Contracts

The contractual penalty for each day of delay does not need to be specified

In its resolution of December 9, 2021, in case ref III CZP 16/21, the Supreme Court resolved the issue of stipulating a contractual penalty in the form of a specified percentage of the contractual remuneration for each day of delay without specifying the final date for its calculation or the maximum amount.

Contracts often provide for specific monetary penalties for each day of delay in performing the contract. This is what happened in the present case, in which a dispute arose between the renovation contractor and the subcontractor. The contractual penalty for failure to complete the work on time was set at 0.2% of the remuneration for each day of delay. However, there was no deadline for calculating the penalty.

The Supreme Court held that it is possible not to specify the final date for calculating the contractual penalty. The amount of the penalty cannot then be determined. Admittedly, in such a situation the creditor may strive to extend the period of delay, but according to the Supreme Court such a contractual reservation is permissible. Therefore, it is not necessary to stipulate in the contract the final deadline for accrual of the contractual penalty or its maximum value.

The resolution should therefore have a decisive impact on the practice of drafting agreements in the course of business by, for example, introducing a maximum limit of such penalties or a deadline by which they may be calculated. Otherwise, parties obliged to pay the penalties will not have any influence on the final amount of the contractual penalties, which may result in financial consequences grossly disproportionate to the degree of fault.

It should be noted that the justification to the resolution has not yet been published, which may contain additional explanations or premises on which the amount of contractual penalties in such cases depends.

Author team leader DKP Legal
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