The question arises as to whether, in view of the lengthy negotiation of the offer, as a result of its rejection by one of the parties, the rejecting party should suffer negative consequences?

The record company Polskie Nagrania ‘Muza’ used to have the richest archive of sound recordings of Polish music from the People’s Republic of Poland, but due to the lack of funds to pay royalties by this company to the State Treasury, it was decided to sell the copyrights to over 30,000 musical works to Warner Music Poland. Polskie Wydawnictwo Muzyczne in Krakow, as a state cultural institution, in order to regain the rights to popular music, decided to conduct negotiations with Warner Music Poland for the repurchase of these collections of works.

Negotiations began at the end of 2017 on the condition that Warner’s headquarters in New York must agree to the sale of the works. In September 2018 Warner announced that further negotiations had been abandoned due to a change in the business strategy of the head office, which intends to look after the well-being of the songs bought, rather than sell them and make money from them.

Polish Music Publishing House in Krakow accused its counterparty of acting in bad faith, and therefore sued the Polish company Warner for PLN 150,000 in damages for the expenses it had incurred in conducting the negotiations on the basis of Article 72 § 2 of the Civil Code, which states that a party that commenced or conducted negotiations in breach of good customs, in particular without the intention to conclude a contract, is obliged to compensate for the damage that the other party has incurred by counting on the conclusion of a contract.

The District Court and then the Court of Appeal in Warsaw did not agree with the claims of the Publishing House, which ultimately filed a cassation appeal, which it motivated by the fact that Warner had acted disloyally, contrary to good morals, and if there had been any doubt as to whether it would agree to the sale, it would not have entered into negotiations.

In its reasoning, the Supreme Court pointed out that, first of all, it was both parties who had agreed in the preliminary agreement to a condition concerning the head office’s consent to the sale (i.e. a binding order) and it had not been shown to be accompanied by bad intent. Supreme Court noted that negotiations do not always have to lead to an agreement and either party may change its original intention during the course of the negotiations, and this may be due to various reasons and often beyond their control, i.e., for example, a change in the market situation or operating strategy.

First of all, it should be noted that good morals are nothing more than the duty to behave loyally towards one’s counterparty. Behaviour inconsistent with good morals may include: deliberately prolonging discussions, misleading, making unacceptable proposals and creating the belief in the other party that he intends to conclude a contract with him.

Currently, the Polish Commercial Companies Code provides for liability for damage caused by a binding instruction (these provisions were not in force at the time of the above dispute with Warner). Under the holding company law, a parent company may give a binding instruction to a subsidiary, which is to carry it out even though it may act to the detriment of the other party. In certain situations, as indicated in Articles 211(2) – 211(4) of the code of commercial companies, the parent company will be liable to the subsidiary company forming a group with it for the resulting damage, unless it is not at fault. Importantly, the liability of the parent company will depend on proving whether it was loyal to the subsidiary when issuing the binding instruction.

Do you have a legal problem related to the matters of your company? We’d be happy to discuss it.

Tel. (+48) 536 34 34 32
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Our law firm is experienced in corporate law and litigation, with experience stemming from, among other things, serving as a manager in companies within the Bank Zachodni WBK S.A. group (currently Santander Bank Polska S.A.) and serving as Chairman of the Supervisory Board of a publicly traded company.

This article was drafted in Polish too.