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Construction Arbitration

Last verified on Friday 14th July 2017

Poland

Paweł Samborski and Piotr Bytnerowicz

    Legal system

  1. 1.

    Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

    1. Poland is a civil law jurisdiction. Most of the institutions of the Civil Code are modelled either on the German or French legal system, however, with many modifications. The sources of the Polish law system are the Constitution, statutes, ratified international treaties, regulations and acts of local law that are passed by local authorities and are binding only within certain territories. Poland is also bound by the European Union law. Constitution and statutes are passed by the Polish parliament consisting of two chambers. Regulations, which specify and enforce statutes, are adopted by governmental authorities, eg, ministers, on the basis of a detailed authorisation included in a statute. Constitution, statutes, ratified international treaties and regulations are published by the Prime Minister in the Journal of Laws. In general, laws in Poland may not be passed with retroactive effect; however, there are some exceptions to this rule.

    Contract formation

  2. 2.

    What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

    1. The formation of all civil contracts in Poland requires an intention of the parties to conclude a contract and their agreement as to all the material terms. An agreement may be reached by an offer (determining essential provisions of a contact) and acceptance. In case of construction contracts the essential provisions include, most importantly, the price and specification of the works. Generally, formation of construction contracts is subject to freedom of contract principle; however, there are certain limitations resulting from public procurement law and other mandatory regulations. According to the Civil Code, a construction contract should be concluded in writing. A construction contract concluded orally is valid, but there are limitations as to evidentiary proceedings concerning the scope of such a contract in case of a court dispute. What is more, all construction contracts falling under public procurement rules must be concluded in writing in order to be valid.

      The term “letter of intent” is not defined or used in the Civil Code. In most cases, such document is used to invite another party to negotiations or to establish some general rules of negotiations. However, if a letter of intent includes all the necessary provisions of a construction contract, it may be treated as an offer. If it is signed by the other party, it may be tantamount to an acceptance of an offer and, consequently, the formation of a contract.

      In most cases, a letter of intent may have legal effect with regard to the duty of good faith negotiations. The negotiating party infringing good customs (eg, stopping negotiations without a valid reason) may be held liable for the damage suffered by the other party as a result of counting on conclusion of the contract (culpa in contrahendo).

    Choice of laws, seat, arbitrator and language

  3. 3.

    Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

    1. The parties are generally free to choose the governing law of their contract; the law of the arbitration agreement; the seat of the arbitration; any arbitral rules; anyone with full legal capacity to act as arbitrator (except for state court judges) and the language of the contract and the arbitration, subject to few limitations.

      Generally, the principle of the freedom of contracts is limited by mandatory regulations, rules of fair dealing and the nature of an agreement. For example, in the case of contracts subject to the public procurement rules, the contracts must be concluded in Polish and be governed by Polish law. Moreover, in such cases, a call for a tender must be prepared in Polish. If an employer does not expressly state that an offer or certain documents included in an offer may be filed in a foreign language, the bidders have to file their offers and all the attached documents in Polish (or with a certified translation to Polish) under the pain of rejecting the offer.

      The parties may also include an arbitration clause in their contract concluded under the rules of public procurement. 

    Implied terms

  4. 4.

    How might terms be implied into construction contracts? What terms might be implied?

    1. According to the Civil Code, the terms of a contract are not limited to its express wording but shall also include rules stemming from statutory law, the principles of community life and established customs. The statutory provisions applicable to the construction contracts are the Civil Code rules concerning (i) construction contracts, (ii) some provisions on project contracts that are applicable mutatis mutandis to construction contracts and (iii) general rules, including a general duty of the parties to a contract to cooperate with each other. This rule is broad and may be used by a court or a tribunal to imply terms of a contract.

    Certifiers

  5. 5.

    When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

    1. There is no specific notion of a certifier under a construction contract in Polish law. As a result, there are no specific statutory provisions regulating certifier’s acts. However, the Act on Construction Law provides for an employer’s obligation to appoint a supervising inspector. The basis of the appointment is a contractual relationship. The basic scope of duties and powers of the supervision inspector is covered by the Act on Construction Law, but it can be modified by the parties in the agreement. The supervising inspector’s duties are aimed at both securing the interests of the employer and protecting the public interest and they include: (i) representing an employer by controlling compliance of the construction work with designs, regulations and technical knowledge, (ii) controlling quality of the work and (iii) taking over the work and confirming their completion and removal of all the defects. In order to fulfil those obligations, an inspector is entitled to issue instructions to the site manager, demand repairs or even order the work to be suspended if continuation could cause danger or lead to unacceptable nonconformity with designs or the building permit. Typically, there is no contractual relation between a contractor and the supervising inspector, who only enters into an agreement with an employer. Consequently, in most cases there is no contractual basis for a contractor to make a direct claim against the supervising inspector. However, the supervising inspector is obliged to act in compliance with the law, the principles of community life and the established customs (see question 4). For this reason, a contractor may theoretically bring direct claims against the Supervision Inspector based on, for example, tortious liability.

      Additionally, some obligations to supervise and certify the progress of the work are frequently carried out by an engineer, such as in FIDIC. Similarly, as in the case of a supervising inspector, typically there is no contractual relationship between a contractor and an engineer, who only enters into an agreement with an employer. Consequently, in most cases there is no contractual basis for a contractor to make a direct claim against an engineer. However, a contractor may theoretically bring direct claims against an engineer based on tortious liability.

      The parties to the construction project are generally bound by the instructions of the supervising inspector. In theory, the supervising inspector bears some resemblance to the engineer under FIDIC. Nevertheless, it cannot be seen as an impartial body as it owes its duties to the employer. On the other hand, the binding power of decisions issued by other contractual bodies (eg, by an engineer) will depend upon the wording of the contract. Since compulsory court execution of such decisions is very difficult (and time ineffective) those decisions might in practice sometimes be ignored and lead to disputes. In practice, the obligations of a supervising inspector and an engineer are often conducted by the same person.

    Competing causes of delay

  6. 6.

    If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

    1. There are no specific rules in Polish law relating to extension of time or concurrent delay. There also is also no established case law dealing with concurrent delay. The standard approach under Polish law is that liquidated damages are due only if the delay is culpable. On the other hand, unless the contract provides otherwise, the contractor can only claim costs of the prolonged performance of the contract from the employer if the prolongation was caused by the employer’s fault.

      Polish civil law also provides mechanisms allowing a decrease in the amount of liquidated damages if they were extensive, or to limit the employer’s liability for the costs of prolonged performance, if the prolongation was also caused by the contractor.

      Hence, if the contract does not provide for an extension of time mechanism but provides for liquidated damages for delay, the likely outcome in the described situation would be that the contractor would not pay liquidated damages for delay but would also not be able to claim the costs of the prolongation from the employer (or such claim could be significantly limited).

      If, on the other hand, the contract expressly provided for an extension of time in the event of a variation by the employer, the fact that the contractor was in culpable delay would most likely not deprive it of the right to have the time extended if a variation was introduced by the employer. However, its claim for costs could still be limited.

    Disruption

  7. 7.

    How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

    1. Polish law does not provide for any specific rules on disruption by an employer. In order to succeed with a disruption claim, a contractor must substantiate an adequate causal link between the employer’s actions and the disruption suffered. A contractor may resort to general rules for compensation for loss to address disruption claims. In such a case, a contractor is generally obliged to quantify the loss caused by the disruption. However, if the court decides that it is impossible or excessively difficult to substantiate the amount of a claim, the court may award an amount established by taking into consideration all the circumstances of a case. The same rule applies to arbitral proceedings.

    Acceleration

  8. 8.

    How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

    1. Under Polish law, there are no specific rules on claims for “constructive acceleration”. The contractors are generally free to choose particular methods of conducting works (subject to acceptance of an engineer, an employer or the authorities if applicable) so that the employer is not obliged to reimburse them for utilising more expensive methods. If, on the other hand, a contractor is able to substantiate that these expensive methods (which led to additional costs on behalf of the contractor) became necessary as a result of the employer’s actions in violation of the contract, namely by failing to grant the contractor an extension of time, it may claim such costs from the employer as a way of loss incurred as a result of the employer’s actions. To succeed, the contractor would need to prove that the employer was obliged to grant an extension of time, and that as a result of the employer’s failure to do so it was necessary to undertake “constructive acceleration measures” that led to the contractor’s loss.

    Force majeure and hardship

  9. 9.

    What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

    1. Polish law does not provide for a definition of force majeure nor does it give examples of its occurrence (but the Civil Code provides for the exclusion of liability in case of force majeure in some instances). However, it is generally agreed that events giving rise to force majeure are either (i) acts of nature, (ii) actions of human collectivity or (iii) actions of the authorities.

      Events constituting force majeure have to be (i) external to the parties, (ii) impossible to predict to the parties and (iii) of this kind that their results could not have been avoided. The courts tend to use an objective test of force majeure (ie, whether it was unpredictable for a reasonable man and beyond control of an average person (usually of a catastrophic nature)).

      According to the Polish Supreme Court, force majeure constitutes a limitation to liability based on risk (as opposed to an accident which generally excludes liability based on fault).  As it is an exception to the general rule of conducting the contract in compliance with its content, force majeure is generally interpreted narrowly by the courts and tribunals. The occurrence of force majeure generally excludes the liability of a contractor for the losses that were caused by force majeure event, provided that there is a causal link between force majeure and the loss and the contract does not stipulate otherwise. Acting within their freedom to contract, the parties are free to agree on specific examples of force majeure that shall give relief to the contractor, as well as the scope of any relief. They can limit and extend the liability of an employer for the occurrence of force majeure or even exclude it.

      The event giving rise to force majeure does not necessarily need to have a permanent effect.

      The force majeure event does need to make the obligation impossible to fulfil.

      Parties are free to agree on a relief available in case of a force majeure event. Unless the contract provided otherwise, force majeure does not give the right to automatic relief or termination of the contract. However, if the performance has become impossible due to force majeure, then a party is not liable for its own performance and is not entitled to claim performance from its counterparty. If only a part of performance is impossible, then this effect will apply only to that part. However, a party is entitled to terminate the contract if partial performance would not satisfy its interests due to the nature of the contract or the party’s purpose, provided that it was known to the other party.  

  10. 10.

    When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

    1. The Civil Code provides (1) a general provision concerning extraordinary change of circumstances as well as (2) a respective provision referring to project contracts, which is also applicable to construction contracts.

      Namely, (1) if, (i) owing to an extraordinary change of circumstances, the performance of an obligation (ii) would entail excessive difficulties or would threaten one of the parties with a glaring loss, (iii) which the parties did not predict at the moment of the conclusion of the contract, a court or a tribunal may, having weighed the parties' interests, determine the manner of the obligation's performance, the amount of remuneration or it may even terminate the contract.

      Moreover, with respect to contracts in which the parties agreed on lump-sum remuneration, the party accepting the order may not demand the increase in the remuneration even if it was impossible, at the time of concluding the contract, to fully predict the volume or the cost of the operations to be performed. However, (2) if as a result of (i) a change of the circumstances which (ii) might not have been predicted, (iii) the completion of the project would threaten the party accepting the order with a glaring loss, a court or a tribunal may increase the lump sum or terminate the contract.

      Both the above regulations concern unpredictable situations and they do not provide for an automatic relief but for a right of a party to request the court or a tribunal to determine the manner of the performance of the contract, increase the lump-sum remuneration or terminate the contract, respectively. These rules can be limited or even excluded by the agreement of the parties.

    Impossibility

  11. 11.

    When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

    1. If one of the obligations has become impossible to fulfil due to circumstances for which the obliged party is liable, the other party may, according to his own choice either demand the redress of the damage resulting from the non-performance of the obligation or terminate the contract. In case of such a partial impossibility to perform by one of the parties, the other party may terminate the contract if partial performance would not have significance for it given the nature of the obligation or due to the purpose of the contract intended by that party and known to the party, whose performance has become partially impossible. Therefore, if a contractor is liable for the fact that it cannot achieve a particular aspect of the contractual specification, an employer may only terminate the contract if the execution of the remaining part of the contract is of no significance to it. If impossibility concerns the entire contract, an employer may either claim compensation or terminate the contract. If, however, the contractor is not liable for partial impossibility, it is not entitled to the respective part of its remuneration. However, it may seek compensation from an employer under general conditions (ie, by proving an employer’s fault and a causal link between this fault and the loss that it suffered).

    Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  12. 12.

    How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

    1. In general, parties to construction contracts are free to determine the scope of contractual liability and to allocate certain risks between them, including the risks concerning unforeseeable conditions. There are only a few restrictions to that principle. First, a party cannot accept liability for deliberate actions of the other party. Second, any contractual provision must not be in contravention with the nature of the relation or the principles of community coexistence. Consequently, the contractual provisions passing the risks for (a) specified event of force majeure, (b) ground conditions that no reasonably diligent contractor could have foreseen and (c) errors in documents provided by the employer, upon the contractor may be effective and valid. However, in individual cases there could be doubts as to the effectiveness of a particular clause if it led to exceptionally wrongful situations. For example, in extreme situations it may be found that passing the risk to the contractor contravenes the nature of the contractual relationship or the principles of community coexistence. Also the risk for deliberate errors in the employer’s documents cannot be effectively passed to the contractor. 

