Up Again Poland: Suppliers and Contractors

Restructuring

1. Navigating the supply chain in a distressed market:

a. My company supplies goods and I am concerned about the solvency of my customers. Are there any steps I can take to mitigate risk/my exposure?

Tailor your contractual documents to address the risk. A properly drafted retention of title clause, limits on the permitted exposure, and additional security instruments like registered pledges or security transfers will help mitigate the risk. Financial screening on a regular basis is also recommended.

b. My company relies upon the supply of goods/services and I am concerned about the solvency of my supplier? Are there any steps I can take to mitigate risk?

Choose an alternative third-party supplier. Avoid down (advance) payments. You may also include a provision that requires your third-party suppliers to notify you immediately if there are potential or actual solvency issues (by referring to liquidity ratios).

If possible, include a provision in your contract that allows you access to the supplier’s books and records relevant to your business. You may also want the right to inspect their premises.

Litigation and Regulation

2. How will legal disputes that have arisen as a result of COVID-19 or its effects (for instance, in relation to force majeure) be affected by restrictions being lifted and resuming business operations in whole or in part?

In general, legal disputes will be determined based on the facts at the time of the commencement of the dispute. If a dispute is, for example, about a matter of force majeure, it will still need to be decided by the courts; generally, legal disputes will not be affected by restrictions being lifted.

3. How should you manage those disputes once COVID-19 restrictions are lifted?

Disputes should be assessed and managed on a case-by-case basis.

Sometimes, contracts provide dispute resolution clauses that stipulate the process and forum of managing a dispute.

If your contract does not address this matter, you should assess whether it is more beneficial to try to resolve the dispute amicably or initiate court proceedings.

4. What should you do when restrictions are lifted if you have suffered loss under a contract as a result of COVID-19 or the restrictions, but have not yet taken legal action in relation to that loss?

Limitation periods under civil law have not been suspended. A party that has suffered loss should take legal actions by the prescribed deadlines regardless of the restrictions.

As a first step, you might consider commencing pre-litigation communication and presenting your claims to the other party.

If it is not possible to settle claims amicably, you might consider pursuing claims in litigation or arbitration, if your agreement includes an arbitration clause.

5. Is there any risk of mass claims being brought against your business? If so, how would such claims be brought? Are third party funders able to fund such claims?

In the Polish legal system, mass claims can be brought by a group comprising a minimum of ten claimants, if the claim is of one type and based on the same factual basis. Mass claims apply only to consumer and tort claims.

There are no provisions in Polish law that prohibit third parties from funding a mass claim.

6. What should I do about recording contractually or otherwise any of the changes put in place during the COVID-19 lockdown period?

We recommend you record the changes made to contracts due to COVID-19 in writing or any other form mandatory under your agreement, after they have been agreed with the other party.

7. Any return to normal will likely not be as immediate as the impact of COVID-19 when it started (e.g, sales/orders will take time to ramp up, raw materials will take time to flow through supply chains, etc.) what should I think about and do to best manage this in my contracts?

With regard to contracts already in place, you should review and analyse them, bearing in mind the current situation of your business. The contracts may have force majeure or hardship clauses that might give you contractual remedies. If a contract does not provide any such tools, you can commence negotiations with your counterparty about varying the contract to include them. If an amicable resolution proves impossible, it is possible under Polish law to file a lawsuit to amend or terminate a contract that has been affected by an extraordinary change of circumstances (rebus sic stantibus).

8. What additional protections or changes to existing provisions (e.g. force majeure) should I put into any new supply arrangements having regard to COVID-19?

If you are in the process of negotiating a new contract, you should include clauses that will make it adjustable to circumstances such as an epidemic, for example force majeure or hardship clauses.

For contracts being signed now, COVID-19 and some of its effects might not be considered unforeseeable events, so force majeure clauses should be adjusted accordingly.

Parties to a contract can explicitly state which effects of COVID-19 they are aware of and will not have an impact on the performance of the contract. Because some of the effects of COVID-19 might reoccur or are still unpredictable, the parties might include obligations to notify the other party about any future circumstances that might affect performance of the contract along with further contractual steps.