Is it possible to stipulate a contractual penalty without a deadline and without giving a specific amount of money? The above question has been answered by the Supreme Court, which may have a significant impact on the practice of commercial trade. The previous line of rulings of the Supreme Court suggested that reserving a contractual penalty is possible on the condition that the parties determine its amount in advance or that they indicate in the agreement clear grounds for determination of the amount. This position significantly affected, above all, the calculation of contractual penalties for delay in performance – the common courts have repeatedly held that a contractual penalty without a deadline for its calculation is invalid.
A breakthrough occurred when the Supreme Court adopted a resolution on 9 December 2021 in case ref III CZP 16/21, as it allowed reserving the contractual penalty for delay in performing an obligation in the form of a certain percentage of the agreed remuneration for each day of delay, even if no deadline for calculating the penalty without setting a maximum amount. In other words, the Supreme Court considered first of all two aspects of defining a contractual penalty – the lack of specification of its maximum amount and the lack of specification of the final date for its accrual. The conclusions presented in the resolution may have a significant impact on the understanding of contractual penalties in the future, especially in the context of securing the interests of creditors.
There is no doubt that this position of the Supreme Court is a clear signal for the participants of commercial transactions that the courts should not question contractual penalties without specifying their maximum amount. Nevertheless, it is important that such contractual provision should allow for a clear method of calculation – the protection of the debtor requires that he should always know the maximum amount of his liability. The new criterion for defining the amount of a contractual penalty is the ease of its calculation – this prerequisite is met when calculation of the penalty amount requires the multiplication of a fixed number of days (or other time unit) of delay and an amount indicated directly or calculated with the use of a specified percentage. Each provision regarding contractual penalties simply has to meet a test of clarity. It should be noted that a contractual penalty may still only be agreed to in connection with the non-performance or improper performance of a non-monetary obligation.
On the other hand, as far as the failure to determine the final deadline for accrual of contractual penalties is concerned, the Supreme Court has adopted a concept allowing for a contractual penalty without the need to determine a final deadline. Nevertheless, there are still voices saying that such understanding of contractual penalties distorts their compensation function and de facto constitutes a perpetual obligation. However, the Supreme Court pointed to instruments that mitigate the effects of reserving an excessively high contractual penalty and ensure balance of the parties’ interests, if only through the institution of penalty mitigation or expiration of the statute of limitations. Moreover, the debtor may terminate the state of being in delay by performing the main service.
The consequences of this ruling will be visible primarily in large contracts in the construction sector and the IT business.
In short, there can be no question of invalidity or inadmissibility of `stipulating a contractual penalty without specifying a deadline for its accrual or its maximum amount. This new approach to contractual penalties will certainly be favourably received by creditors. Potential debtors will potentially pay higher penalties but they will still be able to assess the risk by calculating, at the time the contract is concluded, potential amounts in the event of a delay lasting for a given period of time. Contractual penalties will resemble interest for late payment. On the other hand, the Supreme Court’s envisages possible reduction of contractual penalties so as not to lead to excesses. However, we cannot lose sight of the fact that it will depend on a particular court whether such a penalty will be reduced in an individual case.
« Back