30 March 2020
What obligations remain in place and what has changed over the last few weeks? And what are your options to help protect your company, your employees and still meet your duties as a director?
Businesses across the world run according to private agreements – supply contracts, leases, employment contracts and financing arrangements – and a local framework of laws. Some of the duties under those agreements and local laws have suddenly become impossible (or very difficult) to discharge.
Government responses to the pandemic have choked off many businesses' revenues while leaving them liable to pay the rent, their staff and their suppliers. In normal times, a business with no revenue and a lot of obligations would be required to place itself into insolvency very quickly.
Insolvency and company law and the rules governing commercial contracts vary from jurisdiction to jurisdiction across Europe, but in our experience across Europe, the fundamental tension between the need for businesses to do what they agreed to do and the need to preserve good businesses and avoid unfair and destructive outcomes is the same across the continent.
Different systems will attempt to reach a fair outcome by different mechanisms, and this can lead to very different results. For example, in many jurisdictions, the Civil Code will set out a definition of 'force majeure', 'hardship' or 'unforeseen change' which may excuse a party from performing all or some of his obligations under the contract.
On the other hand, in Common Law jurisdictions, the courts will be very reluctant to interfere in the operation of a commercial contract on the basis that the outcome has become unfair, though in some jurisdictions extraordinary legislative measures have been implemented to support commercial parties in these challenging times.
Some of the areas where we're seeing a lot of companies struggling to keep up with the rapid changes to local legislation include:
All these measures will have a minimum duration of 2 weeks.
Update: The Federal government introduced a “moratorium” on the fulfilment of contractual claims for a transitional period, which will entail fundamental amendments to contract law. On 25 March 2020, the Germanl Parliament (Bundestag)unanimously adopted the law that now needs to be approved by the Federal Council (Bundesrat) which is planned for Friday 27 March 2020. Key elements are:
If it turns out that the period from April through June 2020 is not sufficient to cushion against the economic consequences of the crisis, the possibility is granted to extend the periods mentioned above.
The restriction applies to moving, travelling, staying in public places. Exiting the house should be kept to an absolute minimum and the distance from other pedestrians should be at least 2 metres. Moving is only allowed in case of travel to work, volunteer service helping quarantined people, everyday necessities (necessary shopping, buying medicine, visiting a doctor) and activities related to the Hunting Law and Act on Protection of Animal Health and Control of Infectious diseases
The limitation is valid until 11 April 2020. There is also an obligation to maintain a distance of at least 2 meters between pedestrians. This also applies to families and relatives.
Restrictions on public transport
On a bus, tram or subway only half the seats may be occupied; valid until 11 April 2020.
Gatherings and events are currently not allowed.
If it is not possible, employers will nevertheless have to provide additional safety measures for their employees. For example, employees must wear gloves or have access to disinfectants, and the individual workstations must be at least 1.5 metres apart. This obligation applies until 11 April 2020.
Shopping malls and galleries remain closed until further notice.
A limitation on the number of customers in the shop, at the market and in the post office and the hours of senior citizens' service has been introduced.
A mass or other religious rite cannot be attended at the same time by more than five people, excluding those in service (in case of funerals, persons employed by the funeral parlour); valid until 11 April 2020.
The restriction applies to the crossing of Polish borders by foreigners; valid until 13 April 2020.
Parents of children under 8 years of age are entitled to an additional care allowance if the crèche, kindergarten, school or children's club is closed; valid until 10 April 2020.
The restriction applies to persons who:
The police visits people who are under quarantine as a control measure. The regulations provide for the possibility to impose a penalty of up to PLN 30 000 (approx EUR 6600) on those who do not comply with the quarantine.
Upon experiencing the difficulty to comply with contractual obligations, entrepreneurs should consider using the measures that are already available under the current legislation.
The essence of the force majeure clause is a reservation that a party is not responsible for the non-performance or improper performance of the contract caused by force majeure or which otherwise limits its contractual liability in this respect.
The state of the epidemic has a number of far-reaching, direct legal consequences, but at the same time it significantly strengthens the legitimacy to invoke the force majeure clause stipulated in the agreement.
This provision allows for a change in the manner of performance, its amount or even termination of the contract if performance would be associated with excessive difficulties or would threaten one of the parties with a gross loss due to an extraordinary change in relations, which the parties did not expect when concluding the contract. In this context, it is also worth remembering that responsibility for proper performance is based on the principle of fault, with the debtor being obliged, in principle, to exercise due diligence.
However, the attractiveness of the above mentioned solutions is significantly diminished by the fact that a change in the contractual relationship (or even its termination) is decided by the court, which means that an effective solution to the problem of inability to perform the contract will be postponed in time, especially taking into account the current situation. Already now, unless the problem is regulated by the legislator in advance, extraordinary delays in the work of the courts should be expected.
In case of prolonged force majeure events (eg more than 90 days), each party may be entitled to unilaterally terminate the contract. Much depends on the circumstances of the specific matter (including, above all, the wording of the contract). It is certainly advisable to communicate with the business partner and to prepare him for any possible perturbations in the performance of the contract.
This applies to both contracts with an express force majeure clause and those in which the parties did not provide for such regulation. Initiating the talks at an early stage may limit the extent of possible damages and possibly also increase the chance to save the contractual relationship.
During the period of the epidemic declared due to COVID-19:
Urgent cases in administrative courts are cases where the law sets a time limit for their examination by the court and cases requesting to suspend the execution of an act or action.
The presidents of individual courts issue appropriate orders concerning the functioning of individual courts.
Courts in Warsaw have cancelled all hearings and public sessions between 13 March and 30 April 2020, except for:
Our disputes lawyers across Europe have local expertise that can help cut through the complexity of the many local and international changes, and can keep you updated on what your options are and what duties have changed or remain firmly in place.