All European countries are now facing the SARS-CoV-2 pandemic and each state is undertaking different measures to limit the spread of the virus. Recently, the Polish government has extended the so-called “export ban list” – a list of, in particular, medicinal products and medical devices the export or sale of which abroad may be subject to the objection of the Chief Pharmaceutical Inspector. This list grew by over a thousand items in the past month and has changed from a list of products subject to parallel export due to price differences to a list of products that we want to keep in Poland. Also, the President of the Office for Registration has asked pharmaceutical companies to consider launching clinical trials in these unique circumstances.
However, all of that are industry-specific regulations which may not be applicable to the majority of pharmaceutical companies. What all of us (including probably each healthcare company) will surely face are changes to existing agreements, for instance for delays or non-performance of deliveries, cancelation of bookings, etc. This is why, in these extremely specific, dynamic, and unpredictable circumstances, the civil law basics of force majeure and rebus sic stantibus clauses, which were very rarely used in the past, may become especially important now.
Force majeure clauses define circumstances beyond the parties’ control that can render contractual performance too difficult or even impossible. Where an event (or series of events) triggers a force majeure clause, the party invoking the clause may suspend, defer, or be released from its duties to perform without liability. There is no explicit provision in Polish law that provides that force majeure is a basis for relief which excludes liability for breach of contract. The parties to a contract usually define it by specifying the forms of force majeure, such as disasters, acts of war, fires, floods, etc.
Absence of a specific force majeure clause in a contract means relying on the general civil law concept of force majeure. Under Polish law, liability is guilt-based, and force majeure may be relied upon in order to exclude contractual liability in the absence of specific provisions in the contract. It is generally accepted that force majeure is an event that is: (a) external, (b) impossible (or almost impossible) to predict or unavoidable, and/or (c) impossible to prevent with regard to the effects. Those premises are sometimes required to be jointly fulfilled, but it is certain that the external character and the impossibility of prevention are crucial conditions. According to some recent judgements (including those of the Supreme Court), epidemics and acts of the sanitary authorities as a result of epidemics (such as quarantine) may be seen as force majeure. State acts ordering the closure of the borders, introducing import or export restrictions, cancelling flights, or closing the premises of a company could also be considered as force majeure, even if they are introduced as preventive measures. These sorts of acts meet the general description of force majeure, which is an extraordinary, external incident that is impossible to prevent and which the company has no influence on and cannot oppose. Note that there has to be a link between the extraordinary event and failure to perform the contract or improper performance thereof. Hence, not all such events may qualify as force majeure, especially if they happen abroad. For example, considering the number of confirmed coronavirus cases in Poland so far (27 cases by March 11, 2020), there might be no link between the epidemic abroad and a breach of contract in Poland at this point. Given the dynamics of the situation, however, this could change at any moment.
The alternative option is the rebus sic stantibus principle - so called extraordinary circumstances. Based on this principle, the court may change a contract or even terminate it in the event that the performance meets (i) excessive difficulties or (ii) one of the parties is threatened with serious loss (iii) because of an extraordinary change in circumstances (iv) which the parties did not expect when entering into the agreement. As should be apparent, the requirements are much less stringent than for force majeure. Such cases could encompass, for example, a situation in which flights were cancelled resulting in the need to travel to a distant place by train or boat, which is expensive and time consuming when the project has tight deadlines and a tight budget. Another example would be closed borders for a longer period or long quarantine that results (for instance) in serious difficulties visiting a location in order to perform the contract or could endanger the supplier’s employees who are visiting such places in the course of performing the contract. Also, such change cannot be mitigated/easily removed. Note that to use this possibility, the party would have to request that the court change or terminate the contract.
While it is too early to tell how exactly these concepts will be applied to contracts in the life sciences and health care industries, at the moment there has been no indication that different rules will apple and there is reason to predict that they will be applied similarly.
By Pawel Hincz, Partner, and Juliusz Krzyzanowski, Senior Associate, Baker McKenzie Poland
This Article was originally published in Issue 7.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.