COVID-19 and Responsible Contractual Behaviour

In May 2020, the UK Cabinet Office issued a document titled called “Guidance on responsible contractual behaviour and the performance enforcements of contact impacted by the Covid-19 emergency”.

This is an unusual document as while  it clearly says it’s not meant to replace legal rights, it does indicate that the Government may yet introduce laws that could affect contracts.

Over the past few weeks, attention has focused on contracts and either how to enforce them or get out of them. Force majeure clauses  as well as old legal doctrines such as frustration and illegality are being considered in detail to see if they can help one party or the other. Inevitably there will be litigation to come on all these areas as the precise effect will be fact dependant, may depend on the precise drafting of a contract, and there is no one size fits all answer.

Among the sectors where we have received queries are:

• landlord and tenant issues
• tuition and schools and serviced offices, student accommodation
• event bookings, such as wedding
• force majeure clauses in a multitude of contracts
• fashion procurement
• software
• serviced offices.

That might not be the end of the story. For many years, governments have passed laws which interfere with the general English law right for contracting parties to freely decide what the terms of their contract should be. This is known as “freedom of contract”.

Often these protect consumers. For example, the right to return goods ordered over the internet. Others can apply to  businesses such as when contracting on standard terms and conditions.

Even when governments don’t legislate, sometimes the Courts interfere. A departing employee cannot be restricted from competing with their former employer indefinitely because it is against public policy, a concept developed by the courts.  But courts in England have generally been reluctant to readily impose concepts found in other jurisdictions such as a general implied obligation of good faith (although some recent cases have sought to deviate from this).

The Cabinet Office Guidance might suggest that some newer concepts could be introduced as a result of COVID. It repeatedly uses the phrase “strongly encourages” when setting out what it wants to achieve.

The Guidance strongly encourages  responsible and fair performance and enforcement of contracts during the public health emergency describing the current circumstances as unprecedented and exceptional. It gives examples of reasons why contracts might not be able to be performed in the expected way (such as revised ways of working necessary to protect health and safety) and the reduction of a party’s financial resources.

It also refers to acting in a ‘spirit of cooperation’ and aiming to achieve, practical, just and equitable outcomes having regard to the impact of the other party (or parties), the availability of financial resources, the protection of  financial resources and the national interest. It sets out the objectives it is seeking to achieve in some detail and lists 15 particular activities that it strongly (their word again) encourages ranging from giving relief for impaired performance,  making payments,  returning deposits and enforcing judgments.

They also strongly encourage responsible settlement of disputes through mediation, negotiation, or other alternative disputes resolution procedures.

Perhaps, most interestingly, towards the end of the document they say that:

• the government is continuing to review behaviours in contracting… to ensure that contractual arrangements can function effectively and maximise their contribution to jobs and the economy;
• it is a rapidly developing situation, the guidance may be revised and reissued as necessary, that further measures may be taken in respect of the guidance recommendations including legislation.

So, while this is of no legal effect as present it suggests that laws may be introduced to deal with some of these matters. While it is impossible to predict whether a new law might help or hinder a particular party in a particular contractual situation or dispute, this may encourage parties to resolve matters by consent now, in case some unexpected law comes into force that decides the matter for them.  Alternatively, the suggestion of future legislation might lead contracting parties to consider delaying a resolution and to see whether anything is imposed by government which might benefit them although adopting that approach would seem to defeat the overall objectives of the guidance.

What weight, if any , that a Court might give to any actions a party takes (or does not take) in light of this guidance also remains something which may come up in the future  including if seeking to rely on a force majeure clause.

If you have any questions in relation to the above or concerns about your business, contact Clive Halperin, Head of Corporate & Commercial, directly on [email protected] or 0207 822 2220.

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