Skift Take
Growing rapidly, the number of reported COVID-19 cases has now reached over 75,000 worldwide — and event planners have even more cause for concern than the general public.
With the recent cancellation of Barcelona’s Mobile World Congress (MWC) along with a host of other global events, planners have plenty of reason to feel uneasy about any contractual obligations they may have moving forward.
Of course, attendee safety is the number one priority, but a canceled event can mean massive losses for both planners and their partners. If you have to cancel, will you be on the hook for compensation claims? What might your insurance cover?
If there’s anything that will protect you, it would be under what’s called the “force majeure” clause of your contract, and it is exactly this principle that the organization behind MWC is trying to leverage.
What Is “Force Majeure”?
“Force majeure” is French for “superior force,” and the term originally derives from the Napoleonic Code. As the World Bank notes, however, nowadays the term force majeure isn’t specific to one legal system and it generally “means what the contract says it means.” That is, it’s up to the signatories of the contract to define the specific conditions for a force majeure claim.
Even though the term is open to interpretation, the same basic principle applies wherever it is used: it refers to unforeseeable circumstances beyond the control of the parties that prevent fulfilment of their contractual obligations. In fact, it is usually used only for situations that make it impossible to fulfill a contract.
Whether it is referenced in business contracts or insurance plans, a force majeure event must be:
- Unforeseeable
- External
- Irresistible (in the sense of impossible to overcome)
While force majeure may at first glance seem like an easy out whenever you run into problems, it can be difficult to prove that whatever challenges you face are insurmountable obstacles that truly make it “impossible” for you to meet your commitments.
Insurance: How Does Force Majeure Apply, and What Can We Learn from the MWC Cancellation?
If you are hosting an event that has been affected by the COVID-19 crisis, you may be out of luck for insurance coverage if your plan does not explicitly list epidemics and/or communicable diseases as qualifying force majeure circumstances.
Insurance brokers know the importance of being as specific as possible, and that’s why the GSMA’s insurance policy for MWC specifically excluded epidemic coverage. Aware that examples would help to make its case as airtight as possible, the insurer even makes reference to SARS as well as communicable diseases more generally:
In other words, even if there had been a sudden quarantine-worthy surge of coronavirus cases in Barcelona itself (instead of only two in all of Spain), the GSMA would not have been able to claim insurance coverage for its canceled MWC event.
The good news is that if your event did pay the hefty extra fees for epidemic coverage, you should be able to receive compensation from your insurer if worst comes to worst. When speaking to Reuters, broker Tim Thornhill of Tysers (part of the Lloyd’s of London marketplace) estimated that insurance companies may already be liable for over $100 million in cancellation claims.
If you’re looking to protect a future event from possible losses caused by COVID-19, insurance is probably not your answer at this point.
Business Contracts: How Can Force Majeure Protect Planners?
As with insurance policies, careful wording is key to ensuring adequate protection from your business contracts.
The GSMA seems to be invoking force majeure not so much in the hopes of redeeming insurance money as in an effort to avoid paying compensation to MWC exhibitors and partners. While the GSMA did not have insurance protection for a possible epidemic, sources suggest that they did cover their bases in their business contracts. According to Insurance Business, the terms for MWC contracts were as follows:
“The organizer shall not be liable to the company for any losses, costs, damages, or expenses (whether incurred under contract, tort, or otherwise) suffered or incurred as a direct or indirect result of an event beyond the control of the organizer, including without limitation, any act of God, disease or epidemic, strike, lock-out, industrial disturbance [etc….]”
In force majeure situations, both parties of a contract usually agree to bear their own losses, and presumably this is the precedent that GSMA is invoking when it describes its current situation as a force majeure event.
Needless to say, this kind of crisis is not good for either party, and thorough contracts can help ensure a smooth resolution. In some ways similar to a prenup agreement among newlyweds, a force majeure clause can lay the groundwork for a mutually-agreeable plan designed to mitigate a difficult situation.
Uncertainty and the Burden of Proof
Whether you’re reviewing contracts that you’ve already signed or drafting new ones for future events, it will be helpful to know what eventualities should ideally be covered by your contract.
A greater level of scrutiny is especially critical for new contracts being drafted in this time of high-alert.
We are currently in a grey zone in terms of how “foreseeable” problems arising from the coronavirus really are, at least outside of mainland China itself. No one knows for certain whether its spread has peaked, or if it is just beginning to reach global proportions.
On the one hand, the Spanish government is questioning whether the GSMA was really motivated by a public health issue when it canceled the MWC, and on the other, the UK government was scrambling last week to notify hundreds of visitors to a February 6 London conference that one of their fellow attendees has since been diagnosed with COVID-19. In this environment, it is difficult for planners to gauge which locations are safe, what attendees might potentially be carriers.
