On the basis of the ruling of the Supreme Court, it can be concluded that there is no doubt that, in order for a contractual provision governing a penalty to be valid and be capable of having legal effects, it must contain certain essentials of the negotiation, i.e. an undertaking whose failure to execute or incorrect execution gives rise to the obligation to pay a contractual penalty and to an indication of the amount which the debtor is obliged to pay in connection with the failure to execute or incorrect execution of the contract.
Contractual punishment as an institution of civil law is a fairly important and complex issue, widely discussed in doctrine and in case law. It can be concluded that doubts arise all the time, often requiring clarification by the Supreme Court.
Recently, the SN has issued another judgment which has a significant impact on the interpretation and design of the contractual penalty provisions.
Supreme Court in judgment dated 3 October 2019 I CSK 280/18 [1] (hereafter referred to as ‘the Judgment’), to the essentials of the contractual penalty, and in particular to the way in which the contractual penalty is determined.
The reference to remuneration is not a problem if it is set out in the contract, for example, on a flat-rate basis
Determination of the amount of the contractual penalty
The Court of First Instance stressed that under Article 483(1) k.c. explicitly mentions the reservation of a contractual penalty in a "defined sum", which leads to the conclusion that at the time of the reservation this penalty should be expressed in amount, i.e.
in money (it does not constitute a contractual penalty other than a monetary obligation, even if it is to be met by the debtor in the event of default or inadequate performance of the obligation).
However, an indication of the amount does not mean that it is necessary to specify the amount of the contractual penalty directly – it is permissible to use another measure of the amount, e.g. a fraction of the value of a thing or a fraction of another sum (e.g. remuneration) if the determination of the amount would be only arithmetic.
On the other hand, the Supreme Court considered that the establishment of a contractual penalty basis in the future cannot be considered compatible with Article 483(1) k.c.
This means if the parties have not clearly indicated the amount of the contractual penalty, the contractual basis for the final determination of that amount, which can be calculated at the time of the conclusion of the contract, must be clearly defined.
It is important that both the parties to the contract and then the investigating court are able to calculate the amount of the contractual penalty.
According to the Supreme Court, the provisions on a contractual penalty should be designed in such a way that its amount does not require command (this applies to both the entire contractual penalty and the contractual penalty per unit of time in case of delay in the performance of the benefit).
Punishment of the contract based on the amount of remuneration for the benefit
An example of the observations of the Supreme Court is the determination of the amount of the contractual penalty relating to the amount of remuneration. The reference to remuneration is not a problem if it is set out in the contract, for example, on a flat-rate basis. However, it is not possible to reserve a contractual penalty relating to the cost estimate as it is not possible to determine the amount of the cost estimate at the date of conclusion of the contract as well as during works or other services.
[1] LEX No 2746892a
Author: Hanna Żołnierkiewicz
Lawyer in the Legal Department. From 2017 associated with Russell Bedford Dmowski & Partners Law Firm Sp.k. He has experience in legal services to entrepreneurs in terms of merger, division and transformation of companies, bankruptcy, restructuring and capital market law. He runs the day-to-day handling of commercial law companies, including drafting corporate documentation, both in Polish and English. He also represents clients before the general courts in economic and civil law cases.