Resolving Contract Disputes: How To Spot A Problem & What To Do When A Problem ArisesMay 21, 2020

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May 21, 2020

Resolving Contract Disputes: How To Spot A Problem & What To Do When A Problem Arises

Two hands are tearing up a signed paper. Cancellation of contract, document or agreement. Business concept

There are a lot of moving parts for any association meeting or conference, and the last thing one wants is for a contract dispute to impact the event. That’s why many event and meeting planners seek assistance in negotiating their contracts and trying to anticipate foreseeable challenges.

With any meeting or event, there are myriad contracts in place: hotels, convention centers, decorators, A/V companies and destination management companies — and all contracts need to be written carefully and cover important issues in case a dispute arises.

When drafting the contract, and in particular the dispute resolution clause, there are a number of resolution methods at hand. A negotiation clause is a perfect solution which includes an agreement that if a cause for a dispute should arise between a contractor and a project owner, these parties will attempt to reach a just and satisfactory resolution between themselves before moving on to other means.

Arbitration is another form of dispute resolution, which is a structured process, but it is less expensive and formal than court proceedings. A mediation clause suggests the inclusion of a neutral third party in the dispute situation to help mediate the process of resolving the dispute but not in a legally binding way.

A Strong Partnership
Successful events are founded in successful partnerships between the meeting professional and the venue representative.

Christian E. Hardigree, dean of the School of Hospitality at Metropolitan State University of Denver, says things change literally daily for an event and the venue, and often a dispute can be resolved in the moment and on the fly in a manner that is good — or, at least, not-horrible — for the parties.

Furthermore, she explains between planners and suppliers (i.e., the venues), their ability to build key relationships and communicate can hold the key to their success, as it’s important for event professionals to view each other as partners and not simply as customers or counterparts.

“There are a lot of issues around the breach of contract as the event contracts are getting more complicated,” Hardigree says. “It is critical for event planners to carefully review the contract clauses provided by venue and compare them with other contracts they manage. But at the end of the day, how successful an event planner is in getting the contract he/she wants depends on establishing a relationship with their venue partner so that both work in unison for the success of their event and attendee satisfaction.”

Dealing with Disputes
Disputes will occur — it’s not a matter of “if,” but “when” something will not meet expectations. This can be anything from the number of attendees, food and beverage expectations, the need to cancel, etc., especially in light of the COVID-19 crisis.

“Literally, it’s an industry that is responding to change daily,” Hardigree says. “Parties should deal with disputes professionally and without, or at least, limited emotion. Nothing kills a relationship faster than one of the parties becoming verbally abusive with the other or their staff. Keep an eye on the big picture for pulling off a successful event. And document, document, document. If you end up in dispute resolution, such as arbitration or litigation, your contemporaneous notes will help you recall the specifics as they unfold.”

Shawn Jung, assistant professor, also at the school of hospitality for Metropolitan State University of Denver, says event professionals need to be vigilant when dealing with disputes.

“They are working in one of the fastest-growing industries and changes are inevitable to compete in a bigger and global market,” he says, explaining a lot of new policies and technology evolutions have taken place in just the past couple of years: General Data Protection Regulations (GDPR), event cancellations due to COVID-19, and artificial intelligence (AI) technology, to name a few. “In order for event professionals to be better prepared, they should be vigilantly aware of surroundings and educate themselves by engaging in various opportunities — face-to-face and virtual educational events — provided by these professional associations.”

Tyra Warner Hilliard, a lawyer, assistant professor, and chair, hospitality, tourism & culinary arts at College of Coastal Georgia, notes it’s important to address any disputes right away, in a frank but dispassionate way.

“Starting off screaming and yelling about something only shuts the other side down,” she says. “Bring the issue to the table, address the facts, and be prepared to explore solutions together. Do not threaten to bring your lawyer into it unless you are ready for it to escalate. There is no quicker way to make a small dispute big than to get the lawyers involved. As a lawyer, I know.”

