Legal proceedings in cases concerning the PFR Financial Shield

Support from the PFR Financial Shield has entered the settlement phase. Nevertheless, many entrepreneurs who have so far not received this support or have received it in a smaller amount are wondering whether they can challenge the refusal of support at all.

An important question arises here – how to do this? Where to address the claim and in what form? In recent months, there have been several court rulings in this area which, instead of clarifying the situation, only create even more confusion when it comes to entrepreneurs’ remedies. Lawyers are also struggling to identify the right way to challenge refusals of support from the Financial Shield.

Therefore, once again – it is worth clarifying – which court path should be chosen by entrepreneurs – a civil one, i.e. a civil lawsuit for payment or determination or an administrative one by challenging the act of refusal of support by the PFR.

I have already provided answers to these questions in my previous post – Subsidies in the Financial Shield vs the KPA – Financial Shield – Krzysztof Brysiewicz Blog (kbrysiewicz.pl). After reading some of the comments „There are rulings on the Financial Shield in favour of companies„, as well as the justification of the ruling of the WSA in Wrocław (III SA/Wr 27/21), which – in my opinion erroneously – recognises that the refusal of support from the PFR may be challenged administratively, I see the need for further clarification of an essentially simple topic.

And simple in that it has in principle already been settled long ago – and in two resolutions by seven judges of the Supreme Administrative Court. Let us therefore move on to our rams.

The problem with the judicial route for the denial of funding from the PFR was primarily caused by the decision of the WSA in Wrocław of 3 March 2021, III SA/Wr 27/21.

In this decision, the WSA formulated the following conclusion based on an analysis of the aid programme and the SIR Act:

„In the Court’s opinion, the analysis of the applicable legal regulations allows us to assume that the PFR, in handling cases from applications for the financial subsidy provided for in the government programme „Financial Shield of the Polish Development Fund for small and medium-sized companies”, acts in a functional sense as a public administration body, performing a task entrusted to it from the scope of government administration.”

„It is also not insignificant that PFR is undoubtedly a strategic company of the State Treasury, in which all shares are owned by the State Treasury and in which the State Treasury is a dominant entity holding, within the meaning of Article 4(3) and (4) of the Act of 16 February 2007 on Competition and Consumer Protection (Journal of Laws of 2021, item 275), control over other entrepreneurs. In Article 2(8) of the Act of 16 December 2016 on the principles of management of state property (Journal of Laws 2020, item 735), Polski Fundusz Rozwoju S.A. in Warsaw was indicated as a company implementing a public mission. Undoubtedly, therefore, the implementation of the government programme, as a task delegated from the scope of public administration, is carried out with the participation of public funds and consists in the disposal of these funds. It should also be pointed out that, in accordance with § 9(5) of the Rules and Regulations for Applying for Participation in the Government Programme, the costs of Programme Funding will be covered exclusively from funds obtained by the PFR from the State Treasury under External Funding and the Loan, provided that it is granted by the State Treasury, and the PFR is not obliged to provide Financial Subsidy from its own funds.”

„The above means – in the Court’s opinion – that the activities of the PFR in terms of adjudicating applications for aid under the government programme in question are activities of the public administration and as such should be subject to the control of the administrative courts.”

Consequently, in the opinion of the WSA in Wrocław, since the PFR acts as a public administration body, this automatically means that the refusal to grant support from the PFR Financial Shield is subject to the control of the administrative court.

A different position from that of Wrocław was presented by the WSA in Warsaw, which – in two – at the moment not final – decisions (of 16 April 2021. V SA/Wa 2727/20 and of 8 April 2021. V SA/WA 651/21) – stated that the PFR’s refusal to pay the subsidy is not subject to review by an administrative court, but possibly by a civil court.

„It follows unquestionably from the above contractual provisions that, when the PFR decides on the payment of the subsidy from the beginning of the procedure, we are dealing with the regulation of relations between the entrepreneur applying for the subsidy and the PFR on the basis of the provisions of civil law and not administrative law. This is because the procedure begins with the conclusion of a subsidy agreement under the terms of freedom of contract. The activities related to the granting of the subsidy in question are therefore exclusively in civil law form. There is no reason whatsoever to treat PFR’s decisions on the payment of the subsidy, as the Party wishes, as decisions having their source in administrative-law provisions. Arguments about the lack of negotiations or influence on the content of the agreement do not mean that the relationship concluded under the agreement in question becomes an administrative-law relationship. When concluding contracts of a civil nature, many legal actors do not allow for negotiations on their content. This does not mean that a relationship based on such contracts ceases to be of a civil law nature.”

