Several months ago, we examined in this column the so-called force majeure clause found in most hotel and convention center contracts. Just to recap, the force majeure clause essentially frees either party from any liability or obligation to perform when an emergency, extraordinary event, or other circumstance beyond the control of the parties prevents one or both parties from fulfilling their obligations under the contract. The clause is a critical one, because it can allow a party to completely cancel a convention contract and totally escape the typically huge cancellation penalties that are buried in most contracts. Those penalties usually are equal to the total value of all sleeping rooms that were reserved and sometimes a portion of expected food and beverage revenues too, and they can be substantial enough to bankrupt some organizations.
Sky-High Fuel Prices
As you might imagine, hotels and convention centers like to word a force majeure clause very narrowly so that it covers only a small range of events that are highly unlikely to occur, such as war in the United States, acts of God (earthquakes, tornadoes, etc.), and similar extreme emergencies. By contrast, good meeting planners try to word the force majeure clause much more broadly to cover the widest possible range of unexpected events and emergencies that might cause an organization to want to cancel its convention. Often, the parties compromise somewhere in the middle.
Although at presstime, crude oil prices had begun to fall, anyone who has been reading the newspaper lately knows that oil prices have been skyrocketing over the past several months, with gasoline increasing as much as 10 cents per gallon per week in some parts of the country this past summer and jet fuel up as much as 40 percent in just a few months. The effects of high oil prices ripple throughout our economy. Many people cannot afford to drive their large cars and have canceled plans for vacations and other long trips. And airlines are raising prices, filling planes to maximum capacity, charging extra for the first checked bag, and charging for onboard snacks that used to be free in order to make some extra money as they teeter on the edge of bankruptcy from extraordinarily high jet fuel prices.
Because conferences and conventions are often planned and booked as much as five years in advance, it is quite possible that from the time a conference contract is signed to the time the conference is held, fuel prices will have climbed so high that nobody can afford to attend the conference, because the cost of travel has doubled or tripled from what is normal. If that were to occur, could you cancel your conference and escape legal liability by claiming that high fuel prices constituted a force majeure event that made it impossible to hold your event?
Under most current force majeure clauses found in hotel contracts, the answer is probably "no." And the reason is that current clauses fail to account for this new fuel price phenomenon. Some meeting planners are savvy enough to make sure that the force majeure clause has "fuel shortages" listed as a force majeure event, and some hotels will agree to such a provision. But the problem with that phraseology is that we currently live in an environment where there is no true "shortage" of fuel. Instead, there is still an ample supply the price of which is simply reaching the point where nobody can afford to buy it.
But it might be possible to fashion new language for the typical force majeure clause that could cover high fuel prices as a new kind of force majeure event. For example, you could add as a force majeure event a phrase such as "fuel shortages or a 50 percent or more increase in the price of oil, gasoline, or standard airfare during the period from the execution of the contract to the date of the event." Of course, the trick would be selling such a clause to the hotel's conference manager. At the current time with demand for hotel space still fairly robust, it might be a hard sell. But if oil prices resume their climb and groups begin to drastically reduce the number of their meetings, it may very well be possible to sell such a clause to a hotel, especially if the alternative to rejecting the clause is that you refuse to book any conference at all, and the hotel ends up empty-handed.
Ben Tesdahl, Esq. is an attorney concentrating in 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 DC.
Originally published Nov. 1, 2008.