Backhouse Jones Watermark

Contract disputes and negotiations during COVID-19

27 May

The COVID-19 pandemic has led to a number of business seeking to vary contract terms that have become impossible, or at least difficult, for them to perform.  More often than not, we are seeing that contracts do not contain provisions dealing with events such as the Covid-19 outbreak and operators are therefore required to rely on negotiations with their suppliers and customers to reach an acceptable solution for both parties.  Where a solution cannot be reached, resulting in a breach of the contract, the usual course may be to look to the courts for a remedy. However, the Government has recently released guidance requesting that parties to contracts act responsibly and fairly, support the response to Covid-19 and protect jobs and the economy.

The guidance is only guidance and it is not intended to override specific support or relief available within the contract or any relevant law, custom or practice. However, the Government strongly encourages parties to contracts to follow the guidance for their collective benefit and for the long-term benefit of the UK economy.

The main aims of the guidance are the following:

·       to maintain contractual performance necessary to support the response to Covid-19 and to protect public health, jobs and the economy;

·       maintain cashflow of the parties to these contracts;

·       preserve contracts, supply chains and markets during the Covid-19 pandemic; and

·       ensure continuity of the contracts and economic activity when the situation eases.

The key requests being made to parties are to act reasonably and proportionately in responding to performance issues and enforcement (including disputes), to act in a spirit of co-operation and to seek to achieve practical, just and equitable outcomes having regard to the impact on the other party and availability of financial resources as well as protecting public health and the national interest.

The guidance could therefore be beneficial to operators seeking to negotiate a variation of terms of their contracts but also means that operators should apply the guidance, and act reasonably, when another party defaults on a contract, due to circumstances arsing out of Covid-19.

Crucially however, as already mentioned, the guidance is not legally binding on the parties so the starting point remains with the wording of the contract itself and parties can only be asked, rather than ordered, to follow the guidance. It remains to be seen whether the Court will take this guidance into consideration when dealing with disputes related to Covid-19 however our position has always been that the Courts will take a dim view on Covid-19 related claims, particularly where brought about unreasonably.

For all related enquiries, please speak with our team dealing specifically with these matters by emailing:  disputeresolution@backhouses.co.uk

 

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