How to divorce in business?

When people set up a company together they are full of positive plans; it’s all about sharing future profit and about building a business. Those who are prudent have a lawyer draw up articles of association and often in addition to that
a joint venture agreement.

The lawyer will talk about selling the company, about winding the company down, about Russian roulette, about arbitration and courts. This is often difficult to understand for the parties. Unfortunately, real life is different. Research shows that roughly 70% of all joint ventures fail. One of the most common causes is ‘cultural differences’, and the fact that times simply change. When a company starts selling its products in a new unknown market, working with an agent who is very knowledgeable about the local market can be a solution. A few years later that person may become more of a burden. You (sub)lease part of your office space, but then business picks up and you need the space for yourself.
What we lawyers try to do when drafting contracts is to predict the dark future (that’s why we are so much fun at parties). After all, when all goes well (you build a great company together, take it public, and spend the rest of your life managing your investments from the pool side) who needs contractual clauses? A contract shows its true value when things go wrong. Good contracts contain clauses on how to part ways when business partners don’t see eye to eye anymore.
Unfortunately, people sometimes find themselves with a contract they would desperately like to get out of, but it seems they can’t. For these situations, the Polish Civil Code provides some remedies.
Error
Article 84 of the Polish Civil Code (“CC”) allows a party to withdraw from an agreement if the party can prove that it signed the agreement based on an error caused by the other party. The error has to be such that had the party not acted under the erroneous assumption, it would clearly not have signed the agreement. If the error was caused on purpose, we are dealing with deceit (Article 86) in which case the deceived party can withdraw even if the error caused is not material. Article 87 allows one to withdraw from an agreement if it was signed under threat. Please note, however, that the right to withdraw expires within one year after the discovery of the error or within one year after the state of fear ceases (Article 88).
Rebus sic stantibus
Some weeks ago most of Poland was waiting for the ‘habemus papam’, I am glad to be able to throw in some Latin of my own. Art. 3571 CC allows a party to ask the court to change the conditions of or even terminate an agreement in case of an extraordinary change of circumstances causing great difficulty in the performance of the agreement or a serious loss for such party.
Termination of continuous obligations
Based on Art. 3651 CC, a continuous obligation unlimited in time can be terminated not only by observing contractual or statutory notice periods, but also customary ones. With that the lawmaker clearly wanted to make sure that agreements cannot last forever.
The above list of examples is not exhaustive, and whether or not these articles will be applicable will depend on the specifics of the case. For those who find themselves in a contract they really want to get out of, it is good to know that the Civil Code provides means to achieve this even if the contract does not include any termination clauses.

Originaly published in Bulletin 42 by Remco van der Kroft