Force majeure will not automatically exempt one from liability for breach of contract
It may occur that an entrepreneur already facing difficulties fulfilling a contract may attempt to cite the COVID-19 pandemic as sufficient reason for them to cease performing their contractual obligations without facing any further consequences. Such an approach would be unjustified. The pandemic in and of itself cannot justify a party’s failure to perform their contractual obligations, nor can it serve as grounds to terminate an unprofitable contract. This is due to the fact that such an event’s mere occurrence does not automatically exclude a party’s liability for their contractual obligations, or provide a possible “safe” withdrawal from the contract. In order for a party to be entitled to cite a Force Majeure as grounds for such an exclusion of liability or the contract’s termination, they must be able to demonstrate that the pandemic was the cause for their difficulties resulting in the failure to perform, or properly perform, particular obligations. One must also be able to demonstrate that such difficulties were the proximate cause of their inability to fulfil their obligations, and that the debtor was objectively unable to prevent the outcome of such difficulties. For example, if an entrepreneur concluded an agreement to deliver widely available goods, with the delivery date in April 2020, they will not be entitled to cite a Force Majeure in relation to their not having received such goods in January from their suppliers in China if they would have been able to acquire the goods from another supplier. Moreover, with regards to public procurement, following the passage of the latest Anti-Crisis Shield Act the occurrence of the COVID-19 pandemic has been excluded as a self-sufficient basis for the withdrawal from a contract.
It is equally important to recall the fact that contracts often include autonomous provisions regulating the effects of a Force Majeure. First, one should confirm whether the contract includes such provisions as well as their scope. It is also crucial to confirm whether the other party to the contract is entitled to be notified of a Force Majeure occurring within a given time, under pain of the party attempting to rely on it losing their rights to do so. A contract may also restrict a party’s liability as compared to generally applicable rules, e.g. providing that a debtor’s liability is excluded solely in the event of a Force Majeure – these reasons are why it is necessary to examine all of a contract’s provisions in detail in each case. If the parties have not agreed to regulate such matters in the contract, the generally applicable rules on liability will apply, under which the debtor shall be liable for acts attributable to them, or which they are culpable for. Even in the event that a Force Majeure undoubtedly excludes fault-based liability, the debtor’s liability can only effectively be excluded upon a finding that the party is not at fault. Losses caused by a Force Majeure merely raise a presumption that the debtor was not at fault for them.
It is worth noting that the occurrence of circumstances related to the COVID-19 pandemic may constitute the basis for the amendment of a public procurement contract. While performing a contract, the contractor is obliged to notify the contracting authority of the impact of circumstances caused by the COVID-19 pandemic may have on the proper performance of the contract, provided that such circumstances have occurred or are likely to occur. In such cases, the contracting authority may amend the contract, once such amendments are agreed with the contractor. Such amendments may concern, in particular, the completion date, the suspension of the contract’s performance, or the manner of the contract’s performance. Such amendments may also concern the scope of the services which the contractor provides, with an adjustment to the contractor’s remuneration (however, recall the fact that an increase in remuneration cannot exceed 50% of the contractor’s initial remuneration). Also note that the admissibility of amendments is subject to the contracting authority’s approval thereof, and thus at their discretion. In this regard, one can only hope that contracting authorities, in the appropriate circumstances, will be willing to accept such amendments to the contract.
Marta Midloch; Attorney-at-law, counsel, co-head of the infrastructure projects team at WKB Wierciński, Kwieciński, Baehr law firm
Last Updated on January 15, 2021 by Karolina Ampulska