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Common Conflicts

Hilliard says while disputes are quite common, lawsuits are much less common and most are resolved through negotiation. She notes contract disputes are usually over performance clauses — attrition damages alleged to be owed by the group for under performance.

“Another common area for dispute is when there is a disruption on site — construction, another noisy group — and the dispute is over a ‘Quiet Enjoyment’ or similar clause that indicates that the hotel will take action to ensure the group isn’t bothered onsite by noise, fumes, dust, etc.,” she says. “Less often, but hotly disputed when it comes up, the contract dispute is over the hotel choosing not to honor the contract, which they may do for myriad reasons.”

Contrary to some planners’ opinions, whether or not there is a “Cancellation by Hotel” clause in the contract, the group is still entitled to damages if the hotel cancels.

Hardigree notes the most common disputes come down to attrition clauses, cancellation clauses and force majeure. Less frequently, but still of significant concern are issues such as incompatible groups, construction/renovation, safe destination and diversity/inclusion.

“Also the commission cuts by large hotel chains, such as Marriott and Hilton,” she says. “While some other brands refused to follow suit, third-party event planners have been impacted by the 30% commission cut and that is pretty significant in their business. Many event planners or organizers also tend to overlook the importance of the event cancellation policy when purchasing their event insurances.”

One of the biggest areas of disputes in contracts is the force majeure clause, which is a provision that excuses a party’s performance of its obligations under a contract when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal or impossible.

This is especially apropos this year with COVID-19 forcing so many meetings and conferences to be cancelled. These clauses are fairly common in contracts, yet, in times like this, can prove to be a valuable resource in determining how to navigate performance when there are issues affecting performance outside either parties’ control.

According to Hardigree, force majeure clauses afford parties the opportunity to draw a roadmap of the implications to each party if an otherwise remote or unplanned catastrophe occurs. That roadmap may allow for decision making in times of uncertainty, informed underwriting as well as proactive crisis planning.

Christina M. Pannos, Esq., an attorney at Howe & Hutton, Ltd., a Chicago-based firm that specializes in associations and meeting professionals, notes force majeure provisions are going to be talked about a great deal in the coming months because of COVID-19.

“We’ve seen this really amped up over the last couple of weeks and, with current events, it’s only going to be more so in the future,” she says. “I’ve had clients calling, looking to see if they can cancel, and the venues all think it shouldn’t be covered under force majeure, and that’s all going to be completely dependent on the contract.”

Examples of Disagreements
Hardigree provides the details of a contract dispute that happened several years ago in which a planner contracted for a block of 145 rooms at a hotel that had 180 total rooms, or about 80 percent of capacity. Two years before the event, the hotel was sold to a new owner and underwent a significant renovation but failed to notify the planner in advance.

“About three months prior to the event, the hotel notified the planner that the renovation resulted in their becoming a ‘boutique’ hotel, which now had a total of 98 rooms, and that the planner could have the same proportion of rooms or about 78 rooms,” she explains. “The city was booked, which made moving the event to another hotel impracticable. The planner was quite upset as, even if the hotel gave 100% of the total rooms, it still was too few for the event.”

The event ultimately went forward, with the planner using the block — with a few additional rooms added by the hotel — and then putting attendees in a series of other hotels, which made attendees very dissatisfied. Litigation ensued, and Hardigree was able to reach a settlement shortly thereafter.

Hilliard recently heard from a group that decided not to hold a contracted meeting because of the COVID-19 threat. “Because of the timing of their cancellation — before the World Health Organization declared it a pandemic, before any city or state declared a ban on gatherings of a certain size — but after a state of emergency was declared in the state — the parties disagreed about whether it was a cancellation with damages owed or a force majeure termination with no damages,” she says.

That dispute still being negotiated and argued and there’s been no result yet.

Another issue Howe & Hutton has been dealing with quite frequently are third-party commission disputes.

