Following our recent commentary on contractual obligations during the Covid-19 emergency, this note considers guidance produced by the Government on 7 May 2020 - “Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency” (“the Guidance”).
The Guidance applies with immediate effect and will be reviewed on or before 30 June 2020.
The introduction to the Guidance states “The guidance in this note is that parties to contracts should act responsibly and fairly, support the response to Covid-19 and protect jobs and the economy” – the emphasis is added by the Cabinet Office.
The Guidance is non-statutory, meaning that non-compliance will not result in any sanctions, however throughout the body of the Guidance the repeated message is for parties to act “fairly” and “responsibly”.
The Guidance sets out recommendations for contractual behaviour, in line with current Government guidance to the public on daily behaviours such as social-distancing, commenting that it is “also right that individuals, businesses (including funders) and public authorities who are parties to active contractual obligations which are materially affected by Covid-19 should consider their behaviour as part of the national response”.
The clear intention of the Guidance is to protect the economy and business in the longer term by protecting supply chains, and opportunities.
The Guidance applies to England only and not to the devolved administrations of Scotland, Wales and Northern Ireland.
It is clear that the Guidance does not override:
- Specific guidance or procedural policy notes issued by the Government;
- Any specific support or relief which is either expressly stated within the contract or implied through law, custom or practice, or available from the Government in response to the Covid-19 emergency; and
- Any other legal obligations with which a party is bound to comply either generally or in order to protect national security interests.
The Guidance recognises the Covid-19 emergency will make it difficult, and in some cases impossible, for parties to comply with their contractual obligations for any number of reasons including, by way of example, illness of their workforce, enforced restrictions in the movement of goods and people and so on. The Guidance contends that where parties to a contract act fairly and reasonably, they will be contributing to protecting the economy and maintaining cash flow, avoiding disputes and insolvencies and preserving economic activity to compliment the restart of the economy once the present emergency is over.
Responsible and fair behaviour is described in the Guidance as being proportionate in how parties respond to any breaches of contractual obligations and specifically references acting in a “spirit of co-operation” with the aim being “to achieve practical, just and equitable contractual outcomes”.
Responsible and fair behaviour is expressly encouraged by the Guidance in relation to, for example:
- Requesting and allowing extensions of time;
- Requesting and making payment;
- Returning deposits or part payments;
- Claiming breach of contract;
- Making claims in relation to Frustration or Force Majeure (please click here for our previous blog); and
- Making or responding to requests for contract variations (please click here for our previous blog).
The overriding message the Guidance is seeking to enforce is that parties to a contract should act in a collaborative rather than combative spirit which mirrors the content of the recent webinar by Rob Coleridge and Jon-Paul Casati in our Commercial Litigation Department (please click here for our previous blog).
It is however worth reiterating that the Guidance is just that, guidance.
The Guidance does not detract from the terms of the contract which are preserved. Parties should revisit the terms of the contract in question to ensure that if they do comply with the Guidance, they do not impliedly vary the contract or waive any rights of recovery under the contract in behaving as the Government requests.
An innocent party, or party not in breach, by following the Guidance will retain their contractual rights and remedies for breach of contract against a party that behaves unreasonably and in breach, provided they do not inadvertently vary the terms of the contract or waive such rights by their actions.
If there is any doubt parties should seek legal advice before taking such actions.