What we do know is that the fear of COVID-19 spreading is already having a very real impact. Over 60 countries have now implemented travel restrictions on China. The MWC was cancelled in part because several major companies (including Ericsson, Nokia, Sony, Amazon, Intel, Facebook, and LG) had already pulled out. With only two confirmed coronavirus cases in all of Spain, presumably the threat they were concerned about was not so much from the local situation as from the other visitors to the event (5,000 to 6,000 of whom were expected to travel from China).
Event planners have legitimate reason to be concerned about the impact of COVID-19, even just from the effects of fear alone.
5 Ways to Ensure a Thorough Force Majeure Clause in Your Contract
With that said, it is in the interest of venues, hotels, and other partners to secure business deals, so they may be willing to negotiate contracts that account for the risk that planners are taking in this time of uncertainty. Similarly, exhibitors and registrants rely on business events to make important connections and secure deals, so they too may be willing to agree to a more comprehensive force majeure clause.
Here are some contractual terms that will help you manage your risks:
Terms that provide for commercial impracticability or frustration of purpose.
Since the benchmark of “impossible” execution may be difficult to prove, you are best served by contracts that provide relief for circumstances causing your event to be commercially impracticable or otherwise frustrated in its purpose. In so doing, you will need to:
- Define what constitutes a “commercially impracticable” event. According to the advice provided by attorney John S. Foster in his article 6 Tips for Covering Catastrophes in Contracts, a 40% to 50% drop in registration numbers would typically qualify as compromising your event’s viability.
- Define what the purpose of your event is. If part of your purpose involves securing a certain percentage of high-profile exhibitors, for example, a high proportion of cancellations within this specific group could disrupt your event’s purpose to the point where you are forced to cancel.
Terms that provide partial relief of obligations.
As attorney Timothy Murray advises in Drafting Advice: Avoiding Disastrous Force Majeure Clauses, invoking force majeure does not always have to mean total termination of a contract. It could provide partial relief for commitments, such as a reduction in bookings or a delay in deadlines. For example, if 25% of your delegates are unable to attend because of newly-imposed travel restrictions, your contract could provide a matching 25% reduction in meal guarantees and hotel room reservations with your venue. The contract should:
- Provide specific rates of relief for specific rates of cancellation.
- Establish a floor at which point the contract would be terminated or the obligations transferred to a date within a specified time in the future.
Terms that clarify a minimum period of notice for cancellation or reassessment of contractual obligations.
In Coronavirus: Crisis Management Through Force Majeure, law firm Baker McKenzie recommends that your contract include details around when and how you need to provide notice of cancelation. The other party in the contract will need some kind of reassurance that there are limits to how late you can terminate part or all of the contract without liability. This kind of arrangement will also protect you from allegations of insufficient notice. The wording needs to:
- Be specific about what periods of notice are required for each level of cancellation or relief of obligations that you’ve laid out elsewhere in the contract.
- Provide limits for how many times your liability can be reassessed.
Terms that address highly-probable future risks along with current issues.
In his article for Convene, John S. Foster recommends including some provisions for highly-credible threats to your event along with those that have already occurred. For example, if the number of coronavirus (COVID-19) cases have dramatically spiked in a region that is home to a significant portion of your delegates, you might reasonably expect travel restrictions to be imposed on the region in future.
Particularly if you are limited by a specific period of notice for event cancellation, you will want to have the flexibility to make decisions based on informed projections.
Terms that specify the contract’s governing law and jurisdiction.
If you are entering into a contract in an international context, it is important to specify the governing law and jurisdiction that applies. According to Bloomberg, most international trading contracts adhere to England’s legal system. However, legal firm Gowling WLG notes that if either party originates in the EU, special rules that are subject to interpretation may apply. To avoid confusion that could entail additional legal fees and a delayed resolution, it is wise to specify the relevant laws and jurisdiction before a dispute even arises.
The basic principle is to be as comprehensive as possible, and if it all possible, to negotiate as close to a win-win arrangement as possible. If you don’t already have in-house legal support or a lawyer on call, now may be the time to secure one.
Everyone should, of course, also be monitoring the latest updates from national and international health agencies and departments like the CDC, the WHO, and the ECDC. Being as informed as possible will help you to act quickly if some aspect of your force majeure clause has been triggered.
IN CONCLUSION
At this stage, it is difficult to judge how far-reaching the effects of COVID-19 will be.
How does an industry so dependent on international travel deal with a threat of this kind?
Both businesses and event planners may be forced to find creative solutions to the obstacles presented by COVID-19. After pulling out of the MWC, Sony announced that it would release a YouTube video promoting its latest phone on the same day its MWC press conference was originally set to take place. If event organizers can facilitate more opportunities for remote participation, networking, and product promotion, they may be able to offer more options for partial fulfillment of their contractual promises in future.
It’s always a good idea to consider if there is any way for you to meet your contractual obligations, even if only partially. And of course, a thoroughly-considered contract is the best protection you can have against liability.
