Courts begin to address force majeure business claims related to COVID-19

  • Posted

As the pandemic has unfolded, the economic impact has been felt deeply by many businesses. In some cases, companies have claimed that it has given rise to circumstances beyond their control which have prevented them delivering on contracts.

Some of these claims are now beginning to filter through the courts and the High Court has recently ruled that a force majeure event took place when a Drain Doctor franchisee needed to self-isolate due to the risk of passing on COVID-19 to his vulnerable child.

A force majeure clause in a contract can excuse one or both parties from their obligations – without being liable for any failure to perform those obligations – if acts, events or circumstances occur which are beyond the parties’ control, such as a natural disaster or a state of war.

In the recent case of Dwyer (UK) Franchising Ltd v Fredbar Ltd & Bartlett, the franchise agreement contained a clause for suspension during any period in which either party was prevented from or hindered in complying with their obligations by any cause designated as force majeure by the franchisor.

When Fredbar invoked the clause as work levels were reduced and he needed to self-isolate, Dwyer (UK) argued that plumbing services could still be provided during lockdown and a drop in demand was insufficient grounds for force majeure. When the franchisee terminated the agreement, arguing Dwyer (UK) had failed to meet its obligations, the company retaliated by initiating legal action and claiming damages.

In assessing the case, the High Court applied to the force majeure clause  the implied Braganza   term, from the 2015 case of Braganza v BP Shipping, in which  the Supreme Court ruled that a unilateral power to  regard an event “force majeure”  must be exercised ‘honestly, in good faith and genuinely’, taking into account matters that are relevant and excluding those which are not.

In this case, the Judge held that Dwyer (UK) were in breach of the Braganza duty in refusing to agree force majeure, as they had failed to consider all the relevant factors. These extended beyond the general situation regarding plumbing services during the pandemic and included the importance of family welfare and the franchisee’s need to isolate to protect his son, who was in a vulnerable category as regards COVID.

The judgment reflects the specific facts and circumstances of this case and the Court’s interpretation of the wording of the force majeure clause. But while the wording of Drain Doctor’s clause was not typical, it’s an interesting outcome for anyone currently pursuing an action on these grounds in relation to the pandemic. However, each case will turn on the individual circumstances and the wording of the particular contract concerned.

The past year has taken us all into unchartered territory, demonstrating how the unexpected can, and does, happen. This illustrates why it’s so important to have well drafted contracts, as having clear terms in place can make all the difference. And because the concept of force majeure is derived from civil law, and not fully recognised under English common law, it should always be fully and clearly defined in a contract.