• Avinder Laroya

The New Government Guidance Is Benefiting Bars and Restaurants - Find Out How!

Updated: Feb 8, 2021

5 Key Ways The New Government Contractual Guidelines Help To Support the Food and Drink Sector


Why you should read this:


For the purposes of this article, we shall be focusing upon restaurants and bars and how the guidelines can assist with contractual relationships connected to:

· Supply of ingredients, beverages and other stock to restaurants and bars

· Food and beverage manufacturers

· Business development and hospitality marketing providers

· Commercial premises leasing

· Enhanced data protection requirements


Contractual agreements are the basis of any commercial business. The implementation of the government guidance, published on 7th May 2020, was introduced in response to the additional responsibilities facing companies. With difficult economic conditions, the imposition of stricter health and safety measures and the need to manage both customer and supplier contractual relationships, the risks to contractual performance are significant.


Here, we highlight how the new contractual behaviour guidelines will impact upon restaurants and bars.


The 5 Key Areas Being Explored In This Article Are:

1. Why have the new contractual behaviour guidelines been introduced?

2. Why are the new contractual behaviour guidelines important in the food & drink sector?

3. Under what circumstances can the new contractual behaviour guidelines be considered?

4. Under what circumstances do the new contractual guidelines not need to be considered?

5. How can the food and drink sector respond to disputes whilst remaining “fair and reasonable as per the new contractual behaviour guidelines?

1. Why have the new contractual behaviour guidelines been introduced?

The UK government has recognised that a major consequence of the COVID pandemic and resulting lockdown is that businesses and the economy in general have faced unparalleled difficulties in performing their contractual obligations. This applied particularly to restaurants and bars, which have been impacted in various ways, and have been unable to deliver services as a result of the enforced lockdown or the overall impact of the pandemic.

Well drafted contracts are likely to have provisions that foresee issues. Customary defaults or provisions for non-performance are included in the majority of agreements. Under English law, however, unless there is a specific provision for non-performance as a result of a pandemic or global health crisis, the liability is likely to remain with the non-performing party. Force majeure (“Act of God”) provisions may prove that the agreement is in breach.


The purpose of the guidelines is to encourage businesses to behave responsibly and fairly when reacting to the impact of COVID-19. The definition of “fair and responsible” is implicit under English law.

It’s universally accepted as a basic principle of English contract law that contracts are legally binding. As a result, if one party fails to perform their obligations, the other party is entitled to be compensated for any losses incurred. The mere fact that performing contractual duties has become difficult, costly or timely does not automatically discharge the contractual obligation in question.

At a time of repealing EU law following Brexit, a general doctrine of “fair and honest dealing” has been adopted. The new government guidelines are novel in the sense that they encourage businesses to consider practical steps for economic recovery, by way of managing the business post-COVID, beyond the legal protections offered under English contractual law.

In English contract law, fairness is implicitly regulated. Additionally, good faith is regulated by exceptional doctrines of mistake, misrepresentation and duress and, even more specifically, the Unfair Contract Terms Act 1977.

The new guidelines have been introduced as circumstances as exceptional; the government agreed that in such extraordinary circumstances, guidance should go further, too.

2. Why are the new contractual behaviours guidelines important for bars and restaurants?

Restaurants and bars face unique contractual challenges with the implementation of the new governmental measures. From being told to close their doors in March and facing an entire quarter with drastically reduced turnover, to needing to implement a range of new policies and procedures in order to be eligible to reopen on or after the big day for hospitality – (Saturday 4th July) –restaurants and bars are one of the worst affected sectors of the pandemic. These unprecedented events have inevitably caused untold disruption to contractual relationships.


Failure or delay in managing contractual relationships will slow the return to business in the “new normal”, impacting upon business reputation and potentially leading to contentious business relationships. As the lockdown has begun to lift, with businesses beginning to reopen their doors, the government have predicted an influx of litigation cases flooding the courts.


The exceptional nature of COVID-19 has resulted in a wide array of challenges for restaurants and bars, with many resulting in contractual obligations not being met. From being unable to pay suppliers to having to adapt quickly to offer online food deliveries, the challenges could have never been expected to arise, never mind have such a disastrous impact. It is for this reason that the government have urged businesses to act in the interest of the country as a whole, renegotiating and offering lenience where possible.


3. Under what circumstances can the new contractual behaviour guidelines be considered?


The government guidance has been offered in an entirely advisory capacity and is non-statutory. It covers all active contractual arrangements, which have been negatively impacted by the Coronavirus outbreak and subsequent restrictions on businesses.

Despite there being little explanation of what constitutes “fair and reasonable” contractual behaviour for bars and restaurants, there is a long list of occasions in which said “fair and reasonable” contractual behaviours can expect to be implemented, including:

· Offering relief for impaired performance, in respect of delivery deadlines, the scope of goods and services and payment mechanisms;

· Considering compensating for increased cost or extensions of time, with the opportunity to offer alternative or substituted goods or services where appropriate;

· Responding to force majeure, contract frustration and other contractual claims;

· Making and responding to claims of damages, including under the liquidated damages provision;

· Returning bonds, deposits or part payments.

Wherever possible, businesses who supply to the food and drink sector should aim to be supportive of each other. This might mean extending payment deadlines for stock, renegotiating contractual terms or using mediation as an alternative dispute resolution procedure to finding common ground rather than proceeding with litigation through the courts.

4. Under what circumstances do the new contractual guidelines not need to be considered?

Under no circumstances should the new contractual behaviour guidelines override specific contractual provisions. A contract whose sole purpose is to make clear provision in the event of “global or national public health emergencies and/or pandemics” would not be expected to be overridden by newly published guidance. Similarly, should a bar or restaurant have an existing contract in place which allocates the risks of an emergency or pandemic, this should not be overridden, either.

5. How can the food and drink sector respond to disputes whilst remaining “fair and reasonable" as per the new contractual behaviour guidelines?

There are several procedures available to businesses in the food and drinks sector for the purpose of resolving disputes. Negotiation, mediation and arbitration are examples of an alternative dispute resolution procedures for businesses who find themselves at the centre of complex contractual disagreements.

For many food and beverage establishments, there are a limited number of suppliers, all of whom are likely to be suffering their own difficulties as a result of the COVID-19 pandemic. Where there are few alternative suppliers to choose between in many cases, the consequences of court litigation could be detrimental to contractual relationships.

Careful due diligence should be carried out when appointing new suppliers to ascertain the quality of products or services in compliance with regulatory standards. Alternative dispute resolution procedures such as negotiation, mediation and arbitration all offer more flexibility for both parties, resulting in more amicable resolutions without the need to step foot in the courts.

You can read more about mediation and arbitration here.

To learn about how the contractual behaviour guidelines will impact upon the retail sector, click here.



Summary

Ultimately, the government are asking those in the food and drink sector to “be kind” and work together for the greater good of the economy. In a sector that has been impacted so severely by the Coronavirus, good communication and a reasonable approach will be key for survival and success. However, careful consideration should be made of contractual obligations and legal provisions which are still binding and enforceable.