    Duty to warn

  13. 13.

    When must the contractor warn the employer of an error in a design provided by the employer?

    1. Pursuant to the Civil Code, a contractor shall give notice to an employer immediately (ie, without undue delay) of such errors in design provided by an employer that do not allow for the works to be performed properly. If a contractor fails to give immediate notice about any errors, it is prevented from invoking the errors later on. On the other hand, a contractor is relieved from liability if it duly notifies an employer about the errors in a design but an employer still instructs a contractor to proceed in accordance with faulty design.

    Good faith

  14. 14.

    Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

    1. The duty of good faith is not explicitly expressed in Polish law. However, a similar concept stems from an obligation of parties to the contract to perform it according to its purpose, principles of community coexistence and customs. Misuse of any right (ie, performing it contrary to its social and economic purpose or to the principles of community coexistence) is not treated as a legitimate exercise of that right.

      The allowed level of employer’s intervention in the works, as well as party’s discretion whether to terminate or suspend the contract is limited by the above-mentioned obligation to perform the right according to its social and economic purpose or to the principles of community coexistence (ie, if abused, will not be regarded as effective). The employer’s discretion to claim liquidated damages for delay is also limited by the contractor’s right to demand a reduction in liquidated damages, if the works were performed in a significant part or if liquidated damages are grossly excessive.

    Time bars

  15. 15.

    How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

    1. This issue is discussed in detail in an article by White & Case authors on the effect of sub-clause 20.1 under Polish law (P. Bytnerowicz, M Kofluk, The Period for Giving Notice of Contractor’s Claims Set Out in Sub-Clause 20.1 of the FIDIC Conditions in Light of Polish Law, Arbitration e-Review 1(8)/2012).

      The general rules are that: (i) statutory prescription periods cannot be shortened or extended by contract; (ii) no additional time-bars limiting a party’s right to pursue a claim can be introduced by contract, unless specifically provided for by statute. Generally, the prescription period for claims between professionals under construction contracts is three years.

      Nevertheless, initially, the courts of first instance and some arbitral tribunals used to give effect to sub-clause 20.1 of FIDIC Red Book 1999 (ie, if a claim was brought after the deadline provided for in sub-clause 20.1, they considered that such claim had expired). However, this approach generally was not followed by the courts of higher instance and was criticised in legal literature on the subject. Currently the dominant approach is that the contractor’s failure to give notice of a claim within the deadline specified in sub-clause 20.1 does not deprive it of the right to pursue such claim. However, in practice, this approach may vary depending on the source of the contractor’s claim.

      Currently, the case law does not seem to differentiate the approach to claims based on matters that the employer caused and matters it did not and Polish civil law is silent in this respect. Also, as far as time bars such as those found in sub-clause 20.1 are concerned, there is no difference in approach to claims for extensions of time and relief from liquidated damages for delay or monetary sums. One issue worth noting is that in case of a default approach to liquidated damages for delay, the contractor can always (ie, with no time limit) defend itself against the employer’s claim by proving that the delay was not caused by the contractor’s fault.

    Suspension

  16. 16.

    What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

    1. There are two general rules in Polish Civil Code that allow one party to suspend its performance due to non-performance of the other party. First of all, if performances are to be made simultaneously (what is a general rule in Polish Civil Code), each of the parties may refrain from its performance, until the other party offers the reciprocal performance. Secondly, if one of the parties is obliged to render its performance earlier (in most cases it would be a contractor) and the other’s party performance is doubtful because of its financial situation (eg, payment of contractor’s remuneration by an employer is uncertain), the party obliged to perform earlier is allowed to suspend the performance until the other party offers reciprocal performance or provides a collateral.

      Moreover, under the public procurement law, in case of contracts concluded for terms longer than 12 months, which provide for partial payment of remuneration or for advance payments, the employer may pay the second and every next part of remuneration (or second and every next advance) to the contract only if the contractor provides evidence that it has already paid remuneration due to its subcontractors.

    Omissions and termination for convenience

  17. 17.

    May the employer exercise an express power to omit work; or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

    1. According to general rule, the employer is entitled to omit work, to terminate the contract at will or for convenience, as well as to give work to another contractor or to carry out the work itself provided that it pays the contractor its remuneration. It may, however, deduct costs that were saved by a contractor by not having to complete the remaining part of the works. The burden of proof as to the amount of such savings lies with the employer.

      Public procurement law limits the employer’s discretion in this respect. It provides that the employer may withdraw from the contract for public works in case of a material change of circumstances causing the execution of the agreement to be no longer in the public interest, what could not have been foreseen at the time of entering into the agreement or (ii) to endanger the interests of state security or public safety. In such case the contractor may demand remuneration due for the performed part of the procurement agreement only.

    Termination

  18. 18.

    What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

    1. There are both statutory and contractual termination rights in construction contracts. The parties may stipulate in a contract that one or both of them may terminate a contract in specified time. This right is not conditional upon breach of a contract by either party. If the parties fail to precisely specify time for termination, they are precluded from exercising this right.

      Additionally, the parties may stipulate a right to terminate the contract if the other party fails to perform (eg, each a milestone) the contract in a specified period of time. If a party validly exercises this right of termination, the contract shall be considered as not having been concluded. In such a case, what the parties have already performed shall be subject to return in an unchanged condition, unless the change was necessary. As a financial consequence, an adequate remuneration should be paid to the other party for the services provided and for the use of the subject of the works.

      The statutory rules for termination of a contract can be divided into three categories: termination rights granted to both parties, termination rights for an employer and termination rights for a contractor. Either party may terminate a construction contract if:

      1. the other party is in qualified delay with its obligations, subject to prior call for improvement within reasonable time (eg, if an employer did not grant the access to the construction site even after the call from the contractor); financial consequences of such termination include compensation paid by the party in delay for losses suffered by the other party; and
      2. an objective impossibility to perform was caused by the other party and that impossibility has not existed at a time when the contract was concluded; in such a case, however, a party can either terminate the contract or claim compensation.

