On 30 June 2020 The Supreme Court adopted a resolution on the signature of the file III CZP 67/19, in which he indicated that Article 483(1) k.c. does not exclude the admissibility of a contractual penalty claim for failure to pay or to pay the remuneration due to subcontractors or other subcontractors in question under Article 143d(1)(7) point (a) Act dated 29 January 2004 Public procurement law.
The resolution was adopted in response to the legal question: ‘Is it important to reserve the construction contract under the procedure Act dated 29 January 2004 Public procurement law (i.e.
Journal of Laws of 2018, item 1986 as amended) a contractual penalty for failure to pay or for late payment of the remuneration due to subcontractors or subcontractors, since a contractual provision on the amount of contractual penalties for this purpose is provided for under Article 143 d section 1 point 7 point (a) of this law, while according to Article 483(1) k.c.
the contractual penalty can only be reserved as compensation for damages resulting from default or indecent non-monetary liability?
When examining the problem identified by the Supreme Court, it can be noted that the contractual penalty applies to the creditor, the debtor, and in the absence of payment by the contractor to subcontractors, we are not in breach of a monetary obligation to the creditor, but to the subcontractor
On the case in question, the parties have reserved in the works contract that, in the absence of payment or indefinitely payment to subcontractors, the contracting authority shall be entitled to a contractual penalty of 0.5% the remuneration of the subcontractor due for each day of delay.
In the course of the performance of the contract, the contractor failed to pay the remuneration to the one from subcontractors, as a result of which the contracting authority calculated the contractual penalty resulting from the contract.
Since the contractual penalty was not paid, the contracting authority applied against the contractor for payment.
In the course of the procedure, the contractor argued that the order imposing the obligation to pay a contractual penalty was invalid because it provided for a contractual penalty in respect of non-execution of a monetary obligation and a contractual penalty in accordance with Article 483(1) The Civil Code may only safeguard the performance of a non-monetary obligation.
However, the Court of First Instance took the action into account, considering that the above contractual provision was binding.
In the course of the appeal procedure, the district court had considerable doubts as to the interpretation of the provisions which caused the case to be referred to the Supreme Court.
On the one hand, if the contractual penalty can only be reserved in the event of default or misexecution of a monetary obligation in accordance with Article 483(1) k.c.
this, provided that the obligation to pay the subcontractor's remuneration is a monetary liability, the contractual penalty reserved in the event of the late payment of the subcontractor's remuneration would be invalid.
However, the district court pointed out that according to Article 143d(1)(7) point (a) Act - Public Procurement Law, provisions concerning contractual penalties for lack of payment or the late payment of the subcontractor's remuneration should be included in the contract for works concluded under public contracts.
This issue was resolved by the Supreme Court in its resolution dated 30 June 2020 The Supreme Court has rightly held that Article 483(1) The Civil Code shall not exclude the admissibility of a contractual penalty claim for failure to pay or the late payment of the subcontractor's remuneration in question under Article 143(1)(7) point (a) Public Procurement Law.
The penalty is a contractual condition which, in accordance with the principle of freedom of contract, may be inserted into the content of the contract, with a view to strengthening the effectiveness of the relationship between the parties by prompting the party obliged to comply strictly.
It is, in effect, a guarantee that the debtor is satisfied. The contractual penalty serves as compensation, sympathy, stimulation and repressive. The contractual penalty constitutes a surrogate compensation for breach of an obligation, meaning the identity of the contractual liability conditions on the basis of Article 471 k.c.
and Article 483 k.c., unless modified by the contracting parties.
It follows from those provisions that a debtor who has failed to fulfil his contractual obligations shall, in principle, assume contractual liability unless it proves that the improper execution of the undertaking was a consequence of circumstances for which he is not responsible.
In the present case, it is very important that, in accordance with the common case law and the position of doctrine, a contractual penalty may be reserved only for failure to perform or for inadequate execution of a non-monetary obligation. The purpose of this solution is to prevent circumvention, by reserving a contractual penalty for cash liabilities, of prohibiting the fixing of interest above the level of the so-called maximum interest (order of SN from 24 July 2009, II CNP 16/09 ).
Therefore, when examining the problem identified by the Supreme Court, it can be noted that the contractual penalty applies to the creditor – the debtor, and in the absence of payment to subcontractors by the contractor we are not in breach of the monetary obligation to the creditor, but to the subcontractor.
In addition, provision Article 143d(1)(7) point (a) Law Public Procurement Law should be regarded as a special provision in relation to the regulation of Article 483(1) The Civil Code and it refers to works contracts concluded under the Public Procurement Law. It shall modify the admissibility of reserving the contractual penalties contained in those contracts for breach of the obligation to pay subcontractors and other subcontractors.
This resolution of the SN will certainly be of vital importance to both the Contractors and the Contractors.
Author: Michał Wasilenko
Lawyer, Senior Associate in the Legal Department, member of the Bar Association in Lublin, graduate of the Faculty of Law and Administration at Maria Curie-Skłodowska University in Lublin. He specializes in commercial and civil law law.