On 7 May 2020, the UK Government released guidance on responsible and contractual behaviour in performance and enforcement of contracts impacted by the COVID-19 emergency. The non-statutory guidance, which is aimed at both the public and private sectors, sets out strong recommendations for parties to contracts where the performance of contracts is materially affected by COVID-19. The guidance applies to parties in England only and does not apply in the devolved administrations.
In general, parties to contracts are encouraged to act responsibly and fairly, support the response to Covid-19 and protect jobs and the economy.
The rationale behind the guidance is the protect the national economy in the long term. The Government urges that by acting responsibly and fairly today, in particular when dealing with potential disputes, this will result in better long-term outcomes for jobs and the UK economy.
The objectives of the responsible and fair behaviour are as follows:
- to maintain contractual performance to support the immediate response to Covid-19;
- to maintain cashflow in those contracts, including to pay the workforce and individuals and businesses throughout the supply chain;
- where continued contractual performance is not possible or is not essential, to preserve contracts, supply chains and markets and avoid destructive disputes and insolvencies; and
- generally to ensure that contractual and economic activity can be preserved and will be ready to continue in a sustainable way once the current emergency is over.
What is responsible and fair contractual behaviour?
- being reasonable and proportionate in responding to performance issues and enforcing contracts (including dealing with any disputes);
- acting in a spirit of cooperation;
- 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 of public health and the national interest.
In particular, responsible and fair behaviour is strongly encouraged in relation to the following:
- requesting, and giving, relief for impaired performance;
- requesting, and allowing, extensions of time, substitute or alternative performance and compensation;
- making, and responding, to force majeure, frustration, change in law, relief event, delay event, compensation event and excusing cause claims;
- requesting, and making, payment under the contract;
- making, and responding to, claims for damages;
- returning deposits or part payments;
- exercising remedies in respect of impaired performance;
- claiming breach of contract and enforcing events of default and termination provisions;
- making, and responding to, requests for information and data under the contract;
- giving notices, keeping records and providing reports under the contract (recognising that the need to keep records of contractual behaviours and decisions;
- making, and responding to, requests for contract changes and variations;
- making, and responding to, requests for consents (including funder consents);
- commencing, and continuing, formal dispute resolution procedure;
- requesting, and responding to, requests for mediation or other alternative or fast-track dispute resolution; and
- enforcing judgements.
For the construction sector, the Construction Leadership Council has issued further guidance and recommendations on this subject.
For insolvency, changes to the insolvency rules in support of businesses affected by COVID-19, including a proposed moratorium on creditor action, were announced by the Government on 28 March 2020.
If you have any questions on the above or need any support, do not hesitate to get in touch on the contact details shown below. For more insights relating to COVID-19, please see the DWF COVID-19 Legal Insights Hub.