Responsible contractual behaviour during the Covid-19 crisis - but what does it really mean for contracting parties?

The Government has issued a guidance note on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency. The guidance applies to both the public and private sectors and takes effect from 7 May 2020.

In short, the Government is “strongly encouraging all individuals, businesses (including funders) and public authorities to act responsibility and fairly in the national interest in performing and enforcing their contracts, to support the response to Covid-19.” The Government’s justification for its recommendations is that responsible and fair behaviour in contracts now, in particular in dealing with potential disputes, will result in better long-term outcomes for jobs and the UK economy.

The guidance flags in particular areas in which responsible and fair behaviour is strongly encouraged.  These include, inter alia: 

1. requesting, and giving, relief for impaired performance;
2. requesting, and allowing, extensions of time, substitute or alternative performance and compensation;
3. making, and responding to, force majeure, frustration, change in law, relief event, delay event, compensation event and excusing cause claims;
4. requesting, and making, payment under the contract;
5. returning deposits or part payments;
6. exercising remedies in respect of impaired performance, including enforcement of security or the initiation or continuation of insolvency or winding up (or equivalent) proceedings;
7. claiming breach of contract and enforcing events of default and termination provisions;
8. commencing, and continuing, formal dispute resolution procedures, including proceedings in court;
9. requesting, and responding to, requests for mediation or other alternative or fast-track dispute resolution; and
10. enforcing judgments.

However, the guidance note does not clearly set out what might constitute ‘fair and reasonable’ behaviour; it talks only in broader terms about “acting in the spirit of cooperation and aiming to achieve practical, just and equitable contractual outcomes” having regard to the impact on the other party (or parties), the availability of financial resources, the protection or public health and the national interest. The clearest recommendation is that parties should be seeking to resolve their disputes, where possible, by mediation, negotiation and fast-track dispute resolution, rather than escalating the dispute (i.e. by commencing litigation or taking aggressive enforcement action). It seems that the onus is on the contracting parties to take a soft-touch approach in their contractual dealings during the Covid-19 crisis.

As the guidance is not currently legally binding or endorsed by the courts, it is difficult to predict how contracting parties (and their legal advisors) will react to it. However, what is certain is that this guidance is an additional factor which must be considered when facing contractual issues or disputes.