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FOR Communication 2/2023: Polish Development Fund’s "Shields" are a problem for businesess and administrative courts

In March 2020, in connection with the crisis caused by the covid-19 pandemic, an amendment to the System of Development Institutions Act was passed, which enabled Polski Fundusz Rozwoju S.A. to implement government support programs for businesses. Their execution in this form quickly contributed to the emergence of a problem for administrative courts and businesses themselves. 

Pursuant to the new law, PFR was entrusted with the implementation of the "shield" programs under which the company granted subsidies to other companies. As a result, the commercial law company performed public administration tasks on the basis of civil law contracts. 

This leads to a significant problem in the event of a dispute about the subsidy. While the public administration office must issue a positive decision if the entity applying for the subsidy meets the criteria, a joint-stock company concluding a civil law contract operates based on the principle of freedom of contract, meaning it can freely shape the legal relationship within the limits of the law, the nature of the relationship and the principles of social coexistence. Therefore, granting a subsidy in the form of an agreement puts the applying business in a worse position. 

This structure of the legal regime of the subsidy resulted in several rulings of administrative courts, in which the courts refused to consider complaints against PFR because the company acted under the civil law regime. Courts saw entrusting the implementation of the "shield" programs to the Polski Fundusz Rozwoju as the privatization of public tasks and refused to recognize the public law nature of the legal relationship. 

Meanwhile, an in-depth examination of the nature of the contracts signed by PFR leads to different conclusions. In this respect, it is worth referring to the achievements of the German science of administrative law and the so-called theory of two degrees and the prohibition of administration’s escape into private law. According to it, the public-law nature of a private-law activity is possible if it was preceded by an authoritative decision about public aid. 

Interestingly, the Supreme Administrative Court is also starting to see a possibility of a solution to this situation, the Court in one of its recent decisions, admitted that regarding subsidy, the PFR must be treated in functional terms as a public administration office, and therefore the conclusion of the contract is subject to administrative court’s control. Regardless of the evolution of the jurisprudence in this matter, the situation with the mechanism of PFR shields clearly indicates the risk of entrusting the implementation of public administration’s tasks to companies controlled by the State Treasury, from which the legislator should draw conclusions by shaping the legal basis for future methods of granting subsidies and determining the sphere of entities involved in this process. 

Contact to author:

Piotr Oliński, FOR Junior analyst
[email protected]

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Piotr Oliński