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Commercial Contracts – Responsible Behaviour

Commercial Contracts – Responsible Behaviour

The Government has recently published a guidance note entitled "Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency".

The guidance, whilst non-binding, is designed to encourage parties to act fairly towards each other in dealing with the disruption caused to business arrangements as a result of the Coronavirus pandemic.

The guidance is unlikely to apply to contracts with specific force majeure or other 'express and clear' provisions providing for the allocation of risk arising from the effects of a global or national public health emergency or pandemic. Further, it will not override procurement policy notes issued by the Government.

Few commercial contracts will have provisions dealing with the difficulties arising from COVID-19. Force majeure provisions will often not be sufficiently clear to apply unequivocally to COVID-19. The Government's guidance suggests that it is keen for parties to avoid contractual disputes arising out of non or inadequate performance as a result of COVID-19.

The Government's advice encourages all parties (including funders) and public authorities to act responsibly and fairly in the performance and enforcement of contracts, asking for an 'extraordinary response' in order to protect jobs and the economy during the period of disruption by COVID-19.

The Guidance calls upon parties to act fairly in their commercial dealings so as to preserve cash flow, protect wages and jobs, and to avoid unnecessary disputes and insolvencies. The Guidance calls for 'responsible and fair behaviour' so that commercial relationships can be preserved until after the COVID-19 emergency has passed. It is hoped that this will help to kick-start the economy.

The expression "responsibly and fairly" is not defined. However, the Government appears to have in mind that the parties should:

  1. Be reasonable and proportionate when responding to performance issues and enforcing contracts (including dealing with any disputes);
  2. Act in a spirit of co-operation; and
  3. Aim to achieve practical, just and equitable outcomes, having regard to the impact on the other party (or parties), the availability of financial resources, the protection of public health and the national interest.

Examples of situations in which parties are "strongly encouraged" to act "responsibly and fairly" include (but see para 15 of the Guidance for a full list) requesting or allowing relief for impaired performance (such as late delivery or late payment), requesting or allowing extension of time for performance or compensation, claiming or responding to claims for force majeure or for other relief, damages or the return of deposits, claiming breach of contract, commencing proceedings and enforcing judgments.

What is clear is that the Government does not expect parties to rely on or enforce their contractual rights as they might do in ordinary times.

The Guidance expects that parties will seek to settle their differences through negotiation or dispute resolution without resorting to court proceedings.

Whilst the guidance is non-binding, the Government has indicated that, if it is ignored, it is possible that legislation will be introduced to give effect to some of the guidelines. Parties should, therefore, continue to 'watch this space'.

For further advice and assistance then please contact:

Sean Byrne - Partner, Head of Corporate

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