Let’s act in good faith, always – not just during covid

In all the covid-19 rules there never was a legal requirement for people to maintain 2m separation. Folk have been bombarded with these so-called rules, but only some are a legal obligation. Others are merely Cabinet Office guidance notes. Okay, call them rules if you like. The particular set of rules my eye landed on were headed “Responsible contractual behaviour in the performance of contracts impacted by the Covid-19 emergency”. The subheading is the nudge “that parties to contracts should act responsibly and fairly”. More nudging: the guidance requires all of us to “work together” in performing and enforcing contracts.

There is more; it is about potential contractual disputes. The guidance nudges us towards “responsible and fair behaviour in contracts” because “that will result in better long-term outcomes for jobs and our economy”. This attitude, it says, should apply throughout the contracting chain. Bad behaviour will be bad for jobs and will impair our economic recovery.

Hang on a minute. All that sounds like acting in good faith! But English law has characteristically, committed itself to no such overriding principle. As for negotiating a contract “in good faith”, English law has long considered such a notion inherently repugnant to the adversarial position of the parties striking a commercial bargain. The ethos of your construction contract is individualism; you are free to pursue your own self-interest not only in negotiating the contract but also in performing the deal, provided you do not act in breach of a term of the contract. In short, it’s no use relying on an adjudicator, arbitrator or judge muttering to themself about a term in the deal that is a tad one-sided or, dare I say, unfair. Commercial people such as building contractors and suppliers are grown-ups when it comes to striking a deal. So if you’ve signed up to the deal, then you have to stick by it, no matter what it says.

English law has long considered such a notion as good faith inherently repugnant to the adversarial position of the parties striking a commercial bargain. The ethos of your contract is individualism

Fascinating then to read this Cabinet Office guidance note. The government, it says, is asking for an extraordinary response from everyone in the UK in their personal and work lives to overcome the emergency. An extraordinary response is also required from individuals, businesses (including funders) and public authorities in their contractual arrangements.

In particular, responsible and fair behaviour is strongly encouraged in relation to:

• Requesting and giving relief for impaired performance (owing to covid-19) including in respect of the time for delivery and completion, the nature and scope of goods, works and services, the making of payments and the operation of payment and performance mechanisms
• Requesting and allowing extensions of time, substitute or alternative performance and compensation, including compensation for increased cost or additional performance
• Making and responding to claims based on force majeure, frustration, change in law, relief of events, delay events, compensation events, and excusing cause clauses
• Requesting and making payment under the contract
• Making and responding to claims for damages, including under liquidated damages provisions
• Returning deposits or part payments
• Calling of bonds or guarantees or (even) the initiation of insolvency or winding-up
• Enforcing termination provisions
• Giving notices, keeping records and providing reports under the contract
• Making and responding to requests for contract changes and variations
• Commencing and continuing formal dispute resolution procedures including proceedings in court
• Requesting and responding to requests for mediation or other ADR fast-track dispute resolution
• Enforcing judgments.

And what does all this require? The guidance says: “The responsible and fair behaviour should apply in circumstances where the relevant contract is materially impacted by covid-19, so that fair and equitable outcomes can be achieved in contractual arrangements.”

As to disputes in particular, “the government would strongly encourage parties to seek to resolve any emerging contractual issues responsibly – through negotiation, mediation or fast-track mechanism before these escalate into formal intractable disputes”. It goes on: “For example, the RICS has developed the low-value disputes model adjudication procedures.” Let me say at once that this device is already working well.

If there is any good to come out of this dreadful episode of covid-19, it may well include this “good faith and fair dealing” attitude. There is a real possibility of the dispute deciders hereabout applying standards of fairness to contracts with an eye to the current emergency and then the idea becoming embedded thereafter. Who knows?

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple