The hospitality industry is an important subdivision of the commercial service sector. Modern hotel management, especially for large-scale multinational brands, adopts the transaction mode: owners provide funds and immovables, bear operating risks and benefits; operators are responsible for professional and branded operations and charge management service fees.
In recent years, affected by the overall economic environment, industry competition and, more recently, the covid-19 pandemic, disputes between owners and operators arising from hotel management agreements (HMAs) have been rising, and the Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC/BIAC) has administered a number of relevant hospitality cases.
Given this backdrop, what are the typical disputes in hospitality cases, and what are the benefits of resolving these through arbitration?
Disputes over mismanagement claimed by the hotel owners
In the author’s opinion, the BAC/BIAC’s experience suggests that hotel owners are most concerned about profit and loss. Weaker financial performance is the underlying cause of disputes, and charges of mismanagement just the external manifestation of this.
In real-life cases, mismanagement often lead owners to seek to terminate the contract. Once a contract is terminated, both parties will face the settlement of accounts and the loss of any expected benefits for many years, if not decades. They will also find themselves embroiled in disputes over fees related to brands, design, guidance and construction, as well as security deposits arising out of the contract.
The particularity of this kind of dispute requires both parties to pay close attention to the relationship between different contracts, the negotiation of contract details and the retention of communication documents. At the same time, it also requires the dispute resolution institution to have high professionalism and rich case-management experience.