Exclusion from entitlement to the contractual penalty as a consequence of the conflict with a good commercial practice

(Decision of the Supreme Court from 4 April 2016, file no. 23 Cdo 1749/2015)

The plaintiff as a contractor and the defendant as an ordering party concluded a contract on work where they, among other things, specified contractual penalty in case of non-compliance with the payment deadlines at the amount of 0,5 % from the invoiced amount per each day of the default. Indeed, the defendant was subsequently in default with the payments and thus the plaintiff claimed the contractual penalty.

As a consequence of the prolonged judicial dispute, the amount of contractual penalty subsequently exceeded the amount of principal of the receivable from the title of the contract on work (almost three times). Considering this, the appeal court concluded that while the contractual penalty itself is not disproportional, the plaintiff in this case exploits the provisions on the contractual penalty to the detriment of the defendant. Such action by the plaintiff is in conflict with a good commercial practice. Thus, the plaintiff´s claim should not be protected by laws.

According to the Supreme Court which overruled the previous court decisions, the contractual penalty could not be considered as disproportional only because of the duration of default by the defendant. Moreover, the contractual penalty has not only the security function but it is also used as a sanction. Claiming the contractual penalty whose amount has increased rapidly due to the debtor´s default, could not be considered as conflicting with the principle of good commercial practice.