In a positive step to protect the environment, the Government announced in January 2023 that a range of single use plastics would be banned in England. Businesses have therefore had some lead time to prepare for the Environmental Protection (Plastic Plates etc. Polystyrene Containers etc.) (England) Regulations 2023 which will come into force on 1 October 2023. In this context, we consider: how can businesses plan for progressive changes by effectively managing their contracts and trading relationships?

The Regulations

When the Environmental Protection (Plastic Plates etc. Polystyrene Containers etc.) (England) Regulations 2023 come into force on 1 October 2023, businesses must no longer supply, sell or offer certain single-use plastic items in England. There are some exceptions, but subject to these, it will not be permissible to supply single-use plastic plates, trays, bowls, cutlery and balloon sticks, and polystyrene food and drink containers (including cups) to members of the public.

In guidance issued in May 2023, businesses were advised to prepare by using up existing stock prior to 1 October 2023 and identifying suitable alternative products. Aside from these practical steps, in light of changes such as these, how can businesses effectively manage their contractual relationships to ensure that they are in the best position to respond to developments? What if a business is stuck in a detrimental contract which it no longer needs? What are the options under English law?

The importance of effective contract management

We have previously considered in detail, particularly in the context of uncertain economic times, how important it is to proactively manage contracts and how this can be done.

The importance of pro-active contract management in an economic downturn

Being on top of matters from the outset is important, including accurate recording of all contracts and their key terms, and undertaking reviews of these on a periodic basis. This will help a business identify contracts which might create risks or cost to the business in the context of an ever-changing landscape, as well as to establish a timeline within which to plan and execute an approach in relation to that contract if things need to change. So what might that plan entail if a business decides that it wants to get out of a contract which is no longer commercially or legally viable?

Exiting a contract

In a scenario where a legislative change has caused a party to a contract to want, or need, to exit from the arrangement, it may be the case that this would be mutually beneficial to both parties. In such instance, an agreed position or variation could be negotiated. 

However, if it is in only one party's interests to bring a contract to an end, then the starting point would be to look at the wording of the contract and consider, is it strictly necessary to seek to terminate the contract? For example, are there any minimum order requirements? When is the contract due to end in accordance with its terms? 

If the contractual terms are unfavourable, then the party could look to terminate the contract. 

First, there may be contractual rights to terminate, such as a termination for convenience clause, entitling one or all parties to a contract to give notice to terminate. The terms of the contract should be followed strictly in terms of timing, form and delivery of the notice. If this is not done correctly, this itself can constitute a breach. Other contractual terms may allow a party to terminate the contract in the event of a breach by the other. Accordingly, a party wishing to terminate could rely on a breach by the other to bring the contract to an end, depending on the terms of the relevant clauses. 

If there are no contractual rights to terminate, then a party could seek to terminate under common law. If the other party has committed a repudiatory breach of the contract (i.e., a sufficiently serious breach giving the aggrieved party the right to accept the breach or affirm it), then the aggrieved party can accept the breach and terminate the contract, provided the breach has not been affirmed in the meantime. Common law can also imply a reasonable notice period into a contract if it does not provide for termination by notice and is of an indefinite duration.

If there are no rights to terminate the contract pursuant to its terms or under common law, then the party looking to exit the contract may be able to rely on a force majeure clause, if there is one in the contract. Such a clause acts to excuse the parties from performance of the contract if certain events transpire which are outside of their control. Whether the clause applies will depend on the precise wording in the contract. However, under English law, a change in economic circumstances affecting the profitability of or ease of performance of a contract may not constitute a force majeure event.

Further, or alternatively, the common law doctrine of frustration may apply. Broadly, a contract can be discharged if a subsequent event renders the contract physically, legally or commercially impossible to perform, or transforms the obligation to perform into a radically different obligation from that envisaged when entering into the contract. However, it has been established in case law that there is a very high bar which must be met in order to successfully argue that a contract has been frustrated. Supervening illegality of performance where a subsequent change in the law or circumstances can make performance illegal and could be a frustrating event, but this will depend on the factual circumstances. 

Lastly, a contract could be discharged if its performance becomes illegal under English law. However, careful consideration must be given to the question of whether the performance of the terms of the contract is in itself illegal due to, for example, a change in law, as this might not necessarily be the case. Like frustration, this doctrine has limited application.

Our Dispute Resolution team members are experienced in advising on pro-active contract management in order to effectively manage risks. If you wish to have a discussion with a member of the team, please contact us.

LS Unlock

If we can assist in relation to any commercial contract disputes, we would be very happy to do so and would encourage consideration of our “LS Unlock” initiative setting out the financial possibilities on which we may be able to provide advice. LS Unlock comprises a free initial assessment of significant commercial claims together with a menu of alternative fee arrangements which can reduce and, in certain cases, eliminate the upfront cost of pursuing a claim. This initiative has been designed specifically to assist clients in this uncertain economic climate and is part of our commitment to working with clients to help them survive its effects.