The end of retention right abuses – a groundbreaking supreme court ruling

With a resolution of 7 judges, the Supreme Court confirmed the line of jurisprudence that the right of retention does not apply to a party that can set off its claim against the claim of the other party. This is an important step in the fight against abuse of this mechanism.

Right of retention – what does it consist of?

The right of retention allows a party to withhold the return of a consideration received until the other party has offered to return its consideration or has secured its performance. This mechanism protects the parties from the risk of default by the other party by ensuring that the benefits are returned at the same time.

A loophole in the law – room for abuse

In economic relations, there are situations in which two entities are debtors and creditors to each other at the same time .

If one of them is not able to pay its obligation, the other could previously use the right of retention to evade payment until the other party pays the debt – which was often impossible.

Such actions may have led to pressure to sign unfavourable settlements, especially in situations where one of the parties was in financial difficulty.

Set-off instead of right of retention

It has been pointed out in doctrine and case law that in such cases the use of the right of retention may be abusive. Indeed, there are other mechanisms, such as set-off, which allow mutual claims to be satisfied without the risk of pressure or exploitation.

Supreme Court decision

In a resolution of 19 June 2024, in case ref: III CZP 31/23, the Supreme Court indicated that the right of retention does not apply to a party that can set off its claim against the claim of the other party, thus preventing the use of the right of retention to take advantage of the difficult economic situation of counterparties.

Breakthrough decision of the Supreme Court

In its resolution of 19 June 2024, in case no . III CZP 31/23, the Supreme Court made it clear that the right of retention does not apply to a party that can set off its claim against the claim of the other party.

This marks the end of the use of the right of retention as a tool of leverage in economic relations. The resolution protects especially counterparties in a difficult economic situation.

Significance of the resolution for entrepreneurs

Although the resolution was adopted in the context of the franking case, it is universally applicable to economic relations. As a result, entrepreneurs:

• Do not have to fear abuse of the right of retention by counterparties.
• They can pursue their claims more easily without financial pressure.

This is an important step towards greater fairness and transparency in business relations.

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