The “business as usual” strategy, as adopted by many market players, allows for the minimisation of negative consequences and the avoidance of destabilisation. Nevertheless, with regard to administrative measures imposed by the authorities, we have received queries from our clients as to whether the epidemiological situation could impact the terms of existing business agreements.

The rule that contracts must be observed (pacta sunt servanda) remains the cornerstone of the legal system. In the short term, we cannot rule out that the epidemiological situation, as well as any related regulations implemented by the authorities, might result in a “wait and see” attitude for both real estate buyers and financial institutions. This attitude could impact the dynamics of certain real estate transactions. In the development sector, in the short term, there could be shortages of supplies, as well as temporary shortages in the labour force. In addition, some business activities of e.g. tenants in the retail sector have been limited due to administrative orders.

One cannot, therefore, rule out discussions between parties concerning the terms of their existing contracts. This could apply to, e.g. preliminary sale agreements, construction contracts, facility agreements, or lease agreements. In each case, there would be arguments in favour of performing the contract without changes. When evaluating the merits of each particular case, one should take into account the terms of the particular contract, as well as any external factors such as the economic situation.

Potential impact of the epidemic on previously concluded contracts

From a legal perspective, there are two concepts relevant to this issue. The first, is a force majeure event, and the second is the rebus sic stantibus clause allowing for a change of the contractual provisions in the case of an unusual change of circumstances.

Force majeure events

A force majeure event can limit the liability of a party to the contract for the non-performance of its contractual obligation. In the first place, one should analyse the particular contract, to see how the force majeure is defined and what consequences of force majeure event are provided in the contract. In the case where a given contract does not include a specific force majeure clause, calling a force majeure defence can still be possible under the Civil Code, or under international commercial treaties.

When analysing whether a force majeure defence applies under certain given circumstances, one should consider (i) whether the given event impacts on the possibility of performing the given contractual obligation; (ii) whether it is still possible to perform this obligation using alternative measures, and (iii) whether the party that wishes to rely on the force majeure argument has exercised all reasonable endeavours to perform the contract, and whether it informed the other party of the problem without a delay.

In order to evaluate whether a given occurrence, such as e.g. an epidemic, actually constitutes a force majeure event, it is important to analyze its impact on the economic relations, as well as the administrative measures undertaken in a given country in relation to said epidemic, that could affect the contractual relationship.

Unusual change of circumstances (rebus sic stantibus)

Separate legal grounds to modify a contractual relationship can be found under Article 357(1) of the Polish Civil Code. This provision of law allows a party to a contract to demand its modification as a result of an unusual change of circumstances. The change of circumstance must be “unusual”, as opposed to that which could be considered an “usual contractual risk”. In accordance with the Supreme Court’s adjudication, an epidemic could potentially constitute an unusual change of circumstances. Nevertheless, the applicability of this rule to a given contract depends on the circumstances of the specific case.

Application of the regulations outlined above

The rules outlined above should be interpreted taking into account the terms of a given contract and given due regard to the economic circumstances. The legal position of the Parties may change as the situation develops, in particular if further administrative measures are imposed.

To evaluate position of the party to a contract, it is important to analyze which measures have been taken by that party at the early stage in order to minimise the problem.

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