Updated: Jun 26
How can the New Guidance Reduce and Manage Contractual Claims and Risks in the Retail Sector?
Why you should read this:
On May 7th, 2020, the UK government provided new guidance to businesses on how to manage contracts as we continue through and emerge beyond the COVID-19 outbreak. As the lockdown begins to lift and businesses large and small begin to assess the damage caused by the Coronavirus, the government have recognised the need for the country to pull together under difficult circumstances.
Contractual agreements are the basis of commercial business in the UK. With the implementation of the new UK governmental measures during the Coronavirus pandemic, businesses impacted by COVID-19 are facing unprecedented challenges with difficult economic conditions, imposition of strict health and welfare measures to be considered in the workplace to accommodate the “new normal” the need to manage customer and supplier contractual relationships and the risks associated with them are key.
The retail industry includes many different sub-sectors ranging from groceries to clothing to furniture and beyond. Each of them faces unique contractual challenges at this current time with the implementation of new governmental measures during the Coronavirus pandemic. Within a very short time, businesses within the retail sector have had to adapt to online channels or pivot to offer new products and thereby as a consequence changing the nature and context of any existing contractual relationships.
Failure or delay in being able to manage the existing contractual relationships properly and quickly will slow down the process, make you less professional and potentially lose or lead to a contentious business relationship.
The 5 Areas We Will Be Exploring 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 retail 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 businesses respond to disputes whilst remaining “fair and reasonable” as per the new contractual behaviour guidelines?
Who Are The Guidelines Aimed At?
This article will focus on businesses within the retail sector with responsibilities or interest relationships and how the guidelines may be able to assist with contractual relationships connected to;
· Supply of products and goods to stores
· Food and beverage manufacturers
· Clothing manufacturers
· Business development and marketing providers
· Logistics suppliers
· Commercial Landlords
With the High Street on its knees, retailers of all sizes are feeling the impact of COVID-19. Key concerns within the industry are around the economic outlook for business, commercial rents and whether to retain or reduce staff.
Failure or delay in managing your existing contractual relationships efficiently and effectively will slow down your business operations, impact upon the perception customers have of your business and potentially damage business relationships beyond repair. Contractual issues may also result in increased costs, higher risk of litigation and perhaps even loss of sales.
1. Why Have The New Contractual Behaviour Guidelines Been Introduced?
The purpose of the guidelines is to encourage businesses to behave responsibly and fairly when reacting to the contractual impact of COVID-19. The difficulty of this is what one party may deem to be fair and reasonable may not be accepted by another.
At a time of repealing EU law following Brexit the adoption of a general doctrine of ‘fair and honest dealing’ the guidelines are novel in the sense that they encourage businesses to review and look at practical steps for economic recovery with the management of business post-pandemic beyond the legal protections offered under English contractual law.
Traditionally, English contract law denies both its power to regulate fairness and any duty on parties to deal with good faith and honesty. English contract law implicitly regulates fairness and good faith is regulated by exceptional doctrines of mistake, duress and unconscionably, misrepresentation and the Unfair Contract Terms Act (UCTA) 1977.
2. Why Are The New Contractual Behaviour Guidelines Important In The Retail Sector?
It is universally accepted as a basic principle of English contract law that contracts are binding and therefore if one party fails to perform their obligations, they are liable to compensate the other party for losses incurred. The mere fact that performance has become disadvantageous or difficult does not discharge a contractual obligation.
As a consequence of the Coronavirus pandemic the UK government has put in several governmental measures to safeguard the public health system, communities and vulnerable citizens.
The UK government recognise as a consequence of the lockdown measures the economy and businesses in the retail sector have either had to face situations where delivery of services and goods could not be performed either due to the governmental measures or the impact of COVID-19 pandemic.
Contracts that are drafted well will have provisions that may foresee issues which may trigger penalties, warranties or indemnities in the event of non-performance. The majority of agreements may have provisions for non-performance of usual or customary defaults, however under English law unless there is express provision for non-performance for pandemics the typical force majeure provisions (“Act of God”), the agreement would be deemed to be in breach.
The unprecedented nature of the global health disaster has resulted in some businesses within the retail sector being forced to cease trading and others needing to alter their working-practises considerably to manage the extraordinary pressures. Whichever stance you look at the current climate from, retail businesses face difficulties they’re unlikely to have ever faced before. This is why the UK government have provided these guidelines to encourage retail business owners to act in the interest of the country as a whole.