      An employer may terminate a construction contract:

      1. when a contractor delays in the commencement or finishing the specific project to such an extent that it is not likely that he is able to complete it in the agreed time;
      2. when a contractor is performing the project in an inadequate manner or in a manner inconsistent with the contract and has failed to improve after a call for improvement by an employer; and
      3. at will or for convenience under the condition of payment of contractor’s remuneration, decreased by amounts that have been saved by the latter due to non-performance of the remaining works.

      A contractor may terminate a contract if an employer – after being called by a contractor – fails to deliver a guarantee of payment of remuneration for construction works.

      A construction contract may be terminated in part.

      If a party terminates the contract as a whole, both parties have to return what they performed and the party which is not to blame for the termination may seek compensation for damage resulted from the non-performance. However, a contract may also be terminated in part. In practice, construction contracts in Poland are usually terminated in that part, which remains unperformed. In principle, in such a case both parties are released from their mutual obligations and the party at fault for termination may be liable to redress any damage incurred by the other party.

  19. 19.

    If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

    1. If the contract does not explicitly state that the circumstances in which a party may terminate the contract are exhaustive, the parties may also resort to statutory grounds for termination (see questions 17 and 18). Even if the contract explicitly provides for an exhaustive list of circumstances allowing for termination, there may be doubts as to whether the parties would be entitled to exclude all statutory grounds for termination.

  20. 20.

    What limits apply to exercising termination rights?

    1. Termination of a contract by one of the parties may be dependent on the fulfilment of certain prerequisites. For example, before terminating a contract due to a contractor’s performance in an inadequate manner or in a manner inconsistent with the contract, an employer has to give notice to a contractor and give it a chance to improve. Before terminating the contract as a result of an employer’s failure to provide a guarantee of payment of remuneration, a contractor is obliged to give an employer a term of at least 45 days to deliver a guarantee.

      The right to terminate the contract is limited by the general rule obliging parties to perform the contract according to its social and economic purpose and to the principles of community coexistence (the principle that may be compared to the duty of good faith). Thus, in case of a termination made contrary to these principles, such termination may be found to amount to an abuse of rights (ie, be ineffective).

    Completion

  21. 21.

    Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

    1. This issue is not regulated by statutory law. However, the courts or tribunals may find that the employer’s actions (eg, payment of full remuneration or taking beneficial possession of the works and using them) amount to an implied acceptance of works. Taking-over of the works is an obligation of an employer under Polish law. Consequently, some courts support the view that the works may be deemed completed if they are de facto finished, regardless of what the contract says (eg, even if there is no formal acceptance of the works by the employer). Completion of works, however, is not always tantamount to completion of the contract. The Supreme Court has stated that the taking-over of the works by an employer is not tantamount to the acceptance of the completion of works as the contractor may still be obliged to remove defects (even after having received remuneration).

  22. 22.

    Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

    1. According to Polish law, the contractor is liable for defects of the performed works (warranty for defects). In order to be entitled to make a complaint under the warranty, an employer has to examine the works at a time and in a manner customary for the construction contracts and immediately notify the contractor of the identified defect. If the defect was only subsequently disclosed, the employer has to notify the contractor immediately after discovering such defect. If the contractor was aware of the existing defect but conceded it or assured the employer that there were no defects, the above time limits do not apply. However, the parties are free to modify the rules concerning a contractor’s liability on account of warranty for defects. Therefore, the wording and interpretation of the contract will determine if an employer is barred from making future claims after the acceptance of works. Thus, the right to make a complaint is dependent on the customary or contractual rules for taking over and acceptance of the works.

      An acceptance of works is usually subject to signing a taking over protocol. There are usually two steps of taking-over of works by an employer: (i) takeover, when a contractor hands the works over to an employer and an employer points out what defects need to be removed by a contractor. This takeover usually commences the period of warranty (and guarantee if applicable) for defects by a contractor. Then (ii) after the removal of the defects by a contractor, an employer certifies that works were performed to its satisfaction. 

    Liquidated damages and similar pre-agreed sums ('liquidated damages')

  23. 23.

    To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

    1. Liquidated damages are generally treated as an exhaustive remedy for all of the employer’s losses due to delays. Such claims are not dependent on the actual loss suffered by an employer. Consequently, an employer does not have to prove the amount of loss suffered. Seeking compensation exceeding the amount of liquidated damages is admissible only if the parties have expressly stated so in the contract. The parties may make the amount of liquidated damages dependent on the kind of breach made by a party or a degree of its fault. The latest jurisprudence holds that claims for liquidated damages may only be made for breaches that lay within a contractor’s scope of liability. In other words, an employer cannot claim liquidated damages for delays that were not caused or contributed to by a contractor (eg, liquidated damages may be claimed for qualified delay and not for a delay caused by external factors, such as a natural disaster or lack of cooperation of an employer).

      According to Polish Civil Code, exclusion of liability for a damage caused by an intentional act is invalid. Thus, if a critical delay is caused by the contractor’s fraud or wilful misconduct (recklessness or gross negligence are not intentional acts in the meaning of that rule), the limitation of compensation to the amount of liquidated damages does not apply, even if seeking compensation exceeding the liquidated damages was not permitted in the contract. The burden of proof that the loss was suffered due to intentional behaviour of the other party is on the injured party. 

  24. 24.

    If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

    1. As discussed in the answer to question 6, generally, delay damages are deemed to be due if the delay was caused by the contractor’s fault (ie, for contractor’s culpable delay). The approach under Polish civil law also is that liability for one party’s wilful actions cannot be transferred to the other party. Therefore, although extending the contractor’s liability for liquidated damages for some situations beyond its control may be possible, liquidated damages cannot be effectively provided for events of delay caused by the employer’s wilful actions. Moreover, an employer’s claim for delay damages in a situation of a delay that the employer caused itself could be regarded as an abuse of rights.

  25. 25.

    When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

    1. A court or an arbitral tribunal may award less than the liquidated damages specified in the contract when a party in breach has performed a substantial part of its obligation or where liquidated damages are grossly excessive (eg, when a creditor has suffered no or little loss). In these cases a debtor may demand a reduction in liquidated damages. An arbitral tribunal may also reduce liquidated damages due to reasons of equity if the parties explicitly agree for the tribunal to apply them. 

  26. 26.

    When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

    1. A court or arbitral tribunal may award more than the liquidated damages specified in the contract only if the parties have stipulated in the contract that it shall be permissible to demand damages exceeding the amount of liquidated damages. The amount of damages exceeding liquidated damages provided for in the contract needs to be proven by the claiming party.

    Assessing damages and limitations and exclusions of liability

  27. 27.

    How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

    1. According to Polish Civil Code, the compensation (redress of damage) involves losses that the injured party has suffered as well as profits that it could have obtained if no damage was suffered. The party causing damage is obliged to compensate only ordinary effects of an action or omission from which the damage resulted. Thus, if the lost profits are exceptionally high (and not a normal consequence of the contractor’s act or omission) the contractor will not be liable for such an abnormal scope of damage.

  28. 28.

    If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

    1. The contractor may refuse to remove the defects of the performed works only if the rectification costs exceed the contractor’s remuneration. The parties are also free (subject to principles of community coexistence) to modify the rules of warranty for defects in both ways – by making it more strict as well as more lenient.

  29. 29.

    If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

    1. Generally, according to Polish Civil Code, the contractor is liable for defects of the performed works if those defects are detected before the lapse of two years from the date of taking over the works. This term is longer in case of construction works: five years. After the lapse of those periods the employer is barred from making any warranty claims, unless it is able to substantiate that the defects were deceitfully hidden by the contractor. Moreover, if the employer detects any defects it has one year to demand their repair or exchange of a defective object. 

  30. 30.

    What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

    1. The parties to a construction contract are free to modify statutory rules concerning liability. In Polish law there is no explicit distinction between direct and indirect or consequential loss, although it is recognised in the jurisprudence. A contractual clause excluding liability for such losses should generally be deemed effective.

  31. 31.

    Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

    1. Under Polish law the parties are generally free to modify the scope of liability. However, the parties cannot exclude liability to the extent that damage is caused by deliberate actions (wilful misconduct). Moreover, the parties cannot exclude certain types of tortious liability, such as a tortious risk-based liability for the damages caused by an operation of an enterprise powered by the forces of nature (steam, gas, electricity, liquid fuels, etc). Construction companies are regarded as such enterprises powered by the forces of nature.

      Under Polish law, the default test of causation is the “adequate causal link”, which means that a party can be liable only for a loss that is a normal consequence of its actions or failure to act.

    Liens

  32. 32.

    What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

    1. The contractor does not have a lien over work carried out, unless stipulated otherwise in the contract. However, if the contractor has a monetary claim against the employer that is or is going to be pursued in the court or before an arbitration tribunal, the contractor may obtain an interim order securing that claim. Security may be granted in the form of attachment of moveable property, money in a bank account or other amounts due or property rights. The contractor may also demand establishing mortgage over the employer’s immoveable property (eg, the construction site). Interim order will be granted if the contractor substantiates its claim and legal interest in the security. Legal interest exists when the lack of security would prevent or significantly hinder the enforcement of a ruling or otherwise prevent or seriously hinder satisfying the purpose of proceedings in a given case. 

    Subcontractors

  33. 33.

    How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

    1. Polish civil law and public procurement law protect subcontractors. In principle, the employer and main contractor are jointly and severally liable for the payment of remuneration for the construction works performed by the subcontractor. Also, in most situations employer’s payments to the general contractor under the public contract can be made only after subcontractors’ due claims are satisfied by the general contractor. Hence, generally, pay-when-paid clauses in subcontracts would be ineffective. 

  34. 34.

    May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

    1. A subcontractor performing construction works may claim against the employer for its remuneration from the contractor in both private and public contracts, under the conditions that (i) the scope of works to be performed by this subcontractor was notified to the employer before the subcontractor commenced the works and (ii) that the employer does not object within 30 days after receiving the notification. The employer is liable up to the amount of remuneration specified in the sub-contract, unless this amount exceeds the amount of remuneration due to the main contractor for the given scope of works. In such case the employer’s liability is limited to the amount due for the given scope of works to the main contractor.

      In case of public contracts, the contractor is obliged to provide the employer with a draft subcontract for its acceptance. Lack of the employer’s comments within a deadline specified in the main contract is deemed as employer’s acceptance for the subcontract. In public contracts the employers liability extends also to supply and services subcontracts notified to the employer.

      In public contracts, the employer is obliged to consider the contractor’s written comments regarding the validity of subcontractor’s claim for payment. If the claim occurs to be groundless the employer may refrain from the direct payment of subcontractor’s remuneration. The employer may also put the money to the court deposit if there are doubts as to the validity of the claim. In all contracts the employer may base its defence on the fact that the subcontractor’s scope of works is defective or not complete or the amount of the claimed remuneration is incorrect (eg, not inaccordance with the contract).

      If the construction contract is governed by public procurement law, the parties cannot choose a foreign law as the governing law.

  35. 35.

    May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

    1. The answer to this question depends on whether the employer decides to sue the general contractor (who signed the arbitration clause) or directly the subcontractor (not being a party to the arbitration clause). Generally, assuming a standard wording of arbitration clause (alike the ICC standard clause), if the employer brings the matter against the general contractor, the latter could not question the arbitral tribunal’s jurisdiction (as the dispute would result “out of or in connection with” the contract). Therefore the matter should be resolved in arbitration. Depending on the applicable arbitration rules, the subcontractor might be joined to the arbitration proceedings on certain conditions (eg, current arbitration rules of the two main arbitration institutions in Poland contain provisions on joinder of additional parties).

      If the employer decided to pursue its claim directly against the subcontractor (eg, on the basis of a quality guarantee transferred to the employer), generally such matter should be brought to a state court and the general contractor could join the proceedings as an additional party.

      Polish jurisprudence and legal doctrine favours a broad interpretation of arbitration clauses. Therefore a scope of an arbitration agreement can often go beyond its literal wording. For example, an arbitration clause included in the a framework agreement may extend to subsequent agreements. It may also be possible to widen the scope of arbitration clauses in the case of a group of contracts that constitute an integral, economic whole. However, such situations of extending the scope of an arbitration clause apply to the parties to that clause. Extending an arbitration clause to a third party is not that likely. Since arbitration is voluntary, there is no possibility of forcing a third party to participate in arbitration proceedings without its consent. Having said that, in theory one may imagine a situation in which the employer had good arguments to convince the tribunal that the subcontractor is also bound by the arbitration agreement (eg, if the subcontract contained sufficiently detailed reference to the main contract and the subcontractor was familiar with the arbitration clause in the main contract, which might allow the employer to argue that the subcontractor must have accepted to be bound by the arbitration clause). However, so far there is no precedent to that effect.

    Third parties

  36. 36.

    May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

    1. Third parties can raise contractual claims against the contractor only in rare situations. Generally, that would be possible if the contract explicitly provides for performance for the benefit of a third party. 

  37. 37.

