Managing The Unforeseen ' Is There A Duty To Cooperate?

• Published date: 06 August 2020
• Subject Matter: Corporate/Commercial Law, Coronavirus (COVID-19), Contracts and Commercial Law, Litigation, Contracts and Force Majeure
• Law Firm: Quadrant Chambers
• Author: Mr Nigel Cooper

The current pandemic emphasises just how unforeseen events can interfere with contractual arrangements, particularly longterm ones. It is therefore no surprise that there has been a considerable focus on the application of force majeure clauses and the doctrine of frustration.

Many contracts also contain provisions, which permit termination for convenience or on the happening of defined events (such as insolvency) or which may permit one party to suspend performance or structure performance in a way which reduces or postpones that party's financial liabilities. Clearly, while not originally intended as a means of dealing with the current situation, such clauses may provide another route to manage financial exposure or escape from a contract.

But is it possible to prevent a party using express contractual rights to its advantage and to the disadvantage of the other party in situations, which were not foreseen or which are not what the clauses were intended for?

The law will recognise an implied term that neither party will actively prevent performance of a contract by another party; Stirling v Maitland (1864) 5 B & S 841. In certain situations, the law will also recognise an implied term that the parties will cooperate if that cooperation is necessary to enable the contract to be performed; see Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd. [2013] EWHC 1191 (TCC) at [34]. However, such implied terms have limitations including the need to establish that implication of the term is necessary and that it does not conflict with any of the express terms of the contract.

There are also cases, which suggest that in certain circumstances a party is under a duty not to act capriciously, arbitrarily, perversely or irrationally, when exercising a contractual discretion which will affect the rights and obligations of both parties; Braganza v BP Shipping Ltd [2015] 1 WLR 1661.Implied terms to similar effect may arise in long-term joint venture and similar agreements due to the need for mutual trust, confidence and loyalty in order to enable performance of the contract; Al Nehayan v Kent [2018] EWHC 333 (Comm).

Such implied terms may provide a route to prevent one party deliberately engineering circumstances, which would allow it to exercise rights of termination; for example deliberately creating a situation which puts the other party in default under a clause allowing termination when certain material events occur.

However, recent authority suggests...