„The parties – as indicated above – were bound together by the financial subsidy agreement of […] June 2020 No. […], of which the Regulations on the basis of which the contested „Reply to the Application” of […] December 2020 was issued was an integral part. Accordingly, any issues concerning the assessment of whether there were grounds for refusing to pay the subsidy must be treated as issues to be resolved by civil proceedings before the ordinary courts. The contested letter of […] December 2020 issued in response to the „appeal” does not concern entitlements or obligations under the law and therefore cannot be placed in any of the categories of cases subject to the cognisance of the administrative court, and in particular those defined in Article 3 § 2(4) of the p.p.s.a.”

In the context of the above positions, it is still worth noting the views of the WSA in Rzeszów in its decision of 6 May 2021, ref. no. I SA/Rz 293/21, which – speaking against the background of other forms of anti-covid aid – formulated the following conclusions:

For the assessment of the possibility to qualify the contested information as an act indicated in Article 3 § 2 point 4 of the P.p.s.a., the optionality of the starost’s action is of crucial importance. Indeed, as indicated in Article 15zze⁴(1) of the Crisis Act, a starost may grant a subsidy to an entrepreneur. The structure of Article 15zze⁴ of the Crisis Act indicates that even if the entrepreneur meets the criteria for granting aid, the authority is not obliged to grant such co-financing. This is because the refusal to grant a subsidy in fact means in this case a refusal to conclude an agreement in a situation where there is no obligation to conclude an agreement. The lack of an obligation to grant a subsidy, even if the basic conditions for granting aid are met, means that the regulation contained in Article 15zze⁴ of the Crisis Act does not contain legal criteria according to which it would be possible to control the legality of a refusal to grant this type of aid. Moreover, also the very form of the grant, i.e. the contract, indicates the voluntary nature of the grant.

In this context, it should be added that the Court is aware of the existence of the so-called hybrid proceedings or legal situations, in which the first stage is of an administrative-legal nature and actions taken at this stage are subject to appeal before the administrative court and only the positive conclusion of this stage for the applicant leads to the conclusion of a civil law agreement. It should be noted, however, that the provisions of law regulating a given institution should provide a basis for deriving (interpreting) such a two-stage granting of co-financing, e.g. provide that the first stage ends with a positive or negative qualification after assessment of fulfilment of the prerequisites (e.g. inclusion on the list of entities to be co-financed or refusal to qualify the application for co-financing), while the second stage is the conclusion of a civil law agreement. We do not encounter such a regulation in the case of co-financing on the basis of Article 15zze⁴(1) of the Crisis Act. In this case, the co-financing takes place on the basis of an optionally concluded agreement of a civil law nature. Meanwhile, administrative authorities and administrative courts are not competent to recognise allegations concerning the correctness of concluding agreements of a civil-law nature (cf. e.g. the decision of the Supreme Administrative Court of 26 April 2017, ref. no. I OSK 744/17).

In my opinion, the view of the WSA in Wrocław is an erroneous view that contains a fundamental gap in the conclusion. The WSA in Wrocław draws the erroneous conclusion from the fact that PFR acts as an entity performing tasks commissioned from the public administration that every activity of such an entity will therefore be subject to administrative court control. It is sufficient in this regard to consult the basic literature on the subject of substantive administrative law to conclude that such a conclusion is flawed.

Public administration, and in particular administration providing services, may act in various legal forms – contrary to the assertion of the WSA in Wrocław – also in forms belonging to civil law, including by concluding civil law contracts. There are many examples of such activities. The defectiveness of the view of the WSA in Wrocław is also indicated by the justifications of the decisions of the WSA in Warsaw, in which the court points out that PFR first signs a civil-law (subsidy) agreement with the entrepreneur and then verifies whether the entrepreneur meets the conditions for support. Therefore, we do not have here and at first glance a separation – as is the case, for example, with projects financed from EU funds – of two stages of granting support, i.e. first the result of the application competition and then the signing of the agreement, but the agreement is signed at once. It is difficult, moreover, to treat support from the Financial Shield as being granted through a competition of applications, since entrepreneurs in principle did not compete with each other here – as is the case with projects from EU funds, where support is often determined by better ideas, greater innovativeness, greater potential, and so on. This was also the position I took in my post last year, when I drew attention to the lack of a two-stage subsidy process.

