Industry in the face of force majeure, or the coronavirus shutdown effect

The industry is particularly vulnerable to negative consequences, primarily due to the relatively high employment in machinery parks, the need to supply raw material from abroad and the dependence on the global economic situation. With surprising concurrence among politicians , the law on special solutions related to the prevention, prevention and control of COVID-19, other infectious diseases and emergencies caused by them was also passed.

In addition to the fairly typical problems associated with the need to purchase disinfectants and medical products, there is also the problem of many people being in one place. After all, companies employing several hundred people cannot simply spread people out ‘in corners’ and tell them not to come near each other. For this reason, the legislator has given employers the option of instructing employees to perform, for a specified period of time, the work specified in their employment contract outside their usual place of work. But what if employees are needed to keep a plant running that operates continuously? In this situation, the only options are to stick to internal safety procedures or temporarily close the plant.

Of course, the biggest problem that manufacturers who decide to shut down or reduce production will face is the fulfilment of contracts. For example, a foundry may have problems delivering castings to its contractors, and may also be unable to obtain sufficient raw materials to maintain production. In such a situation, it is possible to invoke force majeure (Latin: ‘vis maior’). Although clauses of this kind are almost universally included in contracts prepared by professionals (in particular by international law firms using Anglo-Saxon models), in reality they are almost never applied. This is because they cover events such as war, environmental disasters, terrorist attacks or, as in the current case, a global pandemic. The typical wording of this type of contractual provision is an exclusion of liability towards the other party to the contract if the non-performance or improper performance of the obligation results from the factors listed above.

During my work, I have encountered a wide variety of formulations of this type of clause, the most interesting of which was a reference to de facto force majeure through the use of the phrase: ‘or any other act of God.’ (The contract was written in English.) I would be very interested to see a trial in which the arguments of the parties had a legal and theological dimension. It would be a very interesting and instructive experience.

It is worth remembering that the burden of proving the impact of force majeure on the non-performance of an obligation will rest with the party invoking this phenomenon.

The absence of appropriate clauses in the contract may be problematic. It seems that in such a situation, entrepreneurs have no choice but to invoke the so-called rebus sic stantibus clause, which allows a party to apply to the court for a change in the content of the legal relationship if extraordinary circumstances that could not have been foreseen previously make performance excessively difficult or would cause one of the parties to suffer a gross loss.

Fortunately, the coronavirus crisis has prompted the government to consider several mechanisms to improve the liquidity of businesses and defer public law obligations. These measures have not yet been enacted into law, but it is worth discussing some of them.
Firstly, the government has announced relief on public law liabilities, both tax and social security contributions. It is unclear whether this will take the form of exemptions from interest on late payments or actual relief (the statements on the website of the Ministry of Development and those of government politicians differ slightly in this respect). The second issue is unspecified support ‘for companies forced to shut down’. It is difficult to understand this as anything other than support for industries that will have to reduce or halt production. The Ministry of Development also declares the introduction of financial instruments to improve the liquidity of entrepreneurs.
Entrepreneurs will also be able to take advantage of several smaller solutions, which can be collectively described as making life easier. The obligation to register in the Central Register of Beneficial Owners is to be postponed until July. VAT refunds are to be accelerated. Finally, it will be easier to obtain de minimis public aid through BGK in the form of guarantees or subsidies.
Of course, these are only declarations at this stage, but it can be assumed that, given the epidemiological problems somewhat overshadowing the election campaign, at least some of them will be implemented.

However, if neither invoking force majeure nor the support promised by the government is sufficient to maintain the plant’s liquidity, more radical measures such as restructuring proceedings may be necessary. My colleague and partner Wojtek Bokina has written more extensively about these issues on his blog, but it is worth noting that such measures should not be left until the moment when the loss of operational capacity is definitive, but should be taken well in advance. In such a case, limiting enforcement and security measures and concluding an arrangement with creditors will allow the company to get back on track.

Finally, let me remind you that industrialists who purchase electricity from trading companies should not allow themselves to fall into debt, even while waiting for government support, and once they receive such support, they should use it first to settle their accounts with their supplier. This is because, while a steel supplier will sooner or later deliver its raw materials, the DSO will not be so understanding once it has cut off supplies.