    How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

    1. Generally, the contractor bears full liability for actions or omissions of its affiliates, directors or employees and other people, with whose help the contractor performs its own obligation. There is no contractual relation between those people and the other party. Consequently, these people could face claims in respect of delays, defects and payment only based on tortious liability. In such a case, the other party would have to prove that it incurred a loss as a result of their illegal and faulty actions. In practice, as far as their actions reflect conduct within the scope of the contract, the courts would be unwilling to find them liable in tort; rather, they would regard the matter as a breach of contract by the contractor itself.

    Limitation and prescription periods

  38. 38.

    What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

    1. Generally, a claim for a breach of contract must be brought within three years of the date of the breach (10 years in case of claims not related to one’s professional activities). The parties are not allowed to modify the prescription periods. The interruption of the period of limitation takes place in certain cases which are enlisted in the Polish civil law, such as: (i) summons to a court settlement, (ii) acknowledgement of the claim, (iii) commencement of mediation, (iv) filing of statement of a claim or (v) any act before a court, a body established with the purpose to hear cases or enforce claims of certain kind or an arbitration court, which was undertaken directly in order to pursue, establish, secure or enforce claims. Apart from that, the period of limitation is subject to suspension in specific situations, in particular when a party cannot pursue its claims before a court or other body due to force majeure.

      As regards limitation periods relating to claims for defects made under the warranty provisions of the Polish Civil Code, see questions 22 and 29.

    Other key laws

  39. 39.

    What laws apply which cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

    1. Although Polish law reflects the principle of freedom of contract, there are some provisions which cannot be modified, eg, certain provisions on termination of the contract (eg, contractor’s right to terminate if the employer does not provide a payment guarantee in a specified deadline), prescription periods which cannot be prolonged or shortened and the scope of liability which cannot exclude the liability for damage, which was caused intentionally. Moreover: (i) the contractor’s right to demand a payment guarantee from the employer and (ii) the joint and several liability of the employer and the general contractor for payment to the subcontractors cannot be excluded by contract.

      Additionally, certain termination rights may prove ineffective under Polish law. In particular: the Polish Bankruptcy Law provides that clauses that provide for the termination of a contract in case of a declaration of bankruptcy are void (hence the termination right provided for in sub-clause 15.(e) may be found void.

  40. 40.

    What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

    1. There are no obvious provisions that would substitute, say, particular clauses of the FIDIC Silver Book 1999. What needs to be taken into account is that in case of construction projects conducted in Poland, notwithstanding what is the law governing the construction contract, Polish law would govern the liability for certain cases of damage caused during the construction process. Moreover, Polish Act on Construction Law would apply to all the formal (administrative) aspects relating to the construction. Also the Polish Criminal Law would apply irrespective of the law governing the contract.

      Apart from that, there are no specific provisions of Polish law that would definitely have to apply to construction contracts under foreign law. Generally, at the stage of enforcement of foreign judgments or awards, it is possible that certain provisions of foreign law would be found ineffective, if they are found to be contrary to the Polish public policy clause or overriding mandatory principles. These are general clauses and their scope is determined on a case-by-case basis. For example, the courts found that the US provisions on punitive damages are not in compliance with the principles of liability under Polish law and, in effect, were substituted by the Polish provisions on compensation. This is coherent with the Rome I Regulation, under which the choice of law cannot restrict the application of overriding mandatory provisions of a member state of the European Union.

      Moreover, notably, according to the Polish Bankruptcy Law, if on the day of declaration of bankruptcy arbitration proceedings involving the bankrupt party were not initiated yet, the official receiver may – at the bankruptcy court’s permission – terminate the arbitration agreement if pursuing claims in arbitration would hinder the bankruptcy procedure. This provision would apply to all parties subject to the Polish Bankruptcy Law, irrespective of the law governing the contract or the arbitration clause.

    Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  41. 41.

    For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

    1. The contractor could try to obtain a partial award in arbitration, subject to arbitration rules or other procedural agreement between the parties. The court could issue injunctive relief, but that generally could not be in the form of payment, as in principle injunctive relief may not lead to satisfaction of the claim (subject to a very limited exception). 

    Courts and arbitral tribunals

  42. 42.

    Does your jurisdiction have courts or judges specialising in construction and arbitration?

    1. Generally, in Poland there are no courts or judges specialising in construction or arbitration. However, district and regional courts in Poland have commercial divisions that are intended to recognise commercial matters including construction disputes. Moreover, the 25th Civil Division of the District Court in Warsaw is competent for disputes involving the General Directorate for National Roads and Motorways (GDDKiA). Given the significant number of such disputes, some of the judges of the 25th Civil Division of the District Court in Warsaw are more exposed to large construction disputes.

  43. 43.

    What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

    1. In Poland, there is a two-instance judicial system. The decision of a court of the second instance is final and binding. However, there is recourse to the Supreme Court, but only on limited grounds (and it is up to the Supreme Court to decide whether to accept such recourse). There are four levels of civil courts: district courts, regional courts, appellate courts and the Supreme Court. If the amount in dispute in a construction matter is higher than 75,000 zloty, it is heard in the first instance by the regional court. Otherwise, the case is dealt with by a district court.

      Cases concerning recognition and confirmation of the enforcement of an arbitration award, as well as the setting-aside motions are heard by the courts of appeals.

      Most judgments of the Supreme Court and the appellate courts are published in Internet newsletters and legal periodicals. Additionally, some Supreme Court decisions are published in official publications of the Supreme Court.

      In Poland, there is generally no doctrine of a binding precedent. However, it applies in the sense that most courts follow rooted Supreme Court’s opinions expressed in its jurisprudence. Moreover, certain resolutions of the Supreme Court, specified in the statute, have the power of legal principle, which means that a lower court hearing a similar matter should follow principles established in such ruling. 

  44. 44.

    In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

    1. Even though Polish civil proceedings are adversarial, the court is permitted to introduce evidence that was not provided by the parties (ex officio). The court’s role is to organise and lead the proceedings in order to establish the material truth, thus it is permitted to ask parties to provide explanations or more details on certain issues. Nevertheless, the court is not supposed to directly express its views or give preliminary indications on the merits of the case before the final judgment is delivered. One exception is a preliminary judgment as to the principle issued before the proceedings enter into the quantum phase. Similarly, the court is not supposed to help the parties by indicating to them relevant legal issues. However, the court can rule on a different legal basis than the ones mentioned by the claimant on the condition that it was provided with all the factual circumstances that led to such a ruling.