3. Under What Circumstances Can The New Contractual Behaviour Guidelines Be Considered?
It’s important to highlight that the guidance is offered in an advisory capacity and is non-statutory. The guidance covers active contractual arrangements, which have been materially impacted by COVID-19 and the consequential restrictions to business.
The new contractual behaviour guidelines are broad and vague when referring to what is “fair and reasonable”. As there is little explanation of what is classed as “fair and reasonable”, the subsequent actions taken by businesses are open to interpretation. There is, however, a long list detailing circumstances in which conscientious business behaviours are anticipated. Examples of occasions where “fair and reasonable” behaviours are expected include:
· 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;
· Making and responding to claims of damages, including under the liquidated damages provision;
· Returning bonds, deposits or part payments.
4. Under What Circumstances Do The New Contractual Guidelines Not Need To Be Considered?
The new contractual behaviour guidelines are not intended to override certain specific contracts. A contract whose leading purpose is to make clear provision for the “effects of global or national public health emergencies or pandemics” is not expected to be overridden by the new government advice. Similarly, should an existing contract be in place for the purpose of allocating the risks of an emergency or pandemic, this shouldn’t be overridden.
According to paragraph 9 of the guidance documentation, the guidance also does not apply to “contracts or transactions which are speculative in nature in respect of risks similar to the COVID-19 emergency or to financial market transactions.
5. How Can Businesses Respond To Disputes Whilst Remaining “Fair And Reasonable” As Per The New Contractual Behaviour Guidelines?
As we have all learned, business, and indeed life in general, is very different as a result of the Coronavirus outbreak. Businesses are being encouraged by the government to handle any contractual issues responsibly, through the use of alternative dispute resolution procedures to avoid court litigation wherever possible.
There are several alternative dispute resolution procedures available to retail businesses, each procedure is applicable depending on the type and value of the dispute.
In sub-sectors of the retail industry there are a select number of suppliers and therefore the consequences of court litigation may not be feasible, alternative procedures such as negotiation, mediation or arbitration provide more flexibility and opportunity to resolve disputes without resorting to court litigation.
Read more about mediation and arbitration here.
In summary, the UK government is encouraging businesses in the retail sector that have been negatively impacted by Covid 19 to work together through these difficult economic times without resorting to contractual legal claims and, in doing so, is also relying upon businesses to not take advantage of the encouraged goodwill of those they are contractually obligated to.
It’s yet to be seen whether courts will consider the UK government guidance around contractual behaviour in contractual claims following COVID-19.
The UK government has predicted there is likely to be backlog of litigation cases when the courts are fully functioning, during the lockdown some courts have been operating a skeleton system and incorporating the use of technology where appropriate. However, in order to avoid overwhelming the court system as the lockdown eases UK businesses have the right to seek legal recourse through court litigation and therefore an opportune time to consider alternative dispute resolution procedures such as mediation and arbitration procedures if appropriate.
Furthermore, the guidance issued is non-statutory, thus introducing a level of uncertainty into contract law in England. The UK government guidance considers alternative dispute resolution mechanisms such as mediation and arbitration, ensuring businesses can agree upon a resolution to move forward from their contractual issues, by utilising virtual legal services, long before the courts begin to open their doors to new cases.
Who Are We?
How can Serenity Law LLP support your business?
Avinder Laroya, co-founding partner of Serenity Law LLP, is an expert in international dispute resolution and an accredited mediator and arbitrator, allowing her to advise clients through alternative dispute resolutions mechanisms as encouraged by the UK government. By working to advise you through the litigation process, Ms. Laroya and her team are able to offer services that are cost-effective and go someway to protecting the relationship between contracted parties, allowing business to proceed in the best manner for all.
Ms. Laroya is offering free 15 minute legal consultations in response to the impact of COVID-19 on businesses. To book your consultation, click here or call 0800 019 7773.
Serenity Law LLP is a commercial law firm, working with clients in multiple jurisdictions around the world. The team is experienced in commercial contract law and is keeping up-to-date with the latest government guidance to ensure you’re receiving strong, current advice for your business.
All post-COVID legal services through Serenity Law LLP are offered digitally, ensuring all parties abide by on-going social distancing restrictions.