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Force Majeure clauses in Franchise Agreements

What is a Force Majeure clause?

A fertile source of franchise disputes recently has been whether COVID has caused a franchise agreement to end by reason of “force majeure”.  Within the world of contracts, including franchise agreements, parties often find themselves unable to perform their agreements for reasons outside of their control.  In such circumstances, it is just and fair for the legal system to protect them in a way that does not make them liable for non-performance. This is where a force majeure clause would come into play.

Franchise agreements often contain force majeure clauses, which address “Acts of God’.  However, there is no set meaning as to what is meant by force majeure in English law, and for that reason the franchise agreement should ideally set out what this is intended to mean.  For a party to be able to rely on a force majeure clause (if one is included within the franchise agreement) the acts complained of will often need to be the sole cause of the failure to perform the obligation, there should not be another or additional reasons.

Force majeure clauses sometimes provide a suspensory effect due to the underlying “Act of God”, which permit non-performance until the issue has been resolved (if possible).  Sometimes, they may provide the parties with a complete escape from the franchise agreement. 

Construction of a Force Majeure clause

The clause concerned need to be carefully considered into order to ascertain its effect.

It is difficult to pinpoint exactly what can fall under a force majeure clause, and it is often difficult for franchisors to prepare agreements that would cover all eventualities.  Many franchise agreements include a comprehensive list of what might be defined as force majeure, but this is not always so.  In Dwyer (UK Franchising) Ltd v Fredbar Ltd [2021] EWHC 1218 (Ch), there was a franchise agreement with the following clause:

‘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 [Franchise] Agreement by any cause which the Franchisor designates as force majeure including…’.

In Braganza v BP Shipping Ltd [2015] UKSC 17; [2015] 1 WLR 1661 the court identified the principle that, where a contracting party exercises a discretionary power, that it must do so ‘honestly, in good faith and genuinely [and that] it must not be exercised arbitrarily, capriciously, perversely, or irrationally’. For these reasons, it may well be important when construing any force majeure clause to have this authority in mind. 

Force Majeure within the Pandemic

Reported cases on force majeure regarding franchise agreements are difficult to come by, reflecting how little the clauses are replied upon. This doctrine remains the exception and not the rule and the courts continue to apply it in a restrictive manner, irrespective of whether it is a franchise dispute or other form of contractual dispute.

During the pandemic there has been little case reporting regarding force majeure, one which was regarding a franchising is the case of the Dwyer (UK Franchising) Ltd v Fredbar Ltd [2021] EWHC 1218 (Ch).  There is a separate post on this case, which is of particular interest in franchise disputes, here:  Dwyer case note concerning force majeure.

It is probably fair to say that, as we have come out of lockdown and restrictions begin to ease (although whilst writing this, with the Omicron variant, some restrictions are being re-imposed) it is reasonable to say that the use of the force majeure clauses concerning events arising by reason of the pandemic may now become more restrictive in practice than perhaps was contemplated at the outset of the pandemic.

It is the day-to-day life, and one which people are becoming accustomed to and arguably more adaptable to and therefore it can be said there is more of a possibility to take reasonable steps to be able to perform their obligations in this now “standard” pandemic environment.  The greater foreseeability of what can happens means there is a less of a chance that a force majeure clause would apply due (although this is always matter of construction of the clause).