Contractual exclusion of revaluation. Contractual freedom versus the protection of Contractors’ legitimate interests.

In the event of serious economic turmoil, Contractors of building and construction works may expect their remuneration to be adjusted on the basis of so-called rebus sic stantibus clauses (Articles 357¹ and 632.2 of the Polish Civil Code – hereinafter “RSS clauses”). In recent years, the provisions have been particularly relevant given the increases in prices of raw materials and overall costs of construction works due to the COVID-19 pandemic and the war in Ukraine.

But what if the contract explicitly excludes the possibility of revaluation? Is contractual exclusion of RSS clauses legally viable?

The existing case law seems to lean towards prioritizing freedom of contract in this context (e.g. Judgment of the Supreme Court of 18 September 2013, V CSK 436/12). It follows that acting within the limits of their freedom of contract, parties may exclude RSS clauses.

However, contractual exclusion of revaluation does not necessarily rule out the possibility of remuneration adjustment. In particular, arguments evoking protection of the parties’ legitimate interests may outweigh the principle of freedom of contract that underlies the admissibility of such exclusion.

Firstly – the protective function of rebus sic stantibus clauses must be considered.

RSS clauses aim to protect business counterparties by seeking to promote contractual balance in the midst of severe economic turmoil. As such, RSS clauses contribute to the security of trade. They provide a “safety net” for Counterparties to fall back on when other legal mechanisms fail to maintain contractual balance. The admissibility of contractual limitations to such provisions stands in direct contradiction to this function.

Secondly – the principle of pacta sunt servanda (agreements must be kept) comes into play.

The understanding that agreements must be kept is fundamental to diplomacy and business alike. At the same time, however, changing economic conditions under which a contract is to be performed undeniably affect specific obligations binding on the Counterparties. When circumstances change, so does the character of the agreement. Therefore, it is necessary to adapt contractual provisions to new economic conditions, so that they correspond to the original allocation of obligations agreed upon by the Contractors.

Given the above, it is reasonable to assume that freedom of contract cannot go as far as to violate the fundamental provisions of RSS clauses. Thus, even if the contract explicitly provides for the exclusion of RSS clauses, it may be possible to construe such a provision as contrary to the law, and therefore null and void (Article 58.1 of the Polish Civil Code).

The implication here is that the mere inclusion of the provision that “remuneration shall not be subject to adjustment/revaluation” in the text of the contract does not necessarily mean that the Contractor must unilaterally bear all the contractual burdens resulting from economic turmoil. Indeed, one could viably argue invalidity of the contractual provision as such.

In addition, it may be worth considering whether Parties to an agreement have the right to amend RSS clauses by softening the conditions of their applicability, e.g. by replacing the threat of sustaining a “gross loss” with the premise of a regular loss.

For the reasons discussed above (the protective function and the principle of pacta sunt servanda),  such a modification should be admissible. This is because, in principle, easing the application of RSS clauses further enhances said protective function and the principle of pacta sunt servanda.

Notably, for the statutory RSS clauses to be applicable (Articles 357¹ and 632. 2 of the Polish Civil Code), narrowly defined circumstances specified in the relevant provisions thereof must be shown to exist. One should bear in mind that RSS clauses are, by their very nature, emergency legal instruments. As such, their applicability must be duly justified on a case-by-case basis if one expects to convince the Counterparty (or the court) that the revaluation of remuneration sought is indeed justified.