At the same time, I do not agree with the view formulated by the WSA in Rzeszów that the mere optionality of signing an agreement excludes judicial control of the preceding act of granting support. The phrase 'the starost may’ conclude an agreement does not mean that the starost’s action should not be subject to any control, be it civil or administrative. On the contrary, in my opinion, in this particular situation, if the entrepreneur meets the conditions for obtaining aid – the phrase 'starosta may’ does not mean optional, but an obligation to sign a contract. Otherwise, the very act of granting aid would be worthless and the action of the administration would escape any judicial control, be it civil or administrative. In the case of this type of case, in my opinion, there are also no grounds for applying the principle of discretion – we are talking here about acts concerning state aid, in which, once the conditions are met, entrepreneurs acquire the right to grant aid – allowing optionality after the stage of granting aid would mean infringing the principle of equal access to aid and would simply lead to discrimination against entrepreneurs. Not to mention the non-transparent conditions for its granting.

Nevertheless, what surprises me both in the decision of the WSA in Wrocław, but also in the remaining decisions, is the lack of reference to the key for this type of cases – the resolutions of seven judges of the NSA – which should be the starting point for the assessment of the currently – seemingly controversial issues. The NSA’s resolutions II GPS 1/06 and II GPS 2/06 have already resolved the issues currently under discussion, and the views formulated therein remain fully valid even today. As much as I understand the fleeting memory of many attorneys, when discussing and resolving the problems of the judicial route for cases of testifying administration – reference to these monuments of law should be obligatory.

Let us therefore recall what the NSA said in these now almost 20-year-old monuments.

II GPS 1/06

II GPS 2/06

As is clear from the above resolutions, the existence of an 'administrative matter’ in the case of granting aid can be said to exist when the act of 'granting’ is a separate act from the signing of the contract and the process itself has a two-stage character. In the case of aid granted under the PFR Financial Shield, there is no such two-stage process, as the contract is signed immediately and PFR then verifies whether the entrepreneur meets the conditions for obtaining aid. Thus, the entrepreneur „agrees” with the PFR to verify the data presented by him/her and in case of a positive verification, he/she receives the subsidy.

The provisions of the Act on SIR, which, unlike e.g. in the case of EU funds, do not distinguish between two stages of granting support, do not provide grounds for reconstructing the appeal procedure either. Moreover, from the wording of the provisions of the Act on SIR, the opposite conclusion can be drawn that support will be granted by PFR in typically civilian forms. Pursuant to Article 13 of the Act on SIR, the Polish Development Fund provides financing by: 1) taking up or acquiring shares, stocks, subscription warrants, bonds, receivables and entering into partnerships; 2) granting loans, guarantees and warranties. Financial subsidies in the Financial Shield are granted precisely on the basis of this provision, while their form remains similar to loans with redemption.

This does not mean that entrepreneurs who have not obtained a subsidy are left in a deadlocked situation – they may exercise their rights on the grounds of civil lawsuits by pursuing either a claim for an obligation to conclude a contract, or a claim for determination or, finally, a claim for payment of the amount they would have received if PFR had properly implemented the contract.

It is worth pointing out in this context that the civil court route not only does not have to be less favourable for beneficiaries, but may even turn out to be much better than the administrative route. Firstly, the claim formulated by the beneficiary may ultimately aim at obtaining aid (claim for payment), and secondly, civil courts in cases concerning EU funds present many favourable positions, e.g. pointing out that ambiguities in programme documentation cannot be charged to the beneficiary.

In this context, many of the programmatic provisions of the Financial Shield on the basis of which funding has been refused may prove to be unjustified. E.g. denial of a subsidy on ethical and moral grounds or denial of a subsidy due to a „risk of irregularities or fraud”. Similarly, a refusal to grant a subsidy motivated by a later interpretation of the provisions of the documentation – unknown at the stage of the subsidy application – should not justify a refusal of assistance to the entrepreneur.

Thirdly and finally, the costs of civil proceedings need not necessarily be a barrier to entrepreneurs asserting their rights. Assistance from the Financial Shield was aimed at entrepreneurs who suffered sudden losses to their business as a result of the Covid pandemic – these circumstances may, in specific cases, justify an exemption from part or even all of the court costs in the form of lawsuit fees.