Mark Pestronk
Q: Our agency plans to operate a series of European tours next year, so we have entered into contracts with destination management companies and hotels. The contracts will obligate us to pay the suppliers several million dollars. If another pandemic breaks out next year, and no one wants to travel, could we get out of these contracts on the grounds of force majeure or the like? Do any recent court precedents shed light on what happened to such contracts during the Covid pandemic?
A: Most of the pandemic-related court cases settled out of court, so there is only one pandemic-related precedent dealing with tour operator liability to a supplier during the pandemic: Private Jet Services, LLC v. Tauck, Inc., Case No. 20-cv-1015, in New Hampshire federal court.
In 2019, Tauck contracted with a New Hampshire charter broker for a minimum of 50 charter sightseeing flights in New Zealand during 2020. By March 20, 2020, Tauck had already operated 23 trips, but on that date, New Zealand closed its borders to foreign travelers for the rest of the year, so Tauck was unable to operate any of the 27 trips still needed to meet its minimum guaranty.
As is usually the case with B2B controversies in the travel industry, the parties tried to settle through negotiation for several months, but they were unsuccessful. The charter broker then sued Tauck for the price of the remaining 27 trips on the grounds that it was entitled to the price for remaining trips, which was in excess of $1.7 million.
Unfortunately, the contract did not contain any clause excusing Tauck from payment. Although there was a force majeure clause, it excused the broker from performance, but it didn't excuse Tauck from paying for the minimum of 50 flights.
Nevertheless, the federal court held that Tauck could assert the defenses of "impossibility" even where the force majeure clause expressly stated that it did not excuse Tauck from performance. The court further held that performance was indeed impossible because the border closing made it impossible for Tauck to operate the planned tours.
After years of litigation, the court's final decision was issued on June 3 of this year. Tauck won the case and was ably represented by my colleague Jeffrey Ment.
In my view, the court's decision was a close call, and it shows that it is risky to rely on common law principles instead of express contract provisions. When negotiating major supplier agreements, you need to spell out the grounds on which you can decline to pay the supplier.
Here is an example that I have found to be acceptable to many hotels: "If any event beyond a party's control causes more than half of the expected participants to be unable or unwilling to travel to the destination on the expected dates, either party may terminate this Agreement without liability, in which case Hotel shall provide a full refund within 15 days after termination."
Such explicit terms help avoid controversies about what was or was not impossible.