The potential impact of the Government’s guidance on the performance and enforcement of contracts affected by the pandemic is difficult to gauge. It’s hard to envisage how a Court could enforce contracts differently having referred to it, but a debate may arise over who should pay the costs of any claim if the guidance was not followed.
The Government is asking businesses to behave decently for the collective benefit and the long-term health of the UK economy. However, this could prove a difficult ambition to achieve in reality and survival of the fittest mentality may prevail. The guidance strongly encourages responsible and fair performance and enforcement of contracts during this public health emergency. Unfortunately, evidence suggests that some may be looking to take advantage of the situation where they can.
Paragraphs 14 and 15 of the guidance describe responsible and fair behaviour in contractual arrangements as including being reasonable and proportionate in responding to performance issues and enforcing contracts, acting in a spirit of co-operation and aiming to achieve practical, just and equitable contractual outcomes having regard to the impact on the other party, the availability of financial resources, the protection of public health and the national interest. It’s unlikely that many, if any, of those objectives will be terms in any contract.
In reality, the fairness of a contract term, when it comes to be enforced, is based on the position of the parties at the point that they enter the contract. This contrasts with what may be considered fair in the current circumstances as regards the enforcement of contract terms. So, whilst the government may be asking for an ‘extraordinary response’, this is likely to have little impact upon whether the contract term is enforceable but, rather, it’s referring to the response to enforcement of the term.
It’s noticeable that there is reference not only to Court proceedings but also mediation and other alternative fast track dispute resolutions. The guidance states that “the Government would strongly encourage parties to seek to resolve any emerging contractual issues responsibly – through negotiation, mediation or other alternative fast track dispute resolution – before these escalate into formal intractable disputes”. At Buckles, we have always encouraged our clients to be pragmatic and to pursue those sorts of remedies and would concur with that sentiment.
If you have issues with the performance or enforcement of a contract, please do not hesitate to get in touch with us and we will try to help you find a swift, practical and economic solution in these difficult times.
