New Push To Expand Force Majeure Clauses
By Donna M. Airoldi
Monday, February 17 2003
Monday, February 17 2003
Published on AllBusiness.com
Atlanta — Force majeure clauses in meeting contracts unquestionably took on added importance immediately after Sept. 11. But the traditional language of these provisions has only slowly begun to reflect new concerns faced by planners in today's business climate.
John Foster, a leading industry attorney based here who represents groups, wants to speed up that change. He recently introduced a force majeure clause that goes way beyond the long-standing al- lowances for acts of God and impossibility to perform.
The new clause, titled Force Majeure & Excuse of Performance, has been expanded to address partial performance, specific threats of terrorism, reasonable fear for personal safety by expected attendees, curtailment of transportation facilities, international attendance and economic downturns — terms that rarely, if ever, have been included in general force majeure clauses.
"This is very cutting edge and relevant right now because of the pending military action in Iraq," said Foster. "The world has changed, and the risks involved need to be enlarged beyond just illegality and impossibility to perform to include additional situations that may curtail the planner or the hotel's ability to perform totally."
Jon Howe of Chicago-based Howe & Hutton, the most experienced of the well-known industry attorneys, said, "These clauses have changed and are continuing to change. Before Sept. 11, not too many people paid much attention to the force majeure clause. Now, it's the most hotly negotiated provision following attrition and cancellation."
Washington, D.C.-based meetings consultant Joan Eisenstodt — whose own force majeure clauses include not only terrorism but also terms regarding laws passed by local governments that are in opposition to her client's beliefs, such as anti-gay rights legislation — said, "Negotiations are more complex, and they should be. When I get hired to help on a meeting after a group has signed a contract, many times I need to renegotiate it, often because of the force majeure clause. I'm still seeing the same old clauses, and it frustrates me because most planners have no clue what they're signing. But John Foster's new clause is great."
Not So Fast
Not surprisingly, attorneys representing hotels are less than enthusiastic about expanding the scope of force majeure.
"Lots of groups have requested changes to the force majeure clause, but that doesn't mean anyone is accepting them," said Lisa Sommer Devlin, a Phoenix-based attorney who counts both Hilton and Starwood among her clients. "And some terms are extremely vague. Take 'threat of terrorism.' What does that mean? There is a threat every day. I've been advising my [hotel] clients not to accept those kinds of things."
Foster said his clause provides examples and specifics so that parties won't later dispute whether it is applicable. For instance, a party can invoke the force majeure clause due to a specific threat of terrorism only if the threat condition provided by the Office of Homeland Security increases after the contract is signed and within 90 days from the start of the meeting.
Under the partial-performance section of the clause, a party may suspend or terminate, without liability, those obligations negatively affected by an act or occurrence beyond that party's control only if at least 30 percent of anticipated attendees are affected.
Sommer Devlin responded, "There's no such thing as partial force majeure. That's essentially handled in the attrition clause. There are still two key elements to claim force majeure: first, an unexpected event has to occur; second, the event has to make it impossible for the meeting to go forward as agreed."
Foster concurred that the pure concept of the law pertaining to force majeure is impossibility to perform, but added, "Attrition is for normal situations. Force majeure and exception of performance is for abnormal situations. We're in abnormal times."
Steve Rudner, a Dallas-based attorney who exclusively represents hotels and spoke on this topic at this month's Meeting Professionals International convention in Orlando, said, "If someone did a survey in 2000 and asked a roomful of meeting planners to comment on what would happen if a horrible act of terrorism occurred and planes were grounded for days, I don't think any of them would have said the hotels would allow groups to cancel for weeks afterwards. But that is what happened."
Countered Foster, "Except for immediately following Sept. 11, most hotels have been very unsympathetic. They're asking meeting sponsors to compensate them for their losses because of the economy, but there's nobody to compensate the meeting sponsor for its losses."
Howe agreed that it is the group side that is initiating these clauses. "The chances of a hotel having a problem are pretty slight, unless it's an area in which a terrorist act takes place," he said. "For the most part, the hotel wants to see the meeting go forward, regardless."
Hyatt Steps Forward
Marriott, Hyatt, Hilton, Starwood and Six Continents were called for comment on this article. By press time, only Hyatt had responded.
Hyatt currently includes both terrorism and curtailment of transportation facilities in its standard clause, according to vice president of sales operations Fred Shea.
"We have the blanket clause, but we also work with clients to make the clause more specific to their needs, within guidelines," he said. He added that there are always legitimate reasons why a group might need to terminate a contract even if the meeting technically could still be held.
"For example, during the Gulf War, the government controlled flights, especially those going to Hawaii," said Shea. "That definitely could have affected meetings."
Foster, noting that he understands both sides because he worked as director of sales and marketing for Marriott and Hyatt before getting his law degree, said, "I know what's reasonable for the hotel to expect and what's not. In today's business climate, I don't think it's reasonable to try to come up with guarantees and shift all responsibility to meeting planners."
