Member Article

Business disruption in the hospitality industry

John Mackle, Legal Director, Clarion

The threat to business contract fulfilment and large public gatherings as a result of the spread of coranvirus is having a devastating impact on pubs, clubs and theatres. As a consequence of the UK Government’s increasing emphasis on avoiding personal contact, numerous conferences and other events are being cancelled, and this is beginning to take its toll on the events and hospitality sectors in particular.

That has brought into sharp focus questions as to who foots the bill for a cancelled event?

Some small events can often be cancelled under their normal terms with a full refund at as little as 24 hours’ notice. However, the organisers of larger scale events, such as exhibitions or major conferences invariably have stricter terms regarding cancellation and refunds, although in practice it is evident that many have decided to waive or modify their normal cancellation terms e.g. to offer a full refund, or a credit for a later re-booking. In doing so, they may have in mind their reputation or their own inability, or at least difficulty, in providing the full range of their event services and support. They may want certainty and also to avoid just a handful of people turning up to demand a service which it is now impractical or uneconomic to provide.

In some cases, there can be a game of ‘cat and mouse’, not to put it unkindly, where the customer and the supplier of services may each be waiting to see who blinks first and cancels. The customer (having gone past any usual contractual period for cancellation) may feel that they have a better prospect of reducing or escaping its liability for charges if the event provider is forced to cancel. The provider, however may be waiting for the customer to cancel, in order to maximise the provider’s arguments to claim cancellation charges or retain any deposit paid. Either party may also be looking to its insurers and will be mindful of the limitations of their insurance cover.

‘Wait and see’ may have worked for travellers who may be better positioned to claim on travel insurance for any cancellation charges, now that the UK Government has advised against all but essential international travel. However, travel insurance does not cover mere disinclination to travel.

One of the complaints of the hard-hit hospitality industry is that the Government has advised the public to stay away from pubs, clubs and theatres, but has not ordered closure. The Association of British Insurers (ABI) has said that most insurance would not pay pubs, restaurants or theatres even if the Government ordered them to close their doors, because standard business interruption cover – the type the majority of businesses have - does not include forced closure by the authorities. It is intended, say insurers, to respond to physical damage at the property which results in the business being unable to trade. According to the ABI, a small minority of typically larger businesses might have purchased an extension to their standard policy to cover an infectious disease, but even the scope of such an extension will totally depend on the nature of the cover and the precise policy wording.

Many businesses will not trust the ABI’s motives. The position may also vary between B2C and B2B contracts, because of differences in the legal rules that apply. It is not necessarily unfair in either case for the customer to bear charges even if the provider cancels, as the virus is outside the provider’s control. Government mandated closure would arguably make that clearer. The best option remains to take advice immediately to enable you to take commercial decisions. Such steps would include taking advice on the exact wording of your own contract and its circumstances, your insurance position and any mitigating measures that your business might be able to take.

This was posted in Bdaily's Members' News section by Emma Kilmurray .