      Arbitral proceedings are far more flexible than the court proceedings. It means that absent an agreement by the parties, the arbitral tribunal conducts the proceedings as it finds appropriate.   There are, however, some rules limiting the freedom of arbitrators to form the procedure and express their views on the merits of the case, like the principle of equal treatment of the parties, principle of independency, principle of neutrality towards the parties. There is no specific regulation prohibiting arbitrators from raising relevant issues with the parties and rule on different legal basis than the original claim, but in practice it is rather uncommon. 

  45. 45.

    If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

    1. Polish arbitration law is based on the UNCITRAL Model Law 1985. If there is an arbitration clause between the parties and one party brings a case to a state court, the court is obliged to reject the case if the opposing party evokes the arbitration clause. Hence, the court will not reject jurisdiction if it is not questioned by the opposing party before getting into the dispute on the merits. Therefore, in the described situation, the employer generally cannot bring a case on the merits to a state court (notwithstanding whether there are any preconditions to arbitration and if they were fulfilled). 

      However, the existence of a valid arbitration clause does not deprive the parties of the right to seek the court’s interim assistance (eg, securing evidence or granting an interim injunction). Therefore, the employer could, for example:

      • apply to a state court for securing evidence (eg, by ordering a court-appointed expert opinion regarding the quality of work, if it is not possible to obtain such opinion later as, say, the work will be covered); or
      • apply for an interim injunction.
  46. 46.

    If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

    1. According to the Polish arbitration law (based on the UNCITRAL Model Law), an arbitration agreement does not deprive the parties of the right to apply to a Polish court for interim relief. Therefore, applying to a Polish court for interim or provisional relief to a Polish court does not affect the party’s right to arbitrate. Generally, the situation should not be different if one applies to a foreign court for interim or provisional relief, unless the character of a relief requested before a foreign court would be such as to allow the employer to argue that the contractor itself did not regard the arbitration clause as valid or binding.

    Expert witnesses

  47. 47.

    In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

    1. Experts can be appointed either by the tribunal or by the parties, including two possible situations in which  each party appoints its own expert and both parties appoint an expert. In general, the duty of the experts depends on who made the appointment. The experts appointed by the tribunal should be deemed to owe their duties both to the tribunal and the parties. The situation is different when it comes to party-appointed experts. In principle, they should be deemed to owe their duties to the appointing party, unless the terms of experts’ engagement provide otherwise. More and more frequently the tribunals’ procedural orders require for the terms of engagement of party-appointed experts to provide for the expert’s duty towards the tribunal. 

       

    State entities

  48. 48.

    Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer)?

    1. Differences and limitations with regard to construction contracts stem from the public procurement rules which apply to the State Treasury represented by various types of public units, state-owned entities, etc. For example, construction contracts concluded under the Public Procurement Law protect sub-contractors as contractor’s payments are dependent on the previous satisfaction of sub-contractors’ due claims. Also, a state entity may withdraw from the agreement in case of a material change of circumstances causing the execution of the agreement to be no longer in the public interest what could not have been foreseen at the time of entering into the agreement or (ii) to endanger the interests of state security or public safety (see answer to question 17). In such a case, the contractor may demand only remuneration due for the performed part of the agreement. Additionally, under the Public Procurement Law a state entity has a statutory right to demand from a contractor a performance bond in order to secure its possible (i) claims for payment, (ii) claims for damages resulting from non-execution or improper execution of the contract, (iii) claims for contractual penalties or (iv) claims under statutory warranty for defects. An employer also has a statutory right to limit the contractor’s right to subcontract by obliging the contractor to personal performance of the agreement with regard to its crucial parts. Last but not least, in principle under the Public Procurement Law substantial changes to the contract are prohibited. There are also some restrictions regarding state entities in the civil procedure. For example, it is impossible to obtain immediate enforcement of the judgment in cases against the State Treasury (immediate enforcement empowers the winning party to enforce the award before the decision is final and binding). Moreover, security of monetary claims against the State Treasury is not admissible, as the State Treasury is deemed to be always solvent. There are also some differences with regard to the execution of claims against the State Treasury. With regard to arbitration, there are no specific limitations or differences.

    Settlement offers

  49. 49.

    If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

    1. There is no explicit basis for making a sealed offer. Generally, settlement offers can be made at any time. If a party made a settlement offer reserving that it shall remain confidential until the costs are decided, the other party should not disclose it. However, there are no explicit rules that would oblige the tribunal to attach any particular meaning to a sealed offer once deciding on the costs of arbitration. The tribunal may take it into account based on the general authority to decide on the costs taking into account the outcome of the case and other relevant circumstances (as provided by the current arbitration rules of the two main Polish arbitration institutions).

    Privilege

  50. 50.

    Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

    1. If the parties are negotiating in order to settle the dispute and one of them reserves that certain information provided in the course of negotiations is confidential, such information may not be disclosed by the other party. If the duty of confidentiality is breached, the breaching party is liable for damage it caused. It is also possible to agree that the party disclosing confidential information is obliged to pay a sum of money to the other party. Additionally, it is always possible to conclude a confidentiality agreement between the parties. With regard to professional legal counsel (ie, advocates or legal advisers) taking part in the settlement negotiations, they are bound by the prerequisite of professional confidentiality. Counsel participating in the negotiations are not allowed to disclose any information about them, even before the court. 

  51. 51.

    Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

    1. The answer to that question depends on whether an in-house lawyer is a professional legal counsel (ie, advocate or legal adviser). Under Polish law, communications with advocate and legal advisor are privileged from disclosure with the exception that in some cases the court may release advocate or legal advisor form the obligation to keep the professional secret. In general, the respective rules stem from a substantive law – Law on Advocates and Law on Legal Advisors. Nevertheless, there are also some specific regulations regarding the possibility of hearing a professional legal counsel as a witness in procedural law, both civil and penal. There are no such rules regarding lawyers not admitted to the Polish advocates’ or legal advisers’ bar associations. As a result, the advice of a non-professional legal counsel is not legally privileged from disclosure.

    Guarantees

  52. 52.

    What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

    1. There is no thorough regulation of guarantees and guarantee contracts under Polish law. Guarantees and guarantee obligations can take different forms. Guarantees may be realised by way of various legal means (having different specific requirements). Firstly, parties to a contract may include a reservation by which one party (guarantor, eg, contractor’s parent company) promises to the other (employer) that a third party (contractor) will make a specific performance. By doing so, the guarantor is liable for any damage suffered by the employer. With regard to the form, there are no specific prerequisites, thus even an oral reservation would be effective (but difficult to be proven).

