That is disgraceful. Shabbier than Baldrick.
You can understand why they might not want to turn down a party booking but I'm guessing that party booking did not come in at 6pm that evening. If, for some reason, it did, then the venue has no choice. It is simply too late to ruin the evening for people who have pre-booked.
The first time we visited what became our favourite place to stay, in Ireland, they had a wedding booking come in for the first night of our stay. They contacted us and asked, before accepting the wedding booking, whether we would mind staying in a nearby hotel that night. They booked us in, ensured we got an amazing room and paid for dinner in the restaurant. When we checked in the following day, there were some beautiful ' thank-you' flowers in our room.
We've been back to that hotel numerous times since. If they had simply told us on arrival that they were cancelling our booking, then gloated on Twitter about a lovely big wedding, I can't imagine we'd have gone near the place again.
It's all about giving a damn.