“You need to be very, very clear, allocating your contracts, when commissions are earned, who is supposed to get them, and if you no longer have the same meeting planner, can you give the commission to someone else?” Pannos says. “This is something we have been working on with multiple different organizations.”

When to Go to Litigation
If a dispute arises over a contract, the first step should be to try and work out an amicable compromise. Pannos says many associations and venues have had long-lasting relationships for years, so often they are able to work out solutions to keep the relationship intact.

“A lot of it boils down to money and charges, and it’s important to be clear up front what you’re going to owe and what additional services may be added on,” she says. “If you anticipate that you’re coming in low, you may need to renegotiate. But you need to come up with arguments for why you don’t need to pay that money and, hopefully, you can come up with a compromise.”

That’s done, she says, by communication. “Talking with each other is always the most important thing,” Pannos says. “Involving our firm earlier, rather than later, is better. People often get incensed at the beginning of a dispute and are frustrated, so it helps to step back and talk with someone else to help resolve it.”

Hilliard notes if negotiation fails, mediation or arbitration should occur before litigation.

“Each option has its pluses and minuses in terms of speed, expense and likely outcome,” she says. “In determining which dispute resolution method is best, each party has to weigh its options — a risk analysis of sorts. Part of this risk analysis also has to be ‘Is it worth it just to pay the damages and go on with our lives?’”

But, sometimes, things can’t be resolved and ill feelings result.

“Some contracts may contain mediation or arbitration clauses — particularly for disputes below a specified sum — which may expedite a resolution,” Hardigree says. “Other contracts may simply leave litigation as the platform for resolution. Even if a matter goes to litigation, often those result in settlement prior to trial, as getting to a jury trial could take three or more years, depending upon the jurisdiction.”

Event professionals need to keep in mind that they are not legal experts. They should always consult their legal counsel or have a legal team if they can afford to have one in their organization.

Keeping Problems Away from the Attendees
No matter what the dispute is or how much things escalate, it’s important to keep the dispute from interfering with the meeting and the attendee experience.

“The goal of both planner and venue is to create a successful event providing the most valuable experiences for attendees. Venues or other suppliers would not want to burn the relationship bridge that they have built with their client by pulling out their services or kicking out attendees,” Jung says. “Attendees should not be aware of any dispute at all and it will be resolved by the parties by any legal process or arbitration.”

Many contract disputes don’t arise until after the meeting ends. Hilliard notes, even if that’s not the case, although the meeting planner and sales manager for the hotel will be aware of the dispute, hopefully, they are professional enough not to let it impact the job they are paid to do.

“Depending on the nature of the dispute, it’s possible no one else onsite will even be aware of it,” she says.

Future Business
Once a dispute is settled, planners and venues should be able to work together again. But that’s not always easy, Hilliard notes.

“This is a relationship business. If there is even a perception of unfair dealing or inflexibility or greed, future business can be lost,” she says. “This is a long-game concept new hotel sales people, eager for a ‘win,’ especially seem likely to miss.”

Disputes often have significant impact on future business with the venue, and the network of planners often will share experiences with each other, so a bad experience often has wider impact than simply from a single planner.

“Sometimes, however, planners have limited options for the size of their events and have to simply push forward through past negative experiences because there are a limited number of venues that can handle the size of their event or their client is requiring a specific location,” Hardigree says. “They then try to focus on ensuring the contract clauses cover any foreseeable issues based upon their past experiences.”

Jung adds that the business event industry is a small world while its economic impact is huge — more than $1.5 trillion of the U.S. total GDP.

“Planners have their own network and professional associations, such as PCMA, MPI, IAEE and ILEA, so they should continue to collaboratively work with the Event Industry Council to keep up with industry standards, including legal changes,” he says. “Therefore, it is important for both planners and suppliers to utilize those available resources and updated information in the process of getting past any disputes.” AC&F

 

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