Recovering through Responsible Contractual Behavior

原文始发于微信公众号(瑞中法协):Recovering through Responsible Contractual Behavior

In the second wave of the Covid-19 pandemic we are still seeing anunprecedented closure of personal and commercial activities, causing unparalleledvagaries in global economic conditions.

Is there light at the end of the tunnel? Perhaps, if we believe the UKgovernment. A non-statutory guidance note it published in May regarding “ResponsibleContractual Behavior in Performance and Enforcement of Contracts Impacted bythe COVID-19 Emergency” aimed to encourage responsible behavior in theadministration of existing contracts.

In my opinion, Pakistan’s federal and provincial governments shouldfollow suit. They should officially issue similar non-statutory guidance in theirnational response to the Covid-19 slump because contractual arrangements arethe mainstay of the country’s economy. By all odds, contracts ensure that theeconomy provides jobs, goods and services to enhance and maintain nationalinfrastructure. Such guidance or policy will assist in ensuring uniformity inthe contractual behavior of parties and will significantly contribute towardsprotecting businesses (especially small and medium sized enterprises), supplychains and jobs. Irresponsible behavior will reduce employment and impair theeconomic recovery.

The pandemic’s consequences are far-reaching and have gone beyond spreadingdisease. In Pakistan, it is being feared that millions of people may be pushedbelow the poverty line due to financial constrains caused by the pandemic. A UN study in June on Pakistan’s situation recommends a five-pronged response including “protecting jobs, supporting small- andmedium-sized enterprises, and shoring up the most vulnerable workers througheconomic recovery programs”.

Securingthe economic base

The Pakistani government also realised it well ahead of time that the mostat-risk people were already living in poverty. This includes citizens from thedeprived class and other marginalised groups whose lives, livelihoods, sustenanceand access to amenities are the least secure. A large number of people in thesegroups makes their living from the construction sector, directly or indirectly.

Now that businesses are re-opening and we can ascertain the post-Covidconditions of global and local markets, it is essentially that parties toexisting contracts in the private and public sector act with a responsible contractual behavior. Inparticular, government organisations should put a greater emphasis on thisapproach in managing existing contracts which are materially affected by Covid-19. 

The responsible behavior may include:

1.     Officially recognisingthe Covid-19 pandemic as “force majeure” unless it is already defined inspecific contracts.

2.    Making timely paymentsunder current contracts for certified payments and amounts due.

3.    Fairly evaluating and expeditingsettlements of claims for damages including time extension claims and compensationfor increased cost or price escalations.

4.    Accepting justificationsfor impaired performance, specifically in respect of deadlines, the nature andscope of contracted goods, works and services or making amendments to contractsor initiating variations where needed.

A responsibility to beradical

To achieve practical, fair and equitable contractual outcomes it wouldbe highly befitting to consider the factors such as: the likely impact on theother party, the availability of financial resources, the protection of publichealth and the wider national interest. An organization or individualexhibiting responsible contractual behavior would be expected to carefullyexamine all aspects, ground realities, and the direct or indirect effects of Covid-19prior to:

1.     Calling bonds orguarantees and taking measures to sanction delays and contractual breaches.

2.    Triggering clauses inrelation to breached contracts or pushing opposing parties towards default ortermination.

3.    Pushing on disputesthrough arbitration or litigation.

The construction industry, particularly project managed by the publicsector, has an even greater responsibility in this regard. Public sectoremployers are major drivers of the industry. However, the fear of culpabilitymay compel them to stick to routine work-practices by following tried andtested norms.

It is this author’s considered opinion that a radical approach in termsof “responsible contractual behavior” would assist in overcoming the otherwiseirreparable aftermaths of Covid-19. If this situation is properly mitigated,normality will soon resume and we will see economic growth restart for the developmentof the country.


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