Milewska Legal

Coronavirus and executing trade contracts

10 June 2020

The global coronavirus outbreak has put tradesmen, as well as entrepreneurs, in a very difficult situation. The execution of previously signed contracts is currently difficult, sometimes even impossible. What steps can and should be taken to protect the one’s business?

Coronavirus is not a miraculous way to refuse executing contracts

First of all we need to realise the term ‘coronavirus’ will not work like a magical spell – the fact we have global pandemic of a virus does not automatically cancel previous contracts, suspend the time limit of providing services or delay the time of delivery. The impact of the virus on the possibility of execution of an agreement, for example delivery of a product, will have to be demonstrated each time (for example by proving the cancellation of flights used to transport the product or by lack or shortage of the product at the manufacturer). So, even though the epidemic has been declared, the occurrence thereof itself does not influence the obligation to fulfil a contract or the way of executing it. However…

Coronavirus can be considered as an example of an Act of God

Firstly, it is important to have a look into a contract signed with given company/tradesman or into general terms and conditions that are being used for a particular agreement. Perhaps there are (and there should be) provisions included in the agreement about the occurrence of an Act of God or similar circumstances that are beyond anyone’s control (and the pandemic should be considered as such situation) and its impact on the fulfilment of a contract.

In such cases, generally a contract provides that the entrepreneur is not responsible for a non-performance or improper performance of his service if it is a result of an Act of God. The party claiming occurrence of an Act of God will then not be held responsible for any damage the contractor may have suffered, as well as fundamentally it will not be obligated to pay contractual penalty for delays or non-performance of services.

However, we need to remember that claiming an Act of God will not cancel our contract but only “suspend it”. It means that the agreement will have to be executed after the situation considered as an Act of God terminates. So theoretically, both goods/services will eventually have to be delivered or performed and the contractor will have to pay for them, as per signed contract.

What if the contractor is no longer interested in the overdue service as there is no value or need for it? Here we have an opening for negotiation and settlement between both parties. Otherwise the case would most probably end up in court as each party will be trying to prove their rights: salesman/tradesman/provider – the pandemic influence on services, and contractor – no such influence and provider’s fault in failure or delay to deliver.

When the contract does not include “Act of God” clause

If however the contract does not regulate the incident of an Act of God, according to Polish law businessmen are not left without legal protection in the times of coronavirus. The Polish Civil Code provides for contractual liability of a party only if the non-performance or improper performance of a contract occurred due to the party’s fault. So, the party will be held liable if for example the delivery time was calculated inaccurately or the delivery items’ calculation was wrong. In those cases, the provider will bear contractual liability towards the contractor – so in other words will have to indemnify the contractor for the damage he suffered.

Whereas, if the reason for non-performance or improper performance of a contract by a provider was indeed coronavirus (for example air freight cancellation and inability to deliver by other means of transport, boarders closure, lack of product in factories), it can be assumed that provider will not be held liable and will not bear compensation liability towards contractor despite the agreement not being executed or not being executed properly.

Impossible performance

It is also possible that due to coronavirus the contract will be impossible to perform completely and this situation will remain permanent. Such case can occur with seasonal products’ deliveries if the organisational and legal effects of the pandemic will last for a long time. In that period the season for a given product (for example fruit or a specific type of a plant) will simply pass and the tradesman would not be able to provide it.

In such case the contract expires. The tradesman will not be obliged to provide the product and the client will not need to pay for it. If the client pre paid for the product, the provider will have to return the funds fully.

Advice for contractors during the coronavirus times

Therefore my advice for the contractors during this time is – first of all,  talking to the clients and not being afraid to re-negotiate the contracts in advance, especially times and sizes of deliveries, if necessary. Furthermore, it is worth collecting evidence (emails, text messages, announcements, government decisions) of the coronavirus influence on the business branch relatable to us and the ability to perform contracts. You never know when they can come in handy.

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