      There is also an institution of a suretyship contract by which the surety commits to the creditor to perform an obligation in case the debtor’s failure to do so. In such a case, the surety’s declaration has to be made in writing on the pain of invalidity.

      Apart from that, the Banking Law Act regulates the institution of a bank guarantee, which is a contract between a bank and the guarantee beneficiary, which serves as an execution of the bank’s obligation resulting from another contract with the guarantee’s principal. In this case, the guarantee contract must be confirmed in writing, otherwise it will be invalid. The material requirement of the bank guarantee is a unilateral commitment of the bank as a guarantor that, upon the fulfilment of the specific conditions, the bank will make a payment to the beneficiary of the guarantee.

      Moreover, within the principle of freedom of contracts under the Polish law, market practice created other guarantee instruments, such as insurance guarantees or parent company guarantees.

  53. 53.

    Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

    1. As specified in the answer to question 52, the answer may depend on the kind of a guarantee in question. With regard to a contract on third-party performance, the scope of the responsibility covers not only the mere performance of the obligation in general, but also the certain quality of such performance. It can be, however, either limited or expanded by the parties’ agreement. In the case of a suretyship contract, in principle the scope of surety’s liability reflects the scope of obligations of the main debtor and cannot be wider. Nevertheless, the scope of surety’s liability may be regulated in a different way in the surety’s contract. With regard to bank guarantees, in Poland they are generally considered to be abstract in nature, which means that they are independent from the underlying contract between the obligor and the beneficiary. Thus, normally guarantor’s liability is not limited – if the conditions stipulated in the agreement are met, the guarantor is obliged to pay the agreed amount. However, the parties to the guarantee agreement may limit guarantor’s liability, for example, by reference to the provisions of a construction contract. 

  54. 54.

    Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

    1. Following the remarks regarding questions 52 and 53, the circumstances allowing for a release from liability depend on the (i) the type of the guarantee and (ii) respective contract provisions. There are certain situations, independent from the agreement, in which the guarantor will be released from liability, for example, (i) when from the beginning the obligation of the third party was impossible to be performed, or (ii) if a creditor did not incur any loss related to the non-performance or improper performance of the third party. In case of a surety’s liability, in principle it expires following the expiration of the main obligation, particularly if the due performance was made. There are also some situations when the surety will be released from liability (eg, when from the beginning the obligation was impossible to be performed). 

    On-demand bonds

  55. 55.

    If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

    1. Generally, if a demand is made, the obligor may challenge such demand by means of a motion for an injunctive relief and a subsequent lawsuit. However, the restrictive nature of this kind of guarantee allows basing the claim mainly on the allegation of abuse of the right to demand payment. Such situation may occur when the beneficiary realises demand under the bond although it clearly has no material rights to use it. 

  56. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

    1. The court or tribunal would most likely restrain a call when the employer has no entitlement in principle. If the employer has an entitlement in principle, but not for the amount of the call, there is a possibility of the court/tribunal restraining it if the demanded amount is proven to be excessive. 

    Further considerations

  57. 57.

    Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?

    1. One of the most important aspects of the law related to construction contracts is that an employer and a contractor bear joint and several liability for remuneration of the contractor’s subcontractors.

      Moreover, a contractor may demand that an employer provide a guarantee of payment of remuneration. Failure by an employer to provide a guarantee constitutes a valid ground for termination of the contract due to the employer’s fault. 

Interested in contributing to this Know-how?

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GAR know-how provides reliable cross-jurisdictional insight to help cement the building blocks of international practice. In this section, select experienced practitioners answer commonly asked questions for key jurisdictions so allowing readers to be better-placed to solve the challenges of their working days.

Questions

    Legal system

  1. 1.

    Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?


  2. Contract formation

  3. 2.

    What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?


  4. Choice of laws, seat, arbitrator and language

  5. 3.

    Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?


  6. Implied terms

  7. 4.

    How might terms be implied into construction contracts? What terms might be implied?


  8. Certifiers

  9. 5.

    When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?


  10. Competing causes of delay

  11. 6.

    If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?


  12. Disruption

  13. 7.

    How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?


  14. Acceleration

  15. 8.

    How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?


  16. Force majeure and hardship

  17. 9.

    What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?


  18. 10.

    When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?


  19. Impossibility

  20. 11.

    When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?


  21. Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  22. 12.

    How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?


  23. Duty to warn

  24. 13.

    When must the contractor warn the employer of an error in a design provided by the employer?


  25. Good faith

  26. 14.

    Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?


  27. Time bars

  28. 15.

    How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?


  29. Suspension

  30. 16.

    What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?


  31. Omissions and termination for convenience

  32. 17.

    May the employer exercise an express power to omit work; or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?


  33. Termination

  34. 18.

    What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?


  35. 19.

    If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?


  36. 20.

    What limits apply to exercising termination rights?


  37. Completion

  38. 21.

    Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?


  39. 22.

    Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?


  40. Liquidated damages and similar pre-agreed sums ('liquidated damages')

  41. 23.

    To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?


  42. 24.

    If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?


  43. 25.

    When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?


  44. 26.

    When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?


  45. Assessing damages and limitations and exclusions of liability

  46. 27.

    How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?


  47. 28.

    If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?


  48. 29.

    If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?


  49. 30.

    What is the effect of a construction contract excluding liability for “indirect or consequential loss”?


  50. 31.

    Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?


  51. Liens

  52. 32.

    What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?


  53. Subcontractors

  54. 33.

    How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?


  55. 34.

    May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?


  56. 35.

    May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?


  57. Third parties

  58. 36.

    May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?


  59. 37.

    How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?


  60. Limitation and prescription periods

  61. 38.

    What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?


  62. Other key laws

  63. 39.

    What laws apply which cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?


  64. 40.

    What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?


  65. Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  66. 41.

    For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?


  67. Courts and arbitral tribunals

  68. 42.

    Does your jurisdiction have courts or judges specialising in construction and arbitration?


  69. 43.

    What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?


  70. 44.

    In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?


  71. 45.

    If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?


  72. 46.

    If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?


  73. Expert witnesses

  74. 47.

    In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?


  75. State entities

  76. 48.

    Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer)?


  77. Settlement offers

  78. 49.

    If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?


  79. Privilege

  80. 50.

    Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?


  81. 51.

    Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?


  82. Guarantees

  83. 52.

    What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?


  84. 53.

    Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?


  85. 54.

    Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?


  86. On-demand bonds

  87. 55.

    If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.


  88. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?


  89. Further considerations

  90. 57.

    Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?