High Court considers operation of force majeure clause in context of COVID-19 pandemic

The High Court has found that, when exercising its discretion as to whether to designate a force majeure event under a 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 [2021] EWHC 1218 (Ch).

Although set in a non-financial context, the decision will be of interest to financial institutions 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 [2015] UKSC 17, which meant that this unilateral power to call a force majeure event had to be exercised honestly, in good faith and genuinely.

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.

For a more detailed discussion of the decision, please see our litigation blog post.

For further legal analysis and insights in relation to COVID-19, and how we expect the crisis to operate as a catalyst for change, please visit our Catalyst Hub.

Note: In June 2021, the claimant applied to the Court of Appeal for permission to appeal.

In September 2021, the Court of Appeal allowed the claimant's application for permission to appeal. The Court of Appeal hearing has been floated for 24 or 25 May 2022.