COVID-19 | Corporate & Commercial Disputes, Financial Services Disputes |

Cabinet Office guidance calls for responsible contractual behaviour in light of Covid-19

Overview

In response to the unique disruption the COVID-19 emergency presents to the economy, the Cabinet Office has issued non-statutory guidance on responsible contractual behaviour in the context of the emergency. Released on 7 May 2020 and titled "Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency", this guidance calls for parties to contracts, including parties from both the private and public sectors, to act responsibly and fairly.

The objectives of responsible and fair contractual behaviour identified by the Cabinet Office include:

  • Maintaining performance of contracts which is required to support the immediate response to Covid-19, to protect public health and to protect jobs and the economy; and

  • Ensuring that contractual and economic activity can be preserved, avoiding destructive disputes and insolvencies, and enabling cashflow to be maintained to pay the workforce and businesses and individuals throughout supply chains.

The guidance provides that responsible and fair behaviour includes being reasonable and proportionate in responding to performance issues and enforcing contracts, and acting in a spirit of cooperation to achieve practical, just and equitable outcomes.  The Cabinet Office strongly encourages responsible and fair behaviour in relation to a number of aspects of contractual relations, including:

  • Requesting and giving relief for impaired performance;

  • Making and responding to force majeure, frustration, relief event, delay event and compensation event claims;

  • Exercising remedies in response to impaired performance of contracts, including enforcement of securities, forfeiture of property and the initiation or continuation of insolvency proceedings;

  • Commencing and continuing formal dispute resolution procedures, including proceedings in court; and

  • Enforcing judgments.

The Cabinet Office recognises that disputes can be destructive to contractual relationships, and so encourages parties to seek to resolve emerging contractual issues responsibly through negotiation, mediation or other alternative dispute resolution mechanisms, before escalating to formal disputes.

Although this guidance is expressed in broad and general terms, as non-statutory guidance it does not have legal force.  However, it supplements other interventions the Government has made to protect the economy and business continuity, such as the Coronavirus Jobs Protection Scheme, various loan guarantee schemes, protection from eviction for business tenants in certain circumstances, and proposed changes to insolvency law which would, if passed, enable eligible companies to obtain a moratorium giving various protections from creditors (the legislation is currently before Parliament).  We have written separately about these measures here and here.

The Cabinet Office guidance follows the publication of a Concept Note by the British Institute of International and Comparative Law which, consistent with the guidance, suggests that the law should contribute to "safeguard commercial activity, minimise disruption to supply chains, and ameliorate the adverse effects of a 'plethora of defaults', by encouraging a legal environment which is conducive to optimism and a global recovery".  This Concept Note was authored by former Supreme Court judges Lord Phillips and Lord Neuberger together with a number of academics.  We have written separately about this here.

In contrast to the UK Government's approach, Singapore has passed legislation which offers temporary relief from legal actions arising from inability to perform obligations in specified kinds of contracts (including construction contracts, leases of non-residential property and secured loan agreements for SMEs) (the COVID-19 (Temporary Measures) Act 2020).  Where the Act applies, a party to a qualifying contract is granted relief for a period of six months, during which the counterparty is unable to take actions such as commencing or continuing actions in court or arbitration, enforcing any security over immovable property or movable property used for business purposes, or making an application for the winding up or bankruptcy of the party which requests relief.  It remains to be seen whether here, in the absence of binding legislation, parties to contracts will listen to the government's pleas, and refrain from the wave of litigation which generally follows crises such as this. 

The Cabinet Office guidance will be reviewed by 30 June 2020.  It can be viewed here.

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