A party may avoid liability in damages if the contract was breached for reasons for which it is not responsible. But case facts rule.
We have been asked the following question: Due to the current economic and political situation (e.g. war in Ukraine, supply chain disruptions) our company is unable to comply with a term supply contract which does not have a force majeure clause. Does this mean the company will have to pay contractual penalties for delivery delays?
Having a force majeure clause in your contract does doubtlessly help to avoid liability for breach if the hindrance was due to extraordinary circumstances.
Extraordinary circumstances
Force majeure clauses would often be omitted in everyday small or medium contracts. The reason was that, for 30 years since the start of Poland’s economic transition, Polish economy did not experience major extraordinary disruptions. It was not until COVID-19 pandemic that businesses became aware of the need to have contractual safeguards against effects of exceptional developments.
But what if your contract has no such clause? If a business fails to fulfil a contract due to extraordinary circumstances, will it necessarily bear the liability?
Article 417 of the Civil Code is where general liability for breach of contract is regulated. This law allows parties to avoid liability in damages, including contractual penalties, if the breach results from circumstances for which they were not responsible. Coronavirus-related economic disruptions or the outbreak of the war in Ukraine can in certain situations hinder timely performance of contracts. As such, they may well be the starting point of a chain of events leading to contractual delays that are not the fault of any of the parties. This includes, for example, a temporary unavailability of production components which could not be foreseen when contracting.
Diligence and foresight as key factors
Whether or not you can rely on that law depends on the terms of your contract and your circumstances. Of particular importance here is the degree of diligence in planning the fulfilment process and whether the disruptions were foreseeable. But the law can doubtlessly offer effective help in defending against your creditor’s claims, e.g. claims for contractual penalties due to delay in performance.
The question originated from a Rzeczpospolita reader and our answer has been provided by Łukasz Lubaszka, attorney-at-law and Sendero partner, and published on kancelarierp.pl.
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