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COVID-19 Disputes: UK Government guidance issued on "fair and responsible" contractual behaviour

  • Market Insight 21 May 2020 21 May 2020
  • UK & Europe

  • Coronavirus

On 7 May 2020, the Government published 'Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency'. In this article, we take a closer look at the Guidance and its impact.

The Guidance, which can found here, is not binding and applies only to England.  Scotland, Wales and Northern Ireland may well issue their own guidance in due course.

The opening line of the Guidance best summarises its purpose: "parties to contracts should act responsibly and fairly, support the response to Covid-19 and protect jobs and the economy".

The Guidance aims to meet the following objectives:

  1. maintaining contractual performance necessary to support the response to Covid-19 and to protect public health, jobs and the economy;
     
  2. ensuring cash flow in those contracts is maintained;
     
  3. ensuring contracts, supply chains and markets can be preserved during the crisis; and
     
  4. generally ensuring contractual and economic activity is preserved and can recommence once the current emergency is over.

"Responsible and fair behaviour" includes being reasonable and proportionate in responding to performance issues and the enforcement of contracts, co-operating with counterparties and seeking to achieve pragmatic and just outcomes. In particular, parties should act responsibly and fairly in relation to the following:

  1. requesting and giving relief for impaired performance;
     
  2. allowing extensions of time or substitute performance;
     
  3. requesting and making payment, and returning deposits or part payments;
     
  4. making and responding to claims of force majeure and frustration;
     
  5. making and responding to claims for damages for breach of contract, and/or the exercise of other remedies;
     
  6. commencing dispute resolution procedures; and
     
  7. enforcing judgments.

The Guidance states "[bad] behaviour will be bad for jobs and will impair our economic recovery".

Although Parties are "strongly encouraged" to follow the Guidance, it is not binding and is not intended to override: (i) any specific guidance issued by any government body, (ii) the parties' contractual rights or (iii) any applicable legal obligations.

This can be contrasted with Singapore, where the Singaporean Government has already made legislative changes by passing the COVID-19 (Temporary Measures) Bill which attempts to pre-emptively manage the foreseeable increase in legal proceedings.

The COVID-19 (Temporary Measures) Bill is intended to provide temporary relief for parties experiencing difficulty in performing their contractual obligations by enforcing a moratorium on the commencement or continuation of legal proceedings, although it specifically excludes international arbitrations.

This relief is only applicable to specified contracts, for example, construction-related contracts, which (1) involve a Singapore business, at least 30% of which is owned by a Singaporean national or permanent resident, (2) require performance to be in Singapore, or (3) involve Singapore properties or events.

The UK Government has left the door open to making potentially similar legislative changes, as it will "continue to review behaviours in contracting … to ensure that contractual arrangements can function effectively and maximise their contribution to jobs and the economy". There is, however, no indication at present that any such legislation will be forthcoming. In the meantime, the position under English law remains the same; that there is no general doctrine of good faith in commercial contracts.

Written by Partner David Leckie and Associates Alexander Stewart and Siobhan Neill.

End

Associates:

Alexander Stewart, Siobhan Neill

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