Subject: Contractual penalty for delay not always due
In the current economic conditions, particularly in transactions between professionals, it is common to use contractual penalties in contracts. This institution is widespread as it greatly facilitates for the parties to a contract to seek payment for non-performance or improper performance of a non-pecuniary obligation. Where the debtor’s deficiency consists in failure to comply with the time limit for the performance of an obligation, such a contractual penalty, if reserved in the contract, is typically due for delay or default of the debtor. It is a common belief that where a contractual penalty for delay has been reserved the reasons for delay and the fault of the debtor are of no consequence.
However, adopting such a standpoint, depending on the facts of the case concerned, may be incorrect. If the delay in the performance of an obligation is caused by circumstances beyond the debtor’s control, a contractual penalty only reserved for delay may not be due.
The construction of contractual penalty relies on the general principles of liability for damages rather than on a pure guarantee mechanism. Where the debtor’s liability is not extended, his or her fault in non-performance (including untimely performance) of an obligation is the main condition for claiming contractual penalty. Contractual penalty is a pre-established lump-sum compensation related to contractual liability. The connection is reflected, inter alia, in the location of the provisions on contractual penalty (Articles 483 to 484 of the Civil Code) among the rules for contractual liability.
The above position was also presented by the Supreme Court in its judgement of 16 January 2013, file ref.: II CSK 331/12. In the aforementioned Judgement the Court emphasised that the obligation to pay a contractual penalty for delay arose where the breach of obligation was caused by circumstances attributable to the debtor. Furthermore, the Supreme Court pointed out that it was impossible to claim a contractual penalty where the debtor had refuted the presumption (under Article 471 of the Civil Code) that the delay in performance resulted from circumstances attributable to the debtor.
It must be noted that in the assertion of contractual penalty in such a case the creditor has no obligation to prove that the untimely performance was due to circumstances attributable to the debtor. It is the debtor who bears the burden of proof that the delay was beyond their control.
The above does not mean that it is impossible to include in a contract a rule extending the liability of the debtor even to circumstances not attributable to the them. According to the provision of Article 472 of the Civil Code, the contractual liability of the debtor is based on fault (for failure to observe due diligence). But this provision is only optional, it is then possible to modify the boundaries of and rules of the liability of the debtor. Therefore, the debtor may agree in a contract to assume liability for non-performance of an obligation stemming from specified circumstances, including those beyond his or her control (Article 473 § 1 of the Civil Code). In order to attain such a result, it is vital to appropriately word particular provisions of the contract. They must convey an unquestionable intention of the parties to extend the liability of the debtor for non-performance of the obligation concerned.
When drawing up such a contract, it must be borne in mind that the reservation in the contract of contractual penalty for ‘delay’, without indicating additional conditions for changing the debtor’s liability, does not necessarily mean that the creditor will be able to effectively assert a contractual penalty in any situation where the debtor delays in performance.