Meetings Law: Beware of Inconsistent Damage Clauses

One of the most important clauses in a meeting contract is the clause that covers what the costs will be if a group cancels the meeting without a force majeure event or other permissible reason. Even though complete cancellation of a meeting is very rare, these clauses are critical, because when they do apply, the damages owed to the hotel can bankrupt an organization.

In many cases, damage clauses for cancellation are written in such a way that the formula for calculating the damage is first spelled out in words, but the total dollar figure is also listed. A clause might specify that if a meeting is canceled without good cause, damages are based on a sliding scale (depending on how far in advance of the meeting the cancellation takes place), with the dollar amount being some percentage of total expected room and food and beverage revenue. For example:

"For cancellation less than 180 days prior to the event, liquidated damages shall be 90 percent of total expected room revenue plus 90 percent of total expected food and beverage revenue = $150,000."

Unfortunately, due to a math error or to the fact that the group lowered its room block either during negotiations or after signing the contract, there will be occasions when the written formula does not match the dollar figure listed. The formula may produce a total of $100,000, whereas the stated dollar figure says $150,000. In such a case, which prevails, in the event of a cancellation—is it the written words of the formula or the stated dollar figure?

The short answer is that nobody knows for sure. It really depends on what the parties intended, but more often than not, the hotel will argue whichever position produces the highest figure, while the group that canceled the event will argue the opposite position. Arguably, the stronger position is that the written formula should prevail, because if the parties had intended to always follow the stated dollar figure, they could have (and would have) omitted the formula entirely and simply put the dollar figure. But reasonable people could argue otherwise, which is why lawyers stay in business.

Solving the Ambiguity Problem

Rather than arguing about ambiguity, it is far easier and cheaper to avoid the confusion in the first place. In the case of damage clauses, the problem is easy to avoid. My rule of thumb is to never put a stated dollar figure after a written formula. Instead, let the words of the formula stand alone. By doing so, you will never have an inconsistency between the formula and the figure. Moreover, you save yourself the trouble of having to update the figure whenever room blocks change or other circumstances alter the dollar total. In short, if you have a clearly described liquidated damages formula, it is seldom necessary or prudent to perform the actual math calculation in advance.

Ben Tesdahl, Esq., is an attorney concentrating on nonprofit, corporate, tax and contract law, including meeting and convention law. He is with the law firm of Powers, Pyles, Sutter & Verville, P.C. in Washington, D.C.

Originally published Jan. 1, 2009

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