The coronavirus and renegotiation of contracts entered into in the usual course of business or awarded in a public tender procedure
Dear All, Dear Entrepreneurs,
On 22 March, 2020, the Prime Minister of Poland announced introduction of an “anti-crisis package” to prevent loss of employments and insolvencies. Most likely, you are already familiar with the assumptions of the plan, and it is not my point to reiterate them here (see: https://www.gov.pl/web/rodzina/rzad-przygotowal-pakiet-antykryzysowy). Also, it is far too early to deliver a specific assessment, which will only be possible once any specific legal solutions become known. It goes without doubt, that this move should be perceived as a positive one and necessary in the present situation, where the future of specific entrepreneurs, including big corporations, is unknown. This is also supported by the historical declines in stock markets worldwide which I’m keeping my eye on with an increasingly higher anxiety.
Will the “anti-crisis package” be sufficient to prevent undertakings from going bankrupt ?
However, a question should be asked whether the said “anti-crisis package” will deliver sufficient instruments allowing “living through” the present economic and social crisis? We should remember that the definite majority of the proposed solutions either provide for deferment of specific payments (e.g. social insurance premiums) over time or incursion of new liabilities (e.g. low-interest loans, prolongation of credit lines), which will have to be repaid in future. Also payroll subsidies are not a comprehensive solution in the sense that the employer will still bear the labour costs albeit lower.
Facing this situation, it is of key importance for enterprises to continue to generate revenues, carry out the existing contracts, enter into new ones on the one hand and to receive goods and services and pay for them on the other hand. Obviously, to meet the obligations and liabilities on the pre-agreed terms is or will be definitely more difficult or even impossible, and, in my view, in the vast majority of cases, the blame for this should not be placed with specific counterparty, but rather attributed to the current pandemic, which should be classified as a force majeure, for which counterparties cannot held be liable under civil law. Besides, to bring a potential dispute in court is not a wise step, if you wish to maintain the financial liquidity, considering the time span over which courts examine cases as well as court delays which will only exacerbate due to suspension, at least in part, of courts’ operation. To conclude, contracting parties should try to find themselves in the new reality and cooperate with a view to actually performing contracts and generate profits by way of renegotiating the existing contracts and agreeing on new terms of cooperation upon execution of new ones.
Renegotiation of contracts entered into in the ordinary course of business
In order to renegotiate contracts or prepare for talks to do this, entrepreneurs may rely on the institutions known under civil law and on the rules adopted in the Civil Code (e.g. Article 72, Article 72(1) of the Civil Code). In particular, attention should be drawn to the rebus sic stantibus (Article 357(1) and Article 632 § 2 of the Civil Code) clauses that provide for an option of modifying contract terms due to occurrence of an unpredictable change in the business or social environment. Getting appropriately prepared to the negotiations, not only by selecting the important legal and business arguments, but also by a proper understanding of the substance of the contracts being in force and of the applicable legal norms, including the mutual rights and obligations of the parties, as well as being open to understand the legal and business situation of the contracting party, will all be of key importance in the situation of renegotiating a contract. The process should result in a new agreement on the contract contents, which usually takes the form of an annex.
Undertakings that awarded or are bidding for contracts in a public tender procedure are in a more difficult situation
Undertakings which have awarded contracts in the procedure provided under the Public Procurement Act are in a much more difficult situation, since the Act, in particular Article 144, significantly limits the options of modifying or amending the contracts. In this case, parties’ acting with good will not suffice in place of an in-depth legal analysis of the contract and of the case law and the legal doctrine in the context of the Public Procurement Act. It is only such an in-depth analysis that may allow finding how to reach a consensus in a legally viable way, since, on principle, public contracts may only be modified with regard to matters of minor importance or those that the commissioning entity has anticipated beforehand. Therefore, the solving of this problem will require high legal professional skills and seeking for solutions among numerous judgments that may “give a hint” as to what course of procedure should be taken in specific situation (see: Judgment of the Chief Judicial Commission of 22 February 2016; BDF1.4800.161.2015).
Also, entrepreneurs bidding for public contract where the contract has not yet been executed, will have to thoroughly analyse their legal situation in light of the applicable provisions of the public procurement law, including in particular, the problem of evasion of entering into contract by the successful tenderer or of refraining from providing of a good performance guarantee (Article 94.3 of the Public Procurement Act). Consideration also needs to be given to the position of the tenderers in the second or further positions in the context of a potential request that they are awarded the contract or of their competing for the first position. This case also requires a thorough prior legal analysis and a preparation of an appropriate line of argument based, among others, on the case law of the National Chamber of Appeals, since, for example, the NCA requires that only a groundless refusal by the contractor to enter into contract should be construed as an evasion of entering into contract (see: KIO 2332/18).
In summary, whatever substantial value represents the aid to be provided under the “anti-crisis package,” it seems that renegotiations of the existing contracts, including the ones awarded under public tender procedure that are solidary, based on the substance and well thought out from the legal point of view will be of key importance for the sake of keeping businesses going and preventing mass bankruptcies, and the determining the substance of liabilities in future contracts, i.e. in correspondence with their feasibility will be equally important. Also, entrepreneurs facing the dilemma of entering into a contract based on the selection of the most advantageous offer will need act prudently and appropriately assess the legal prerequisites that exist now and that will prevail in future when the contracts will be performed. However, it is only this mode of cooperation and refraining from being involved in disputes that may ensure the continuity of employment and business to all of us.
Take care and good luck!
Advocate and The Managing Partner at SRDK