From natural disasters to terrorist attacks, associations need to be prepared for the possibility that their events may face major disruptions or cancellations. When you expect the unexpected, you can protect your organization with a solid force majeure clause in your meeting contracts.
In the wake of recent disruptive events, association executives and counsel are focusing more closely on potential exposures to attrition and cancellation damages in their meeting contracts. Weather-related disasters like Hurricane Sandy provide an all-too-frequent reminder of the devastation that Mother Nature can inflict on the most carefully laid plans. Less anticipated, perhaps, are the significant consequences that associations are currently feeling after the federal government sharply curtailed employee attendance at professional conferences as a result of budget sequestration and public scandal over wasteful agency spending. Appropriately, the contract clause that everyone is reading closely now is the one titled "force majeure."
A force majeure clause is a contract provision that relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise. Most force majeure clauses have four elements:
- a list of eventualities that likely would disrupt a planned event (e.g., "acts of God, strikes, natural disasters, acts of terrorism")
- a "catchall" phrase (e.g., "and any other occurrence beyond the parties' control")
- a modifier applying to each of the eventualities and the catchall phrase (e.g., "rendering performance illegal or impossible")
- the operative phrase (e.g., "the parties shall be excused from performance")
Without a force majeure clause, parties faced with disruptive circumstances beyond their control are left to the mercy of the narrow common-law contract doctrines of "impracticability" and "frustration of purpose," which rarely excuse the parties from their obligations under the contract. Instead of relying on the common law, associations can better achieve flexibility for their meetings during times of crisis through a carefully drafted force majeure clause.
What Courts Have Said
After the terrorist attacks of September 11, 2001, counsel frequently reminded association executives of the need to negotiate a force majeure provision that guards against not only eventualities that make performance "impossible" but also those that make it "inadvisable." The distinction is important because impossibility is an exacting standard, and associations are in a far better position when the concept of inadvisability is included.
However, because courts tend to view force majeure provisions narrowly, judges do not necessarily imbue "inadvisable" with the same meaning that a dictionary does. For example, according to a federal court in Hawaii, "inadvisable" in a meeting contract will not be construed to include "economic inadvisability, even when the economic conditions are the product of a force majeure event," unless there is specific language to the contrary.
In this 2003 case, OWBR LLC v. Clear Channel Communications, Inc., a group cancelled an event that had been scheduled to take place in February 2002. The group cited the force majeure clause in its agreement with the hotel, arguing that its performance should be excused due to travel fears and the economic downturn after 9/11. The court held that the mere fact that the event organizer could show that numerous participants could not attend some five months after a force majeure event did not excuse its performance obligation. The court specifically noted that the clause did "not contain language that excuses performance on the basis of poor economic conditions, lower than expected attendance, or withdrawal of commitments from sponsors and participants." It emphasized that "fear and uncertainty should not be enough to excuse performance under the agreement."
Therefore, association executives and counsel should not rest comfortably simply because they have negotiated excuse of performance when a force majeure event makes performance inadvisable.
Similarly, they should not make the mistake of overestimating the breadth of the "catchall" phrase in a force majeure clause. Courts will commonly use principles of contract interpretation to limit its scope. For example, a District of Columbia court declined to interpret the following catchall phrase as broadly as an association sought in a case involving a meeting that was cancelled because of unanticipated scheduling changes outside the association's control:
The parties' performance under this Agreement is subject to acts of God, war, government regulation, terrorism, disaster, strikes (except those involving the Hotel's employees or agents), civil disorder, curtailment of transportation facilities, or any other emergency beyond the parties' control, making it inadvisable, illegal, or impossible to perform their obligations under this Agreement.
In this case, the National Association of Postmasters of the United States sought to invoke force majeure to excuse its performance after the government rescheduled the annual Rural Mail Count to February, when the association's annual leadership conferences were scheduled to be held. Due to the postmasters' rescheduled work obligations, it was determined that a substantial number would be unable to attend the conferences. The association argued that this circumstance constituted an "other emergency beyond the parties' control" that made it inadvisable to hold the events.
The court disagreed, denying that the rescheduling was an "emergency." It narrowly construed the catchall language in light of the contract interpretation principle of ejusdem generis so as to "embrace only objects similar in nature to those objects enumerated by the preceding specific words." The court went on to state that the specific events named in the contract (terrorism, disaster, strikes, and so on) are different in character from the change to the federal mail calendar, and so the catchall phrase would not allow excuse of performance in this situation.
Key Negotiating Points
Since courts take such a narrow view of force majeure provisions, it is especially important to anticipate and specify in the contract the circumstances most likely to prevent your meeting from being held.
Consider the location of the meeting and any special needs or responsibilities of the organization and meeting participants. In addition to including a detailed list of specific eventualities that could interfere with the meeting, it also is advisable to tie force majeure relief to objective standards where possible (for example, occurrences that prevent or delay attendance by at least 25 percent of participants). Of course, not all potential events can be specified or anticipated in the contract, and including a catchall phrase remains important, even in light of court decisions construing those phrases narrowly. Beware of restrictive language or phrasing that may unduly limit the scope of the clause.
Lastly, although a force majeure clause should always allow for cancellation of a meeting without penalty, cancellation is not always the association's preferred course of action. There may be circumstances in which going ahead with the meeting is preferred, even if the force majeure event will likely result in lower-than-expected attendance. However, groups that fail to meet minimum room or food-and-beverage commitments will often risk incurring significant attrition fees. To help make going forward a viable option, the force majeure clause should be drafted to excuse liability for underperformance (failure to meet minimum guarantees) in addition to nonperformance (cancellation).
A carefully negotiated force majeure clause is an important tool for reducing liability risk associated with cancelling or scaling back a meeting in response to natural disaster or other disruptive circumstances outside the association's control. In contract negotiations and review, counsel should take into consideration that courts have consistently viewed the scope of these provisions narrowly. It is essential to broadly anticipate and specify events that might disrupt your meeting and to avoid restrictive language that might undermine your association's ability to benefit from the force majeure clause's protections.