Government guidance on contractual breaches during COVID-19

Government guidance urges all contracting parties to 'act responsibly and fairly' in the interests of the wider market when dealing with difficulties in delivering existing contracts

14 May 2020

UK government has issued guidance on Responsible Contract Behaviour which 'strongly encourages' what it terms 'responsible and fair behaviour' in all aspects of contractual dealings during the pandemic. This guidance is stated to apply generally to all contracting parties (not just those in the private sector). The guidance expressly recognises that it has no contractual force to prevent parties insisting on their strict contract rights. However, it points out that doing so may not be conductive to 'ensuring…contracts, supply chains and markets' are preserved during the pandemic and 'will be ready to continue in a sustainable way once the current emergency is over'.

The guidance urges parties to:

  • be reasonable and proportionate in responding to performance issues and enforcing contracts
  • act in a spirit of co-operation in their dealings with each other
  • aim to achieve practical, just and equitable outcomes with regard to the impact on the other party.

It encourages contracting parties to take this approach in all areas of contractual performance including considering how to respond to impaired performance, whether to grant relief, whether to agree variations, whether to insist on strict contractual notice requirements being met. It also recommends parties direct disputes they are unable to resolve to ADR (alternative dispute resolution) mechanisms such as mediation, rather than rushing into 'destructive' litigation. Some of the contractual terms and issues are discussed in our article COVID-19 and breaking commercial contracts.

Where does this take us?

On the one hand, this guidance has little impact. It expressly acknowledges the ability of a party to insist on its strict contractual rights. On the other hand, it adds to the growing noise from various quarters calling for creative and constructive approaches, recognising that a strict approach to enforcement of contractual rights and denial of reliefs will not have the effect of encouraging an environment which is conducive to optimism and a global recovery.

In that respect, this government guidance (alongside other guidance and procurement policy notes) is very much aligned with a recent concept note by two former presidents of the UK’s highest Court and a group of leading legal thinkers. It also builds on a growing body of law about ‘good faith’ in contracts, and driving parties towards ADR as a means of achieving more commercial (and potentially more equitable) outcomes than cannot be achieved via the court process. Our previous article on this issue is available here.

How can we help?

Contract operation, management and delivery is currently required in highly unusual circumstances. Interpreting contractual obligations and how they can be managed and changed at this point may therefore be key for preserving counterparty relationships. We can assist with explaining the commercial and legal requirements and options where contracts become distressed.

If you would like to discuss contract delivery options please contact Lloyd Nail, a senior associate in the firm’s dispute resolution team or Ian Tucker. Burges Salmon has specialists in key sectors who can assist with distressed commercial contracts including options for variation and termination, and how to use contractual options including force majeure and delay provisions. We may also be able to suggest tools to enable our clients to aid their own decision-making at this difficult time.

This article was written by Lloyd Nail.

Key contact

Ian Tucker

Ian Tucker Partner

  • Dispute Resolution
  • Procurement Disputes
  • International Trade

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