Governments Calls For Responsible Contractual Behaviour – What Does This Mean For You?
29th June, 2020
In May 2020 the UK Government released additional guidance in connection with the Covid-19 pandemic, this time in relation to contractual behaviour in the performance and enforcement of contracts.
The guidance can be viewed here.
From this latest guidance, it is clear that the most important takeaway for business owners is to “act responsible and fairly, support the response to Covid-19 and protect jobs and the economy”.
However, many businesses have questioned how this guidance can be followed practically when it comes to contracts impacted by Covid-19, and are unsure about what to do if a contractual agreement has since broken down.
What does this mean?
Throughout the coronavirus pandemic, the UK Government has strongly encouraged responsible and fair behaviour between businesses, especially when it comes to fulfilling a contract. This will be relevant for matters including:
- requesting and/or providing relief when a contract cannot be performed, or can only be partially performed. This includes matters such as timing for delivery/completion and the making of payments;
- requesting/allowing extensions of time, substitute or alternative performance and compensation;
- making/responding to force majeure, frustration and changes in the law;
- requesting/making payment under the contract;
- returning deposits or part payments;
- exercising remedies in respect of impaired performance;
- claiming breach of contract and enforcing events of default and termination provisions; and
- enforcing judgments.
The full list can be viewed in the UK Government’s guidance here.
What if I have the contractual right to take certain steps or action?
The guidance has general application to all contractual arrangements that have been materially impacted by Covid-19, however it is guidance only.
This means you aren’t obliged to follow it, and it does not override the express provisions of your contract, nor does it rule out the provisions of contracts whose primary purpose is to make provision for the effects of events such as this pandemic.
I have a contractual dispute at Court – will this guidance affect those proceedings?
Given this is guidance only, it is unlikely that the court will change the way it interprets contracts in light of the Government advice. The guidance expressly states that it does not override your rights at law. However, it may have an impact when or if the court addresses the issue of costs.
The general rule in relation to costs in proceedings where costs are at the court’s discretion is that the losing party will pay the costs of the winner, however the court should consider all the circumstances in the case, which will include the conduct of the parties.
When it comes to considering conduct, it will include the behaviour of a party before the proceedings are issued, the issue as to whether it was reasonable for a party to pursue or contest a particular allegation, and the manner in which a party has pursued or contested an allegation.
In making a decision on costs the court may well consider whether a party has acted responsibly and fairly in accordance with Government guidance. If it is concluded that the party has not, and that party is the winning party, then costs may either be reduced i.e. recovery of costs is reduced, or in an extreme case no costs could be ordered to be paid at all.
If that party is the losing party it may be ordered to pay increased costs in the event of behaviour that was not in accordance with the government guidance.
Government guidance is there to help, but the law is unchanged
The Government’s aim is to encourage cooperation in order to seek to reach a practical and fair contractual outcome whilst having regard for the impact on other parties, financial resources, the protection of public health and the national interest.
However, the law itself remains unchanged and businesses are entitled to act on contracts as agreed, or pursue parties who they believe had failed to meet contracts. As such, businesses should ensure they know their legal rights and options when it comes to contractual disputes.
Dispute Resolution & Insolvency
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