What can guidance on responsible contractual behaviours do for a construction industry hit hard by the pandemic?

Twelve months on from the global pandemic taking hold in the UK, the general approach to the management and delivery of construction projects has, to date, been something akin to "world peace". It has provided a refreshing perspective on the relationships between employer, contractor and supply chain (the wider ramifications of which are a topic for another day).

This collaborative approach seems very much in line with the government's recent guidance on responsible contractual behaviour. However, the guidance is not binding and, with the Construction Leadership Council finding that pandemic related disputes are likely to be on the rise, it raises the question of what next for the construction industry?

The government published its snappily titled "Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency" on 7 May 2020 (which was updated on 20 June 2020). The guidance sets out the government's non-binding recommendations that parties to contracts should "act responsibly and fairly, support the response to Covid-19 and protect jobs and the economy."

Good faith dressed up?

So far, so good. But what does acting responsibly and fairly mean? The guidance describes responsible and fair behaviour as including:

• being reasonable and proportionate in responding to performance issues and enforcing contracts (including dealing with any disputes);
• acting in a spirit of cooperation; and
• aiming to achieve practical, just and equitable contractual outcomes having regard to the impact on the other party (or parties), the availability of financial resources, the protection of public health and the national interest.

Those familiar with the New Engineering Contract (NEC) suite of contracts will note the similarity with clause 10.1 and the duty to act "in the spirit of mutual trust and co-operation". Given that the NEC contract form is preferred on most state-sponsored projects, it does not come as a great surprise that the government is looking to move the industry in this direction.

However, the scope of the guidance goes much beyond the ambit of the relatively narrow obligation of good faith. Vos J's definition of good faith in CPC Group v Qatari Diar Real Estate Investment Co [2010] EWHC 1535 noted that it is concerned with adhering to the spirit of the contract and "to observe reasonable commercial standards of fair dealing, and to be faithful to the agreed common purpose, and to act consistently with the justified expectations [of one another]”.

The guidance by contrast goes much beyond the contract, importantly looking to excuse beaches and non-performance during the pandemic. So the guidance as a whole is not akin to good faith albeit there are elements (for instance, responsible and fair behaviour) that we would expect to fall within the scope of contractual good faith.

To the rescue

Will the guidance and good faith come to the rescue of contracting parties affected by the pandemic? We turn now to whether parties to a contract can be bound and thus protected by:

• the guidance as a whole; or
• those elements of the guidance that equate to good faith.

The courts' broad approach to contractual interpretation is to give effect to the words of the contract and imply terms as are necessary for its operation. Absent the parties expressly agreeing to incorporate the guidance into a contract and to be bound by it, it is likely to be difficult to subsequently enforce the guidance between the parties.

If, however, parties have entered into (or amended) a contract by reference to the guidance, or agreed in correspondence to comply with the guidance, there may be scope to argue that the parties are bound by it, either expressly or by implication. This will be depend on the facts and it will be interesting to see what, if any, reliance is placed on the guidance where disputes arise and what the subjective concepts of responsible contractual behaviours actually mean in practice.

As a practical point, we note that for contracts in place before publication of the guidance it will logically be difficult to argue that the guidance should be implied as a term necessary for their operation given that it did not exist at the time the deal was struck. Where the guidance itself is not binding, parties may seek to enforce those elements equivalent to good faith if:

• an obligation of good faith is expressly incorporated in the contract; or
• they can satisfy the general law of implied terms.

Helpful case law

Of particular note for construction contracts, case law of 2019 and 2020 provided some helpful guidance on implied terms of good faith, including that concerning relational contracts as set out in Bates v Post Office [2019] EWHC 606 (QB), UTB v Sheffield United [2019] EWHC 2322 (Ch) and Essex CC v UBB Waste, [2020] EWHC 1581 (TCC).

In this context, a relational contract may arise in respect of PFI contracts (see Amey Birmingham Highways Ltd v Birmingham City Council [2018] EWCA Civ 264 and Essex CC v UBB Waste in particular) and other long-term agreements that govern an entire relationship as opposed to a single transaction. Facilities management, operation and maintenance, and framework agreements may fall into the scope of a relational contract, subject to their terms.

Osborne Clarke comment

Satisfying the test for an implied term and demonstrating the existence of a relational contract will depend on the individual facts and circumstances. However, where parties have entered into a relational contract, they are likely to benefit from the added protections afforded by an implied term of good faith. If as a result of the global pandemic a party to a relational contract no longer abides by the spirit of the contract‚ for example by acting arbitrarily and unfairly in dealing with changes‚ it may be that the counter party turns for the first time to rely on the subjective notion of responsibility, fairness and cooperation.

By contrast, where the guidance is neither expressly nor implicitly binding on the parties, is unlikely to come to a party's rescue unless you are able to appoint a particularly sympathetic adjudicator.