In a publication issued by the Cabinet Office and Infrastructure and Projects Authority on 7 May 2020, the Government is "strongly encouraging" parties to contracts which are impacted by Covid-19 to act "responsibly and fairly" to support the response to CV-19 and protect jobs and the economy.
So, what does this mean?
The short answer is that it is not entirely clear. Whilst the guidance note runs to some 5 pages in length it is somewhat repetitive of the Government's expectation that parties act reasonably and fairly to support the response and protect jobs and the economy. However, there is no definition or clear explanation of what the Government considers to be reasonable and fair in performing and enforcing contracts in the current emergency.
There is express reference to dealing with potential disputes and the aim of achieving better long-term outcomes for jobs and the economy. Reasonable and fair behaviour will, the Government suggests, contribute to meeting objectives to:
- Maintain contractual performance required to support the immediate response, protect public health, jobs and the economy;
- ensure cashflow is maintained, including to pay workers and businesses throughout the supply chain;
- preserve supply chains and markets, avoiding destructive disputes and insolvencies; and
- generally, ensure that contractual and economic activity can be preserved and will be ready to continue in a sustainable way on the other side.
On the other hand, as the guidance puts it, "bad behaviour will be bad for jobs and will impair our economic recovery." No explanation is given as to what the Government considers to be "bad behaviour".
The Guidance does set out a number of areas in respect of which, 'good behaviour' is "strongly encouraged", which include responding to impaired performance, time for delivery and completion, payment terms, scope of works, goods or services, extensions of time, substitute or alternative performance, force majeure and frustration claims, remedies, enforcement, claiming breach of contract, termination, requesting and giving information, giving notices, keeping records, requesting and giving consent, dispute resolution, and enforcing judgments.
Is it binding?
No. "It is non-statutory guidance but Government strongly encourages parties to contracts to follow this guidance for their collective benefit and for the long-term benefit of the UK economy."
The guidance makes clear that, in addition to other specific government guidance or support, this is not intended to override any specific relief available in the contract (i.e. relevant express provisions in the contract), in law, custom or practice or other legal duties or obligations with which a party to a contract is bound to comply.
More particularly, the guidance is not intended to override specific contracts, the primary purpose of which are to make express and clear provision for, and allocate risks in these circumstances, especially contracts of insurance.
Are there consequences of not following the guidance?
The guidance does not make provision for any consequences of parties to CV-19 impacted contracts failing to pay head to this plea to act in an altruistic way. However, there may be consequences in the long term if parties ignore the guidance and engage in "bad behaviours".
Firstly, there are hints in the guidance that further measures may be taken in respect of the guidance and recommendations, including legislation. That is something that we have seen governments in other countries doing and it seems the UK government is not ruling out the possibility of intervening further if it considerers parties are not following the guidance and are causing undesirable effects on jobs and the economy.
In the context of disputes arising between contracting parties impacted by CV-19, it is likely that the guidance and any "bad behaviours" will be relied upon by parties seeking to argue either that their actions were “fair” and "reasonable" and the others was not. Although the guidance acknowledges that is not intended to override general law or the parties’ contractual rights and obligations, it is possible that any perceived non-compliance could be considered where a Court or other decision maker is exercising its discretion. One area where we may see this arising in some of the inevitable litigation that will follow this emergency is the thorny issue of costs, where the conduct of the parties is already a relevant factor and it is likely this guidance will be relied upon when justifying a position taken or criticising an opponent's position, although it is unlikely that judges will be persuaded to depart from the usual orders on costs where parties are enforcing their clear contractual rights.
What should I do if my contracts are impacted by CV-19?
First, any allocation of risk in the express terms of the contract should be considered, which will mean looking closely at any force majeure provisions. In the absence of any or any adequate force majeure provisions, the general law will need to be considered, such as the law of frustration.
Although this guidance is expressed as not intending to override those express provisions or the general law, it would be prudent to have at least considered the reasonableness and fairness of your position before making any request or responding to any request and when dealing with any disputes which arise.
What is reasonable and fair in the circumstances will need to be assessed against the contractual and legal position as well as the surrounding circumstances and the potential impact the particular contract or contracts may have on jobs and the economy.
Failure to act on a reasonable and fair manner has at least the potential to lead to discretionary decisions being made against those not considered to doing so (particularly in borderline cases) and challenges on the issue of costs.
Click here to access the full guidance.