Law of Contracts – Part 11
In Part 1 (August 2014), I categorised risk into five categories, namely; 1. PEOPLE, 2. MONEY, 3. LAW, 4. SERVICE and 5. ECOLOGY. In this series, I deal with the risk profile of each, i.e. broadly speaking the areas of risk that any business is exposed to can been allocated under these five categories.
In Part 2, (September 2014), I covered the category of ‘People’ under four sub-categories: Staff (discussed in Part 1); Third party service providers (‘TPSP’); and Business Associates.
Part 3 (October 2014), continued with ‘PEOPLE’ as Customers.
Part 4 (November 2014), started the discussion on the 2nd category, namely ‘MONEY’ in terms of CASH and CHEQUES.
Part 5 (December 2014), looked at CREDIT and CREDIT CARDS.
Part 6 (January 2015), looked at LAW and CONTRACTS, with an introduction and Requisite #1: Offer & Acceptance.
Part 7 (February 2015), continued with Requisite #1 covering telephone enquiries, e-mails, websites and advertising.
Part 8 (March 2015), covered Requisites #2: Legally Binding Obligation, and #3: Consensus in contracts.
Part 9 (April 2015), covered Requisite #4: Performance Must Be Possible.
Part 10 (May 2015), covered Requisites #5 & 6: Performance Must Be Permissible, and Capacity of the Contracting Parties.
REQUISITE #6: CAPACITY OF CONTRACTING PARTIES (CONT’D)
How many travel agents have not been stung when making group bookings? I recently had a situation of a coastal travel agency who had made extensive bookings (flights, car hire and accommodation) for overseas travel for an inland based group of people. They had been making bookings for this group over a period of years and always dealt with one of the customers as being the groups (assumed) duly authorised representative/team leader. Ten days before this group was about to depart, one member of the party decided she not longer wanted to go! She conveyed this to the team leader who in turn conveyed it to the travel agent. The latter in turn pointed out that the team leader had signed the travel agents terms and conditions (STC) and that these contained a cancellation provision which (penalties) the travel agent intended enforcing. Well, the customer found a clever lawyer (note that is not an oxymoron!) who pointed out that his client had never had sight of or signed the STC!! Oh dear! Of course he was right and some fancy footwork later we managed to negotiate a settlement but guess who lost out? The travel agent of course!
So what is the answer?
• Make sure that the team leader is duly authorised i.e. can present you with a document (e.g. a power of attorney) authorising him or her to contract on behalf of the group.
• It is crucial that the power of attorney be worded as widely as possible e.g. allowing the team leader to accept the STC, making choices about hotels, etc.
• Ensure that all your documents (especially when you are faxing) contain either the complete STC or a legally adequate reference thereto (yours and the third party service providers).
• Ensure that you have met the requirements of the CPA (Consumer Protection Act): do not use small print, explain all the provisions and ensure that the signing party has no misapprehension i.e. all matters have been addressed and understood, including the STC of any the third party service provider.
Bookings with separate legal entities such as companies and close corporations (the entity) are another can of worms. Two issues are pertinent here: On the one hand the aspect of authority to bind the entity and secondly when you have an existing corporate customer who has accepted your STC due to e.g. a travel management agreement or credit application (which thus means the STC will apply to all subsequent bookings), but where individual employees (including directors) of the entity then approach the travel agent to make personal travel arrangements – RED FLAG!!
Let’s deal with the first issue: no dealings with a party purporting to represent the entity will be legally binding and enforceable against the entity unless the party is duly authorised to do so. If not, your sole right of recourse will be against the individual and that can be messy! By the same token regarding the second issue, do NOT assume the STC accepted by the entity will be enforceable against the individuals booking for their personal travel! A couple of years ago I had a situation where directors of a blue chip client approached the in-house travel agency to make bookings for hotels in Cardiff for the Rugby World Cup. The travel agent assumed their STC and that of the hotel applied and happily made the reservations (these guys only fly first class!). When they wanted to cancel at the 11th hour, the travel agent tried to rely on the cancellation provisions in the STC and hotel booking form – NO LUCK! Now, if you ever had to negotiate a messy settlement, this was one! Why? Not only because none of the STC were applicable but mainly because the travel agent was caught between a rock and a hard place: lose the blue chip client or settle!! Capisce?
So how do you avoid a messy situation?
• Make sure the individual who purports to represent the entity is duly authorised i.e. can present you with a document (a resolution from the board of a company or the members of a close corporation) authorising him or her to contract on behalf of the entity.
• The resolution must be adequately worded (see above re groups).
• If it turns out that the individual actually wants to make a personal booking, ensure that he or she signs and accepts the STC (yours and the third party service providers) in his/her personal capacity.
• Do NOT try to rely on ostensible authority i.e. due to the persons position in the entity e.g. general manager you assumed he or she had authority – it is tricky and expensive to prove.
Disclaimer: This article is intended to provide a brief overview of legal matters pertaining to the travel and tourism industry and is not intended as legal advice. © Adv Louis Nel, ‘Louis The Lawyer’, June 2015.