The Cabinet Office has published guidance for contractual parties on what it deems responsible behaviour during COVID-19. The motive being to encourage parties to support the response to the pandemic and protect jobs and the economy, noting that, “bad behaviour will be bad for jobs and will impair our economic recovery.”
Parties in both the public and private sector are being asked by Government to act responsibly and fairly in the national interest; to be reasonable and proportionate in responding to contractual performance issues and enforcement.
The guidance emphasised the importance of acting in a “spirit of co-operation” and aiming to achieve practical, just and equitable contract outcomes having regard to the impact on the other party, the availability of financial resources and the protection of public health and the national interest.
The contractual considerations where such behaviour is particularly encouraged are:
• Relief for impaired performance;
• Making and responding to claims of force majeure and frustration;
• Requests for extensions, for example for performance or payment;
• Returning deposits or part payments;
• Change control or variation request;
• Claims for breach of contract and enforcing events of default and termination; and
• Exercising remedies, instigating and continuing dispute resolution procedures, and enforcing judgement.
The guidance does make clear, however, that it is non-binding and it is not intended to override specific guidance, procurement policy notes, applicable legal obligations or any “specific support or relief” conferred by the express contractual terms or by law.
The guidance sounds like it is essentially asking parties to act towards each other in good faith. However, the concept of good faith is generally not implied into commercial contracts under English law. Does this guidance signal a change to the legal approach to enforcing rights and obligations during this pandemic?
In some circumstances, commercial parties are almost bound to prioritise their own, and their shareholders’, interests above the wider economy and will utilise whatever support the contract offers them to do so and to enforce thier legal rights and remedies. The fact that the guidance is non-binding and does not seem to have any “teeth” does raise the obvious red flag that this guidance may simply be ignored by many.
How it will be regarded and interpreted by the Court is of course another issue and if the Court started to have regard to it when hearing case then we might see different outcomes in disputes.
However, the guidance opens the conversation. The Government is intending to review the guidance again by the end of June 2020 and recognises that “further measures may be taken” in the future “including legislation“. There can be no doubt of the mounting pressure that the COVID-19 pandemic places on industries, businesses and our economy and the need to support each other through this pandemic. Whether this guidance helps remains to be seen.