Change in the Line of Jurisprudence on Judicial Valorization of Construction Contracts in Poland

29 August 2018       Authors: Rafał Morek, Ph.D., Maria Kierska
In recent months, a number of judgments have been passed that change the previous line of case law and which grant contractors the opportunity to demand a judicial remuneration adjustment in the event of an extraordinary change of circumstances regarding the increase in prices of building materials and production costs.

The judgments concerned publically funded infrastructure contracts concluded with the General Directorate of National Roads and Motorways (GDDKiA) and performed at the beginning of the present decade. The contractors demanded an increase in the contractual remuneration, pointing to a steep increase in the prices of basic materials used in the construction works: fuel, asphalt and steel. The legal basis of the contractors' claims were to be found in the provisions of the Polish Civil Code - the general (Article 3571) and specific (Article 632 § 2) rebus sic stantibus clauses. The contracts based on the FIDIC Conditions of Contracts did not include a price adjustment clause, since the Sub-clause 13.8. was removed.

The following legal issues were disputed between the parties: (i) whether deleting the Sub-clause 13.8. of the FIDIC Conditions of Contracts affect the admissibility of a claim for judicial remuneration adjustment; (ii) whether the rebus sic stantibus clause may be applicable if the construction works have already been completed by the time the trial has ended (Article 316 § 1 of the Polish Code of Civil Procedure); (iii) whether the value of contractual remuneration (contract price) has any effect on assessment of the so-called gross loss.

The courts took the view that the exclusion of the price adjustment clause does not a limine preclude the judicial modification of the remuneration of the contractor based on the provisions of the Civil Code. The Contractor is entitled to demand an increase in remuneration if it proves that as a result of an extraordinary change in circumstances (i.e. sudden and unpredictable increase in market prices) further performance of the contract leads to a gross loss. Moreover, the mere fact that the contract was performed by the time the court trial has ended, cannot lead to dismissal of a claim, as long as the court proceedings had been commenced while the contractual works were still ongoing. Hence, the degree of contractual performance does not impede the validity of a claim. The judgments focus also on determination of the relation between the value of the contract, expected initial profit, increased costs of building materials, to determine the premise of gross loss. In the judgment of April 27, 2018, the District Court in Warsaw (XXV C 1697/12) reaffirmed the view that judicial valorization may concern contracts covered by the public procurement regime.

Significance for the Other Construction Contracts
In earlier case-law, apart from a few remarkable exceptions, the courts refused the judicial valorization of construction contracts. The recent change in the line of jurisprudence may bring significant benefits to contractors who are currently performing contracts that became “deficit” due to the increase in construction production costs. According to experts, the situation in the Polish construction industry in many ways resembles the conditions from 2010-2012. While it is vital to commence court proceedings before the completion of construction works, the valorization as such can occur regardless of the level of advancement of such works. Judicial valorization may in principle cover diverse types of construction contracts, i.e. providing for a lump sum payment as well as a priced bill of quantities (cost estimate remuneration), regardless of their value and the object of the construction.

Change in the Line of Jurisprudence on Judicial Valorization of Construction Contracts in Poland

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