CORPORATE MEETINGS & INCENTIVES: What legal considerations should groups weigh or investigate with regard to whether they will be charged cancellation fees if they want to cancel?

FOSTER: Parties entering a contract today must accept the fact that future acts or occurrences outside their control could affect the ability of one or both parties to perform their contractual obligations. The events of 9/11, the SARS epidemic, and the recent catastrophe on the Gulf Coast underscore this.

Contract obligations can be discharged if performance by one or both parties is rendered “impossible” or “commercially impracticable” or there has been a “frustration of purpose” of one of the parties to the contract by events occurring after the contract was signed.

“Impossibility” is a strict, objective standard and means that not only could the party(ies) affected by events not perform the terms of the contract, but neither could anyone else under the circumstances.

“Impracticability” grants relief from contract obligations when performance is rendered excessively difficult, expensive, or harmful by an unforeseen contingency occurring after the contract was signed. This would refer to events that could not reasonably be expected to have been contemplated by the parties.

“Frustration of Purpose” occurs when a party's purpose for entering into the contract is destroyed by supervening events. The purpose of the contract must be known and understood by both sides before frustration of purpose can be used as a defense.

Also, one party's obligations in a contract can be terminated without liability if the other party breaches a material term or states in advance that they will not perform their obligations in full.

CMI: Would you say that impracticability and frustration of purpose might apply to some meetings booked in New Orleans in 2006 or 2007?

FOSTER: Yes. The current situation in New Orleans, and elsewhere on the Gulf Coast, gives all parties (facilities, other suppliers, and meeting sponsors) the right to terminate their contracts without liability depending on various circumstances (i.e. amount of damage sustained, date of the meeting, size and attendance at the meeting, type of meeting, etc.). The hotels and convention center have invoked that right as a defense to their performance of all contracts through certain dates. Those dates may or may not be changed in the future.

CMI: What advice are you giving to meeting sponsors that have meetings planned for New Orleans, or anywhere else on the Gulf Coast, in 2006 or 2007?

FOSTER: Here is what I recommend:

There is a principle in contract law that both parties to a contract are entitled to “adequate assurances of performance” from the other party.

Meeting sponsors should contact the hotels under contract immediately for information, but should wait as long as possible before making a decision to terminate their contract(s) and move the meeting elsewhere. The timing of the decision will depend on the date of the meeting, and the time needed to find alternate space and to promote the new venue. There may be other factors to consider as well. The time to react could be anywhere from 24 months to 90 days before the event, based on these criteria.

A one-hotel meeting with 50 people could wait the longest. A citywide event with 10,000 people will need to react as far out as possible.

At the appropriate time, the meeting sponsor should send written correspondence to each hotel and the convention center [if appropriate] asking them to respond on or before a specific date with adequate assurances that they will be able to perform their obligations as if Hurricane Katrina had not occurred.

If the facilities are not able to give adequate assurances, or if they fail to respond by the deadline, the law considers this to be an “anticipatory repudiation” or “anticipatory breach” of the contract by the facility. This repudiation would give the meeting sponsor the right to terminate its obligations under the contract and move the meeting to another location. A meeting sponsor that terminates the agreement under these circumstances must notify each facility in writing of the decision.

If the supplier responds in a timely manner with assurances that it will be able to perform in full, the meeting sponsor will have to determine if the assurances are adequate under the circumstances. If the sponsor determines that the assurances are not adequate, this determination will have to be defended if challenged later. The meeting sponsor will have to show that it conducted sufficient due diligence to justify its decision to move the meeting. If the meeting sponsor decides to accept the assurances and move forward with its plans to keep the meeting in place, the supplier cannot later use “force majeure” as a defense to nonperformance if it actually cannot perform in full on the contract dates.

CMI: Here's a scenario likely to be faced by many with meetings in New Orleans: A group is booked for June 2006. Even though the hotel is likely to be open for business, there is a strong possibility that the destination will not be ready to adequately service the event (insufficient staff, air service, shuttle buses, etc.). Moreover, the group perceives a health risk to attendees because of flood damage (mold, contaminated water supply, etc.). They decide to rebook the meeting in another city.

What would you say the probability is that they would end up paying cancellation charges?

FOSTER: The principle of “adequate assurances” still applies here. Although there is no legal precedent to the issues facing meeting sponsors and suppliers in New Orleans and the rest of the Gulf Coast at this time, I believe it is valid for both sides to make decisions about future meetings based on the information that exists at the time the decision has to be made. We don't live in a perfect world where all the answers are cut and dried when we need them.

It is predictable at some point in the near future that the hotels and convention center will claim that they are ready for business even though the city itself has not returned to the same level of environmental safety, personal safety, service, or entertainment offerings as before Hurricane Katrina hit. This is a gray area, and I have advised my clients to expect opposition if they make a decision to move their meeting scheduled for mid-2006 and beyond to another city.

However, I think if a meeting sponsor's due diligence shows that the city is not the same as when the meeting was booked, and will not be the same on the meeting dates, the sponsor has a valid legal argument that it can terminate its contract without liability. It will still need to justify and defend that decision. To keep the situation from escalating into a major legal battle, meeting sponsors should offer to rebook their meeting at the same facility in the future if possible.

CMI: What other factors besides the amount of damage and the meeting date go into deciding what is a “reasonable” amount of time under force majeure before decisions can be made?

FOSTER: The terms of every contract should state what the standard is for invoking the force majeure clause. The typical facility contract limits the standard to “impossibility” or “illegality.” My clause adds the two standards “commercial impracticability” and “frustration of purpose” that are discussed above.

Timing is undeniably critical in making a decision. The totality of the facts and circumstances based on news reports and information from the hotels and convention center, the New Orleans Metropolitan Convention & Visitors Bureau, the Federal Emergency Management Agency, state and city governments, the Centers for Disease Control and Prevention, etc., as well as the ability (or inability) of the convention center and hotels to give adequate assurances are all relevant.

CMI: Is there language that a planner can include in a contract to create a window of time that is reasonable for him or her to move a meeting if there is natural disaster like this?

FOSTER: Since 9/11, many facilities have insisted that a time frame be stated in the contract for how close to the meeting the force majeure act or event must occur or exist. I think this is a good idea. The time frame should be based on a variety of factors, including the size of the meeting and the lead time it would take to rebook somewhere else. The time frame for a small corporate meeting might be 60 days or fewer. A contract should state the right of either party to terminate the contract if the effects of a force majeure exist within a certain time frame. Contracts should also state the right of either party to seek adequate assurances of performance, and the obligation of the other party to respond.