventions, trade shows and events, and association management. He is the author of four books, Meeting & Facility Contracts, Meetings & Liability, Independent Meeting Planners & the Law, and What Every Hotelier Must Know About Legal Affairs Management. His practice is in Atlanta where he can be reached at (404) 873-5200 or John.Foster@FJGLaw.net.