COVID-19 emergency measures
Poland's Parliament is now working on the second raft of amendments to the Act on Special Arrangements for Preventing, Counteracting and Combating COVID-19. This round of amendments, the second since the Act was introduced, is aimed at enhancing the Anti-Crisis Shield. This is a package aimed at supporting entrepreneurs.
Generally, the legislation related to the COVID-19 situation is divided into several parts and deals with aid through public sources, such as:
- the maintenance of employment financing
- microloans to SMEs
- deferring payments of certain amounts due to public authorities.
The other part of the legislation deals with certain contractual legal relationships between businesses (B2B) and with consumers (B2C).
The Act does not provide for an overarching solution to amend contractual relations between entrepreneurs and third parties but provides for specific modifications. For example, property lease instalments payable by tenants in large shopping centres (over 2,000 m2) have been extinguished for a stated term.
Within three months of the date on which the term ceases, the tenant should submit an offer to the landlord to extend its lease agreement for a further six months. In the event that the tenant fails to submit the offer to extend, it will be required to pay its obligations for the entire non-operating period.
Is COVID-19 a sufficient reason for non-performance?
Under Polish law, there are several grounds which excuse a party from a failure to perform its side of the bargain or permit it to request the variation of its performance, without the obligation to pay damages to the other party.
Force majeure
The most important of these is force majeure.
There is no definition of force majeure in statute. Instead, one must look to Polish jurisprudence and the courts.
A force majeure event is one which is unforeseeable, unavoidable and impossible to overcome, caused by external circumstances. If such event makes it impossible to perform obligations under the agreement, a party may release itself from performance of the agreement without the obligation to pay damages to the other party.
The jurisprudence highlights the following categories as force majeure events:
- acts of government, and
- natural disasters caused by forces of nature, such as epidemics, war and riots.
The COVID-19 pandemic would be categorised as a force majeure event under Polish law.
The occurrence of force majeure that makes it impossible for a party to perform its side of the contract may cause such party to be relieved from performance.
Force majeure may be invoked to exonerate performance only if there is an adequate causal link between force majeure and impossibility of performance. Furthermore, the impossibility of performance should be understood in terms of Polish civil law. There is a body of case law which will assist in the interpretation of "impossible to perform".
The "hardship" principle
The Polish Civil Code, in Article 357, relates to "hardship" (referred to as rebus sic stantibus).
The law reads as follows:
"…when due to an extraordinary change of circumstances, performance by a party would be either extremely difficult or connected with an egregious loss for such party, and the parties have not foreseen such circumstance when contracting, the court may modify the performance of, or terminate, the contract".
Article 357 sets a high hurdle for a party wishing to claim under this principle. The change of circumstances has to be "extraordinary", such as hyperinflation, a change of the state system (eg from communism into capitalism) or other similar circumstances.
The notion "extraordinary" applies to circumstances relating to conditions in the country and not to the occurrence causing such extraordinary circumstances.
The change of circumstances should be permanent. Temporary difficulties, even if material, are not sufficient. In addition, these circumstances should be widespread, affecting the country or the entire group or groups.
The petitioning party will need to demonstrate that performance would be extremely difficult or result in an egregious loss because of such extraordinary change of circumstances.
The situation should be analysed on a case-by-case basis. For obvious reasons, the party seeking such protection from the court should do so before performing its obligation.
Renegotiating the contract
This of course will always be an option which is open to the parties. Alternatively, if agreement cannot be reached, a party may attempt to invoke the "hardship" principle described above.
Comment
We have noted a significant increase in parties seeking to explore the principles of force majeure and other routes which may exonerate non-performance. This is especially so in the case of commercial lease contracts in facilities that have been subject to forced closure during the pandemic. No cases have yet been brought before the courts (which are only just beginning to adjust to the 'new normal'). However, this is definitely a marker for an uptick in litigation in the near future.
