The COVID-19 pandemic has brought enormous disruption and change to many businesses operating worldwide, resulting in rapid contract re-negotiation and/or termination of existing agreements. Businesses have had to adapt quickly or run the risk of becoming another economic casualty of the crisis. Many have implemented new technology to do this and are successfully transforming their businesses for the new reality. However, the law is often way behind the commercial situation on the ground and can be a stumbling block to the need for rapid change.
In the summer of 2020, the UK government published its Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency. The guidance urges parties who have active contractual arrangements which are materially affected by COVID-19 to act responsibly and fairly in performing and enforcing their contracts. This is particularly relevant to businesses in the technology sphere who have had to make rapid adaptations to arrangements already in place, either on the supplier side or as the recipient of transformational tech.
The involvement of the government, as opposed to the courts and the legislature, in providing guidance in this area is highly unprecedented although, we are of course, living in unprecedented times.
The guidance makes it clear that it does not mean to override any specific guidance or policy, law, custom or practice and is not intended to override any relief given expressly in provisions in contracts themselves. This has led many commentators to question the relevance of the document. But, as we already know from many of our client’s experiences, parties are starting to refer to the guidance in their pre-action correspondence, so in this regard the guidance can be seen as reflecting current commercial practices on the ground and will continue to act as an aid to help businesses struggling with the uncertainties created by the pandemic.
For many businesses the question of what is the post-COVID ‘new normal’ and how they get there will depend, to some extent, on how existing contractual arrangements play out. The guidance could prove valuable in finding a commercial, rather than legal, path out of the current crisis and into the future. Take the example of an IT supply contract where there has been delays by the supplier which are the result of COVID-19 related issues. This has resulted in key milestones in the contract not being met, causing the parties to re-negotiate and re-set these in accordance with the contract change notice provisions. This could lead to acrimony between the parties, further delay and potential breakdown of goodwill between the two sides. The guidance asks parties to act in the spirit of cooperation and aim to achieve practical, just and equitable contractual outcomes that are considerate of the other party, financial resources of both and for the protection of public health and the national interest. The guidance encourages parties to resolve any emerging contractual issues responsibly through alternative dispute resolution such as negotiation or mediation or by use of fast track dispute resolution options.
We can also see the guidance being useful where there may be issues relating to staff shortages in outsourcing contracts as a result of staff being forced to isolate, delayed delivery of hardware in light of factory issues abroad, delays to completion and problems with payments etc.
Whilst the guidance lacks legal effect, technology businesses could start to see suppliers, licensees and their other contractual partners referencing the guidance when addressing contractual issues and particularly larger or higher profile technology businesses may need to consider the potential public profile implications of not complying with the guidance.
There is a need for caution, as we are also seeing patience beginning to wear thin, with many of those experiencing contractual issues as a result of the pandemic starting to take a harder line with their contractual partners. This is a definite pattern in the real estate sector where landlords are gradually increasing the pressure on non-paying tenants and so it may be only a matter of time before it is felt in other sectors such as technology & communications.
However, we are definitely starting to see the impact of the guidance on some of our clients and their contractual relationships. Whilst it certainly isn’t going to disrupt the contractual space in the way of great transformational tech, its effect is starting to filter down and gradually change the way contractual issues resulting from the pandemic are being dealt with.
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