Economic Impetus
Foster's clause allows a party to invoke force majeure or excuse of performance if it can show a significant downturn of 5 percent or more in at least five of the leading economic indicators subsequent to the execution of the contract (as stated at www.conference-board.org).
"Nobody has seen this in the industry," said Foster. "It's the point of the new clause that gets the most questions."
Howe said that he too has used economic indicators in some of his force majeure clauses, such as the Consumer Price Index, but he benchmarks them to the meetings/hospitality industry.
Sommer Devlin said, "Even if a hotel agrees to include it in a contract — and you can put this in bold — an economic downturn is not a force majeure. Economic fluctuations have always been within the contemplation of the parties."
Another term that might be difficult for planners to include in force majeure is fear of terrorism or fear of travel. "A terrorist act is fine to include, but fear of terrorism is terrible," said Rudner. "It's already been proven that fear does not excuse performance."
Rudner referred to a Scottsdale, Ariz., case where a hotel sued a group for canceling its 1991 convention, which was to be held during the Gulf War. The group claimed force majeure because its attendees were afraid to fly due to the war and Saddam Hussein's threats of worldwide terrorism. The court ruled in favor of the hotel.
Foster agreed that the group rightfully lost the case because it hadn't provided for that scenario in the contract.
Help Is Out There
Not all meeting venues are unsympathetic to planners. The Gregg Conference Center in Bryn Mawr, Pa., removed its cancellation policy for meetings that book between now and April 30 for the calendar year.
"We offered this to meet the problems caused by the economy and the Iraq situation," said Ann Casey, consultant to the center. "Everyone was reluctant to book meetings for fear of cancellation fees, but we've since seen our booking improve."
InterContinental Hotels announced just such a deal for its 44 hotels in the Americas (see article, page 1). "They have taken a remarkable step," said Foster. "They're smart, because if we're involved in an international conflict in the next three months, all bets are off."
Sommer Devlin acknowledged that there are reasons why a hotel might sign an expanded force majeure clause, depending on how much it needs the business, but she still does not recommend it to her clients. "If a hotel chooses to go into these new clauses, they're not doing what they need to for their owner and shareholders in getting guaranteed business," she said.
"I've been bullish, but I believe my position makes sense," said Foster. "A hotel is free to say no, and the planners can negotiate or move down the street to another hotel. But plenty of hotels have looked at my clause and said that though it's a stretch, they found it reasonable. So far, only one has refused to sign."
Contact Donna M. Airoldi at dairoldi@vnubuspubs.com.
John Foster, a leading industry attorney based here who represents groups, wants to speed up that change. He recently introduced a force majeure clause that goes way beyond the long-standing al- lowances for acts of God and impossibility to perform.
The new clause, titled Force Majeure & Excuse of Performance, has been expanded to address partial performance, specific threats of terrorism, reasonable fear for personal safety by expected attendees, curtailment of transportation facilities, international attendance and economic downturns — terms that rarely, if ever, have been included in general force majeure clauses.
"This is very cutting edge and relevant right now because of the pending military action in Iraq," said Foster. "The world has changed, and the risks involved need to be enlarged beyond just illegality and impossibility to perform to include additional situations that may curtail the planner or the hotel's ability to perform totally."
Jon Howe of Chicago-based Howe & Hutton, the most experienced of the well-known industry attorneys, said, "These clauses have changed and are continuing to change. Before Sept. 11, not too many people paid much attention to the force majeure clause. Now, it's the most hotly negotiated provision following attrition and cancellation."
Washington, D.C.-based meetings consultant Joan Eisenstodt — whose own force majeure clauses include not only terrorism but also terms regarding laws passed by local governments that are in opposition to her client's beliefs, such as anti-gay rights legislation — said, "Negotiations are more complex, and they should be. When I get hired to help on a meeting after a group has signed a contract, many times I need to renegotiate it, often because of the force majeure clause. I'm still seeing the same old clauses, and it frustrates me because most planners have no clue what they're signing. But John Foster's new clause is great."
Not So Fast
Not surprisingly, attorneys representing hotels are less than enthusiastic about expanding the scope of force majeure.
"Lots of groups have requested changes to the force majeure clause, but that doesn't mean anyone is accepting them," said Lisa Sommer Devlin, a Phoenix-based attorney who counts both Hilton and Starwood among her clients. "And some terms are extremely vague. Take 'threat of terrorism.' What does that mean? There is a threat every day. I've been advising my [hotel] clients not to accept those kinds of things."
Foster said his clause provides examples and specifics so that parties won't later dispute whether it is applicable. For instance, a party can invoke the force majeure clause due to a specific threat of terrorism only if the threat condition provided by the Office of Homeland Security increases after the contract is signed and within 90 days from the start of the meeting.
