The High Court has found that, when exercising its discretion as to whether to designate a force majeure event under a plumbing franchise agreement due to the Covid-19 pandemic, the franchisor was in breach of duty in failing to consider the franchisee’s need to self-isolate: Dwyer (UK) Franchising Ltd v Fredbar Ltd & Bartlett  EWHC 1218 (Ch).
The decision is of particular interest as one of the very few cases to date which has considered the operation of a force majeure clause in the context of the Covid-19 pandemic.
The relevant clause in this case was somewhat unusual in providing that the agreement would be suspended during any period that either of the parties was prevented or hindered from complying with their obligations “by any cause which the Franchisor designates as force majeure”. The question for the court was whether the franchisor was in breach of the so-called Braganza duty, derived from the Supreme Court’s decision in Braganza v BP Shipping Ltd  UKSC 17, which meant that this unilateral power to call a force majeure event had to be exercised honestly, in good faith and genuinely.
The court found that the franchisor was in breach of this duty in refusing to designate a force majeure, on the basis that plumbing services could still be provided during lockdown and a drop in demand was not sufficient for force majeure. This amounted to a failure to consider all relevant factors, in particular the need for the franchisee to isolate for his family’s welfare given that his son was in a vulnerable category for Covid purposes.
While it is highly fact-specific and involved consideration of an atypical force majeure clause, this case nevertheless demonstrates that English courts are willing in principle to recognise that the Covid-19 pandemic, or related factors, could amount to a force majeure event. As ever with force majeure, however, each case will depend on, and require close examination of, the specific circumstances and the precise wording of the force majeure clause in question.
The claimant was the franchisor of the “Drain Doctor” plumbing and drain repair services franchise.
On 4 October 2018 the claimant entered into a franchise agreement with the first defendant, Fredbar, as franchisee and the second defendant, Mr Bartlett, as guarantor.
Clause 30 of the agreement contained provisions relating to force majeure including the following:
“This Agreement will be suspended during any period that either of the parties is prevented or hindered from complying with their respective obligations under any part of this Agreement by any cause which the Franchisor designates as force majeure including strikes, disruption to the supply chain, political unrest, financial distress, terrorism, fuel shortages, war, civil disorder, and natural disasters.”
On 24 March 2020, Mr Bartlett was notified by the health authorities that his son was vulnerable and that the best way of avoiding the Covid-19 virus was to stay at home for the next 12 weeks.
On 27 March 2020, Mr Bartlett emailed the claimant raising the possibility of suspending the agreement under clause 30 as there had been a drop in demand for his services resulting from the pandemic. A few days later, he emailed again requesting suspension of the agreement under clause 30, setting out detailed reasons including in order to self-isolate for the protection of his son.
The claimant refused Mr Bartlett’s request, noting that plumbing services could still be provided as this was a key worker service, and fewer jobs did not constitute a force majeure.
Fredbar purported to terminate the agreement by letter dated 16 July 2020, on the grounds that, among other things, the claimant had failed to comply with its obligations under clause 30 in refusing to designate force majeure.
The claimant alleged that the defendants had repudiated the agreement by indicating that it no longer intended to be bound by its contractual obligations. It, in turn, terminated the agreement and brought a claim for damages and repayment of certain franchise fees. It also sought injunctive relief to prevent Mr Bartlett’s breach of restraint of trade provisions.
The defendants alleged, in essence, that they had been induced into entering the agreement by misrepresentation and undue influence, and that the restraint of trade provisions were unenforceable.
This post addresses only the aspect of the decision which considers force majeure.
Insolvency and Companies Court Judge Jones, sitting as a High Court Judge, handed down judgment following an expedited trial to determine liability and injunctive relief.
In respect of the issue of force majeure, applying the principles set out by the Supreme Court in Braganza, the court found that the there was a term implied into clause 30 of the agreement to the effect that the claimant’s power to designate a force majeure event must be exercised honestly, in good faith and genuinely. That meant that the power could not be exercised “arbitrarily, capriciously, perversely or irrationally”. The claimant must have taken account of the relevant matters, and not irrelevant ones. The court could set aside a decision which “no reasonable decision-maker could have reached”.
The court held that the claimant had breached the Braganza duty in failing to consider all relevant matters when making its decision not to designate a force majeure. It was not simply a case of looking at the general effect of the pandemic on demand and turnover of the business. The claimant had failed to take account of the specific fact that Mr Bartlett had to self-isolate for 12 weeks for his son’s safety, which directly affected Fredbar’s ability to supply the services.
The judge considered that the force majeure clause was a fundamental term of the contract, albeit one which would only apply in exceptional circumstances. The claimant’s breach of that clause was, commercially and objectively, a breach of an important term which went to the root of the commercial purpose of the agreement.
It was therefore a repudiatory breach by the claimant which would have allowed Fredbar to terminate the agreement. However, on the facts, the agreement had been affirmed by Mr Bartlett’s acceptance of an alternative offer from the claimant that allowed him to continue to self-isolate, even without designating a force majeure. Therefore, Fredbar had no basis for terminating the contract in July 2020. The agreement terminated when the claimant accepted the defendants’ repudiatory breach in August 2020.