High Court considers operation of force majeure clause where party had to self-isolate for 12 weeks due to Covid-19 pandemic

The High Court found that in exercising its discretion to identify or not identify a case of force majeure under a plumbing franchise agreement resulting from the Covid-19 pandemic, the franchisor violated its duty by not taking into account Consider the need for the franchisee to self-insulate: Dwyer (UK) Franchising Ltd v Fredbar Ltd & Bartlett [2021] EWHC 1218 (Ch).

The decision is of particular importance as it is one of the few cases so far where the application of a force majeure clause has been considered in the context of the Covid-19 pandemic.

The relevant clause in this case was somewhat unusual in stipulating that the agreement would be suspended for any period in which either party was prevented or hindered from fulfilling their obligations “for a cause that the franchisor identifies as force majeure”. The question in court was whether the franchisor was in violation of the so-called Braganza duty, derived from the decision of the Supreme Court in Braganza v BP Shipping Ltd [2015] UKSC 17, which meant that this unilateral power to report force majeure had to be exercised fairly, in good faith and honestly.

The court held that the franchisor had violated this duty by refusing to designate force majeure, on the grounds that plumbing services could still be provided during the lockdown and a drop in demand was not sufficient for force majeure. This amounted to not taking all relevant factors into account, in particular the need for the franchisee to isolate himself for the good of his family as his son was in a vulnerable category for Covid purposes.

Although very fact-specific, taking into account an atypical force majeure clause, this case nevertheless shows that English courts are in principle willing to recognize that the Covid-19 pandemic, or related factors, could amount to force majeure. However, as always with force majeure, each case will depend on and require close examination of the specific circumstances and the precise wording of the force majeure clause in question.

Background

The plaintiff was the franchisor of the “Drain Doctor” plumbing and drain repair services franchise.

On October 4, 2018, Plaintiff entered into a franchise agreement with the first defendant, Fredbar, as franchisee and the second defendant, Mr. Bartlett, as surety.

Clause 30 of the agreement contained provisions regarding force majeure, including the following:

“This Agreement will be suspended for any period that either party is prevented or hindered from performing their respective obligations under any part of this Agreement for any cause that the franchisor identifies as force majeure, including strikes, supply chain disruption, political unrest. , financial distress, terrorism, fuel shortages, war, civil disorder and natural disasters. “

On March 24, 2020, Mr. Bartlett was told by health authorities that his son was vulnerable and that the best way to avoid the Covid-19 virus was to stay at home for the next 12 weeks.

On March 27, 2020, Mr. Bartlett sent the plaintiff an email with the option of suspending the agreement under clause 30 because demand for his services had fallen as a result of the pandemic. A few days later, he sent another email requesting the suspension of the Article 30 agreement, setting out detailed reasons, including isolating himself to protect his son.

The plaintiff rejected Mr Bartlett’s request, noting that plumbing services could still be provided as this was a key service and fewer jobs were not force majeure.

Fredbar claimed to terminate the agreement by letter dated July 16, 2020, on the grounds, among other things, that the plaintiff had breached his Article 30 obligations by refusing to point out force majeure.

The plaintiff argued that the defendants rejected the agreement by stating that it no longer intended to be bound by its contractual obligations. It, in turn, terminated the agreement and filed a claim for damages and reimbursement of certain franchise fees. It has also requested a preliminary injunction to prevent Mr. Bartlett from violating the trade restriction.

The defendants essentially alleged that misrepresentation and undue influence prompted them to enter into the agreement, and that the restriction on trade provisions was unenforceable.

This post will only address the aspect of the decision that takes into account force majeure.

Decision

Judge Jones of the Court of Insolvency and Business, serving as a judge of the Supreme Court, delivered a verdict after an expedited trial to find liability and a preliminary injunction.

With regard to the matter of force majeure, apply the principles set out by the Supreme Court in Braganzathe court ruled that clause 30 of the agreement contained a provision that the claimant’s authority to identify a case of force majeure must be exercised fairly, in good faith and sincerely. That meant that power could not be wielded “arbitrarily, erratically, perverse or irrational”. The plaintiff must have taken into account the relevant matters and not irrelevant matters. The court could overturn a decision that “no reasonable decision maker could have reached.”

The court ruled that the plaintiff the Braganza duty by not considering all relevant matters when making its decision not to designate force majeure. It wasn’t just a matter of looking at the overall effect of the pandemic on the company’s demand and sales. The plaintiff had not taken into account the specific fact that Mr. Bartlett had to isolate himself for 12 weeks for the safety of his son, which directly affected Fredbar’s ability to provide the services.

The judge considered that the force majeure clause was a fundamental condition of the contract, albeit one that would apply only in exceptional circumstances. The plaintiff’s breach of that clause was, commercially and objectively, a breach of an important condition that went to the heart of the commercial purpose of the agreement.

It was therefore a reprehensible violation by the plaintiff that would have allowed Fredbar to terminate the agreement. However, based on the facts, the agreement was confirmed by Mr. Bartlett’s acceptance of an alternative offer from the plaintiff that would allow him to continue to isolate himself, even without indicating force majeure. Therefore, Fredbar had no basis to end the contract in July 2020. The agreement was terminated when the plaintiff accepted the defendants’ objectionable violation in August 2020.

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