The government’s contract guidance: Surplus to requirements?

Guest post from Sarah Murray, head of dispute resolution at Stevens & Bolton

Murray: Guidance lacks actual substance

Litigators could perhaps be forgiven for feeling slightly baffled about guidance issued by the Cabinet Office on 7 May aimed at contracting parties of all shapes and sizes. Its key message is that litigation is bad and resolving disputes is good.

Most litigators would wholeheartedly agree. However, if it were that simple, wouldn’t we all be doing it?

Called ‘Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency’, it brims with encouragement for parties to behave responsibly and fairly and urges businesses to “consider their behaviour”.

Ominously, it warns that “bad behaviour will be bad for jobs and will impair our economic recovery”. However, if you strip away the pleas, wrapped in a message to “do the right thing”, the guidance is surprisingly lacking in actual substance.

To begin with, it expressly states that it does not override any other specific government guidance, the contents of the relevant contract, the general law of contract or any other legal duties or obligations that a party might have.

This leads to the inevitable question – what is the point? The pandemic will undoubtedly lead to cases throwing up interesting contractual issues, but the principles on which such law will be made are already firmly established.

Questions of force majeure, frustration and mitigation in the time of Covid-19 are already being fiercely debated by lawyers and academics. One might fairly ask therefore what this guidance can sensibly add to these principles.

The main problem with the guidance is the lack of definition around what is “responsible behaviour”. No doubt we all think we could recognise it when we see it but, by its very nature, it is subjective.

As litigators, we all advise our clients to try to settle their disputes through negotiation, mediation and, as trial approaches, any means possible. This is because we know that every case, no matter how strong on paper, carries a degree of risk and litigation is an expensive past-time to pursue for a client, both in terms of time and money.

However, despite this there is still demand for both the courts and arbitration tribunals. Sensible businesses, properly advised, do not embark on litigation recklessly, or for fun; they do it because they believe strongly in the position that they have adopted and there is an important commercial reason for doing so.

The guidance concludes by saying that the government will continue to review behaviours in contracting “to ensure that contractual arrangements can function effectively”. Whether you interpret this as a threat to get more involved if parties don’t behave themselves or a general commitment to keep an eye on how the courts are dealing with contractual issues at the moment, it does come across as rather unnecessary.

Where specific issues arise, which the government considers would benefit from specific legislation (as, for example, in relation to the Corporate Insolvency and Governance Bill), it can proceed to put that in place. However, a general plea to play nice seems, at best, to be extraneous to requirements.

We will undoubtedly see attempts in future, by non-performing parties, to rely on the guidance to sway the court’s decision as to how to interpret a contractual obligation. However, this is unlikely to have any material effect.

We are already seeing cases in which parties seek to use the pandemic as an excuse for not complying with existing procedural obligations or seeking more time to do so. The courts are taking a generally sympathetic but robust approach to these cases, granting leniency where the circumstances have caused a genuine issue but giving parties short shrift where they are being used as an excuse.

They are likely to be more robust when interpreting contractual obligations, as they are used to world-changing events having profound implications for contractual arrangements. Their job is to objectively interpret the parties’ intentions at the time of entering into the contract – if they were to allow subjective concepts of fairness and reasonableness based on hindsight into their assessment, it would undermine the basis of the English law of contract.

At the moment, businesses are being kept busy adapting to the new normal. However, when the dust settles they will need to assess whether and how they can claw back the significant losses that they may have suffered.

With litigation funders keen to get involved in claims, there is likely to be a significant increase in litigation despite the guidance. This is not because businesses want to engage in “bad” behaviour or to be irresponsible or unfair. It is because they will not feel that they have a realistic choice in the matter.

Leave a Comment

By clicking Submit you consent to Legal Futures storing your personal data and confirm you have read our Privacy Policy and section 5 of our Terms & Conditions which deals with user-generated content. All comments will be moderated before posting.

Required fields are marked *
Email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.