Dealing with contractual disputes as a result of COVID-19
As a result of the multiple lockdowns put in place in England, businesses, their suppliers, and the government are bracing themselves for a sharp increase in contractual disputes. So much so that the government has published (and since updated) guidance on responsible contractual behaviour during the current crisis.
The punchline? Parties to contracts should act responsibly and fairly, support the response to COVID-19 and protect jobs and the economy. There is also mention of the duty we all have to protect the NHS, which while true, can't help but feel like they are tugging at our heartstrings.
When might a contractual dispute arise?
There are two scenarios where a contractual dispute may arise as a result of COVID-19 and the recently imposed lockdown rules.
Firstly, a party has been, or is forecasting with near certainty, that their business is going to be adversely affected by the pandemic. Examples of this could include those in the hospitality industry that have rent to pay but no form of income, or, contracts for the purchase of goods or services that are now massively excessive for the level of demand during this second lockdown.
Secondly, COVID-19 being used as a convenient excuse to escape certain contractual agreements and obligations.
Government guidance on responsible contractual behaviour
Now, in their guidance on responsible contractual behaviour, the government considers three specific issues further. They are:
- Payment
- Extensions of time (and associated costs)
- Avoidance and resolution of disputes
Payment
While the government has introduced a package of financial support for businesses and individuals to assist with cashflow, there are still likely to be situations where this just isn't enough.
Parties are encouraged on both sides of the fence to raise concerns and look to resolve payments swiftly, to assist with cashflow. Something to note - this applies to large businesses that are financially stable but have practices where they pay suppliers late etc.
Extensions of time (and associated costs)
Where contracts are unlikely to be fulfilled within the agreed terms as a result of COVID-19, parties are encouraged to seek a middle ground. This could be through an extension of time or renegotiation of terms in light of the pandemic. Of course, any additional and/or associated costs would need to be dealt with.
Avoidance and resolution of disputes
The key takeaway here is that it is strongly encouraged for parties to seek to resolve contractual issues responsibly, through negotiation or mediation, before escalating matters. However, dispute resolution is still an option if necessary. Many fast-track dispute resolution procedures have been established in response to the pandemic.
In conclusion
Litigation is best avoided, wherever possible. It can be expensive, time-consuming and stressful. As advocates of alternative dispute resolution (ADR), our aim at Carlsons Solicitors is to help you achieve the best and most economical outcome and that means our advice will always focus on sensible, practical solutions.