This article is written by Rituporna Gupta, pursuing a Certificate Course in Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from Lawsikho.
In this article, the author narrates the importance of the Force Majeure Clause and its practical implementation in the hospitality industry. Force Majeure is a French word that means a superior or greater force in English. It is connected to the concept of the Act of God, where there is an unforeseen, unprecedented, unexpected happening of the event. Although, Force Majeure is an exception as it includes not only Acts of God like an earthquake, cyclones, tornados, tsunami, hurricane, volcanic eruptions, famines & droughts, landslides, etc. but also human triggered events such as armed conflict, terrorism, riot, war, strike, epidemic, crime, etc. Force Majeure incidents make it impossible and impractical to fulfill the contract as it is an overpowering force. Force Majeure event shall have the following factors:
- An unreasonable, unforeseen, unexpected event;
- Beyond one’s reasonable control;
- Cannot be avoided;
- Impossible and impracticability to perform the obligation.
Force Majeure clauses are contractual clauses that restrict parties’ obligations and liabilities under an agreement when a sudden unexpected circumstance occurs which is beyond their control, thereby preventing them from performing their obligations. Force Majeure Clauses does not waive off the parties’ obligations to perform but only suspends it for the duration of the force majeure. Parties shall be held liable when precautions are not taken to reduce the damage, where an attempt could have had lesser damage if necessary, steps to avert the same were undertaken or by any means, alternate resources were implemented and most importantly there was a possibility for the same.
What are hospitality contracts?
The hospitality industry is huge and enormous. Hospitality Industry is divided into 4 sectors namely travel and tourism, lodging, recreation and food & beverages. It caters to hotels, restaurants, aviation, railways, shipping, resorts and healthcare facilities, and many more.
For instance, a hotel room is booked for a particular date and there occurs an uncertain, unreasonable event due to which the hotel is compelled to terminate the contract due to impossibility to perform. It is vital on the customer’s end to understand what shall be the consequences of such a contingent occurs and also about the refund policies.
Before entering into such a contract both parties are expected and implied to know the obligations they are signing up for. Later when disputes arise it is clear beforehand what shall be the course and conduct of the dispute resolution. None of the parties shall have a surprise element, to which they aren’t aware of or well informed while entering into a contract. Each party must understand and interpret the terms of the contract before executing the same. If there is any contradicting point or the parties are not in consensus, it shall be discussed before signing and negotiated fairly in the favor of both parties’ interests.
Furthermore, Hospitality contracts are complex documents with intricacies at various stages in which one can face a lot of challenges to execute certain agreements namely technical specification agreements, licenses agreement, operations agreements, etc.
For instance, a hospitality contract like an event management company enters into a venue-hire agreement with the owner of the hotel on behalf of its clients. In addition to this, the stipulations laid into an agreement depend on the requirements and the type of agreement a party desires to enter into.
In hospitality contracts, even the deliverables clause, consideration or deposit clause, and cancellation or postponement of the event are largely witnessed and are of vital importance. It is essential that both parties are in consensus in terms of deliverables, for instance, services to be provided for the consideration paid shall be justified and specified in detail to evade future disputes.
Applicable sections under Indian Contract Act, 1872 for force majeure clause
Section 32 and 56 of the Indian Contract Act, 1872 stipulate laws relating to the Force Majeure. The law is open-ended towards the incidents covered under the Force Majeure as it is a wider term as compared to the Acts of God.
Section 32 of the Indian Contract Act, 1872 deals with the enforcement of contracts contingent on an event happening. This section specifies that to perform any obligation under the contingent contract becomes certain on a happening of an uncertain future event. Such contingent contracts cannot be enforceable until and unless that particular uncertain future event occurs. When the event is impossible, such agreements become void.
Whereby Section 56 of the Indian Contract Act, 1872 is a Doctrine of Frustration. It envisages that the obligations to be performed have become impossible because of some event which the claiming party could not prevent and that the impossibility is not self-induced by the claiming party or due to his negligence.
In the decided case law of Energy Watchdog V. Central Electricity Regulatory Commission & Ors. the Supreme Court of India, reinstated the law of force majeure and laid down the following guidelines to be mindful of while invoking a force majeure clause:
- The main intention of the Force Majeure Clause is that due to the events being uncontrollable, hence the conditions and obligations of the parties cannot be performed and the parties shall not be held responsible for such non-performance of duties.
- The performance of duty becomes impossible to undertake due to the occurrence of a particular event.
- To qualify as a force majeure, the same is unavoidable by the parties even after taking the necessary measures in their capacity to curb the unforeseen.
- The parties’ initiative to mitigate and avert the force majeure events shall be taken into consideration while analyzing the force majeure clause.
Important clauses in hospitality contracts
- Name and Obligation of the parties – The name of the parties entering into a hospitality contract has to be mentioned with their respective part of obligations wherein on payment of consideration, another party shall give effect to the duty on their part, which shall complete the contract entered into. For example; in the case of a venue-hire agreement, the person who hires the particular property of the venue is called the Hirer and the person who owns such property is the owner of the venue. Both parties enter into an agreement where terms and conditions are laid down for both parties to perform.
- Deposit or consideration – The hirer has to pay a certain sum of money to reserve the particular property, venue, or place of interest for his event on the date it is decided to take place. Such consideration is usually paid in installments and in case there is a non-performance due to certain conditions the owner shall either return the amount already paid by the hirer or not refund due to last-minute cancellation as he would incur a loss. This clause shall be formed with clarity and discreetness.
- Deliverables – When the Hirer pays for the deposit and the consideration it is inclusive of the arrangements and the facilities which the owner of the property is making available or providing to the Hirer, to name a few are electricity, sanitation, generators in case of a power cut, accommodation amenities, catering provisions, furniture, and necessary equipment. Clear terms for the consideration paid and the arrangements available against it shall be described in depth. For instance, some owners have their contacts of decorators or caterers who work for them and do not entertain any third parties due to already developed working relationships, so it is imperative to be well-informed and clear from the beginning with the conditions of the consideration and facilities being provided against it.
- Cancellation or Postponement – In the event of cancellation, it is substantial that the manner, conditions laid for cancellation, notice period are agreed upon by the parties at the time of entering into a contract. Also, it shall be specifically mentioned when the owner cancels the contract without paying any compensation then the hirer incurs a loss due to his cancellation. Also, the owner has the right to damages if certain conditions are not fulfilled by the Hirer which was agreed to while entering into the contract.
- Force Majeure – This clause is of utmost importance to secure the parties on non-performance of the obligations due to an unforeseen, unexpected event which makes it impossible to carry out the duties and the damages or loss incurred by them took place due to the causes beyond their reasonable control which were not self-induced like the causes not being restricted to the Acts of God but triggered due to human interference, for instance, war, riots, terrorist attacks, etc.
Importance of force majeure clause in hospitality contract
Force Majeure Clauses in hospitality contracts act as a protection for the parties, in case of non-performance of the obligations or failure to perform the respective parties’ duties due to occurrence of an uncertain event which is beyond the reasonable control thereby not holding either of the parties responsible for any loss suffered in such an event.
In today’s time, it has become an absolute mandate to prepare a force majeure clause keeping in mind the Covid-19 pandemic which has impacted the entire globe adversely. Parties entering into the contract give importance to framing a Covid-19 force majeure clause as it has affected every sector immensely. Some of the contracts already executed before the pandemic have suffered huge losses and had to go through a major setback as it was an unforeseen and unexpected event in the history of mankind. Force Majeure Clause provides a sense of security and protection to either of the parties when a party fails to perform due to unforeseen future events.
Should events beyond the reasonable control of the group, including but not limited to;
(1) Act of God,
(2) war, including armed conflict,
(3) strikes or labor disputes at the hotel or in (the area where the hotel is located),
(4) disease at the hotel or in (the area where the hotel is located), (examples of disease: SARS, legionnaires, COVID-19),
(5) government regulation or advisory (including travel advisory warnings),
(6) civil disturbance at the Hotel or in (the area where the hotel is located),
(7) terrorism or threats of terrorism in India as substantiated by governmental warnings or advisory notices,
(8) curtailment of transportation services or facilities which would materially affect attendees from attending the conference,
(9) disaster, fire, earthquakes, hurricanes in(the area where the hotel is located),
(10) unseasonable extreme inclement weather in (the area where the hotel is located),
(11) shortages or disruption of the electrical power supply causing blackouts or rolling blackouts or other essential utilities in (the area where the hotel is located), or
(12) any other cause reasonably beyond the parties’ control (collectively referred to as “occurrences”), making the event commercially impracticable, impracticable to perform, illegal, or impossible to fully perform under this agreement as the parties originally contracted. In such a case, the affected Party may terminate this agreement, without liability, upon written notification.
Furthermore, should one of the above events occur, the group decides to continue with the conference as scheduled, or if one of the events occur within six months of the conference, the hotel will waive any applicable minimum guestroom night usage requirements or attrition fees, catered function(s) cancellation fees or other damages provided for under this agreement, and offer to Attendees the lowest guest room rates being offered by the Hotel over the conference dates. In addition, should registered attendees cancel reservations or registrations because of reasons over which they have no control such as, but not limited to airline flight cancellations. The hotel shall appropriately reduce, without liability to the group, any obligation by the group or the individual which otherwise would be required in any manner under this agreement. Notice under this provision may be given at any time in advance of the conference provided that the notifying party has met the requirements of this provision.
Force Majeure Clauses should be drafted depending upon the requirements and needs of the parties. Every Hospitality Contract is unique and is prepared to keep in mind the set of obligations parties want to enter into. It is important to prepare the force majeure clause with utmost clarity and in the best interests of the parties. Therefore, every agreement having a force majeure clause shall be customary, discretionary, and subjective assessment depending upon the requirement of the parties. However, it has to be clearly understood that the force majeure clause can only be enforced when the specific situation under which the said clause is invoked is specified in the agreement so it is of paramount importance to carefully draft the Force Majeure clause in the contract to save your client from the huge number of losses or damages that can occur for not drafting or including any particular event in the clause.
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