Under the partial-performance section of the clause, a party may suspend or terminate, without liability, those obligations negatively affected by an act or occurrence beyond that party's control only if at least 30 percent of anticipated attendees are affected.
Sommer Devlin responded, "There's no such thing as partial force majeure. That's essentially handled in the attrition clause. There are still two key elements to claim force majeure: first, an unexpected event has to occur; second, the event has to make it impossible for the meeting to go forward as agreed."
Foster concurred that the pure concept of the law pertaining to force majeure is impossibility to perform, but added, "Attrition is for normal situations. Force majeure and exception of performance is for abnormal situations. We're in abnormal times."
Steve Rudner, a Dallas-based attorney who exclusively represents hotels and spoke on this topic at this month's Meeting Professionals International convention in Orlando, said, "If someone did a survey in 2000 and asked a roomful of meeting planners to comment on what would happen if a horrible act of terrorism occurred and planes were grounded for days, I don't think any of them would have said the hotels would allow groups to cancel for weeks afterwards. But that is what happened."
Countered Foster, "Except for immediately following Sept. 11, most hotels have been very unsympathetic. They're asking meeting sponsors to compensate them for their losses because of the economy, but there's nobody to compensate the meeting sponsor for its losses."
Howe agreed that it is the group side that is initiating these clauses. "The chances of a hotel having a problem are pretty slight, unless it's an area in which a terrorist act takes place," he said. "For the most part, the hotel wants to see the meeting go forward, regardless."
Hyatt Steps Forward
Marriott, Hyatt, Hilton, Starwood and Six Continents were called for comment on this article. By press time, only Hyatt had responded.
Hyatt currently includes both terrorism and curtailment of transportation facilities in its standard clause, according to vice president of sales operations Fred Shea.
"We have the blanket clause, but we also work with clients to make the clause more specific to their needs, within guidelines," he said. He added that there are always legitimate reasons why a group might need to terminate a contract even if the meeting technically could still be held.
"For example, during the Gulf War, the government controlled flights, especially those going to Hawaii," said Shea. "That definitely could have affected meetings."
Foster, noting that he understands both sides because he worked as director of sales and marketing for Marriott and Hyatt before getting his law degree, said, "I know what's reasonable for the hotel to expect and what's not. In today's business climate, I don't think it's reasonable to try to come up with guarantees and shift all responsibility to meeting planners."
Economic Impetus
Foster's clause allows a party to invoke force majeure or excuse of performance if it can show a significant downturn of 5 percent or more in at least five of the leading economic indicators subsequent to the execution of the contract (as stated at www.conference-board.org).
"Nobody has seen this in the industry," said Foster. "It's the point of the new clause that gets the most questions."
Howe said that he too has used economic indicators in some of his force majeure clauses, such as the Consumer Price Index, but he benchmarks them to the meetings/hospitality industry.
Sommer Devlin said, "Even if a hotel agrees to include it in a contract — and you can put this in bold — an economic downturn is not a force majeure. Economic fluctuations have always been within the contemplation of the parties."
Another term that might be difficult for planners to include in force majeure is fear of terrorism or fear of travel. "A terrorist act is fine to include, but fear of terrorism is terrible," said Rudner. "It's already been proven that fear does not excuse performance."
Rudner referred to a Scottsdale, Ariz., case where a hotel sued a group for canceling its 1991 convention, which was to be held during the Gulf War. The group claimed force majeure because its attendees were afraid to fly due to the war and Saddam Hussein's threats of worldwide terrorism. The court ruled in favor of the hotel.
Foster agreed that the group rightfully lost the case because it hadn't provided for that scenario in the contract.
Help Is Out There
Not all meeting venues are unsympathetic to planners. The Gregg Conference Center in Bryn Mawr, Pa., removed its cancellation policy for meetings that book between now and April 30 for the calendar year.
"We offered this to meet the problems caused by the economy and the Iraq situation," said Ann Casey, consultant to the center. "Everyone was reluctant to book meetings for fear of cancellation fees, but we've since seen our booking improve."
InterContinental Hotels announced just such a deal for its 44 hotels in the Americas (see article, page 1). "They have taken a remarkable step," said Foster. "They're smart, because if we're involved in an international conflict in the next three months, all bets are off."
Sommer Devlin acknowledged that there are reasons why a hotel might sign an expanded force majeure clause, depending on how much it needs the business, but she still does not recommend it to her clients. "If a hotel chooses to go into these new clauses, they're not doing what they need to for their owner and shareholders in getting guaranteed business," she said.
"I've been bullish, but I believe my position makes sense," said Foster. "A hotel is free to say no, and the planners can negotiate or move down the street to another hotel. But plenty of hotels have looked at my clause and said that though it's a stretch, they found it reasonable. So far, only one has refused to sign."
Contact Donna M. Airoldi at dairoldi@vnubuspubs.com.