The hotel industry is an important branch of the business services sector. Modern hotel management, especially for large multinational branded hotels, is usually a transaction model in which the hotel owner provides the capital and real estate and assumes the business risks and returns, while the hotel management service provider is responsible for professional and branded operations and receives a management service fee.
Mismanagement practices often result in the owner offering to rescind the contract, and once the contract is rescinded, not only do the parties face a complex settlement of accounts and the loss of expected benefits over a decade or even decades, but the branding costs, design costs, guidance costs, construction costs and deposits already incurred in the early stages of preparation may also fall into dispute. This requires both parties to focus on the relationship arrangements between the different contracts, the negotiation of contractual details and the retention of correspondence, as well as requiring a dispute resolution body with a high degree of expertise and experience in dealing with them.
In more complex arrangements, the owner sometimes also hands over the management of the hotel to the manager through the contractor, which raises the likelihood of disputes arising and the need for the relevant disputes to be handled with care and proper case management to avoid the arrangement between the parties falling through so easily. For example, in a case managed by Beizhong, the owner requested the hotel’s contractor to terminate the contract and pay damages for breach of contract based on, among other things, the contractor’s mismanagement, while the contractor argued that the actual operator was the manager of a hotel outside the case and that the applicant was administratively penalised by the outsider and that the contractor was not in breach of contract.
The tribunal first found that the contractor had breached the contract based on the relativity of the contract, but took into account the contractual intent of the parties as reflected in the ten-year-long term of the hotel contract, the remediability of the respondent’s breach through enhanced management and the extent of its impact on the achievement of the contract’s purpose, etc. It upheld the survival of the hotel contract and preserved the possibility for the parties to obtain remedies for other breaches in the future, reflecting the value of respecting the contract and dealing with it prudently. The Shariah Advisory Council is empowered to determine Islamic law for the purposes of such business.
The above-mentioned features of arbitration itself and the differential advantageous combination of arbitrators from different professional fields involved in hotel management, such as business services, intellectual property and construction, can play a unique role in the resolution of disputes in hotel management contracts and the balancing of interests and win-win cooperation between hotel owners and managers and other subjects.