Compensation for pursuing late payments in commercial transactions
The Law on counteracting excessive delays in commercial transactions of 8 March 2013 in force in Poland introduces mechanisms to discourage undertakings from delaying payments in the settlement of these transactions. It grants the creditor the right to demand compensation from the debtor of EUR 40–100, depending on the value of the monetary consideration, for the cost of recovering late payments in commercial transactions. This Law, commonly referred to as the Payment Backlog Law, is an implementation of the EU Directive on combating late payment in commercial transactions (2011/7/EU).
In the context of the application of the abovementioned Payment Backlog Law, a Polish court raised a doubt as to whether the compensation for pursing payments, which is a statutorily defined amount, was to apply to an entire contract or to individual deliveries under such a contract. In other words, whether the compensation for recovery was to be paid ‘for the contract’ or for each late payment for supplies made under such a contract. Given that an undertaking can make multiple deliveries under a single contract (especially a framework contract), the issue became important. From the point of view of undertakings pursuing late payments in court, depending on what interpretation would be adopted, the amount of compensation they would receive could be significantly higher.
The issue was resolved by the CJEU in the judgment of 1 December 2022 (Case C-419/21), considering a question referred for a preliminary ruling from a Polish court.
The CJEU concluded that:
- a commercial transaction was any transaction between undertakings or between undertakings and public authorities which led to the delivery of goods or the provision of services for remuneration,
- each subsequent delivery, even under the same contract, was a separate business transaction,
- the concept of commercial transaction did not coincide with that of contract,
- reducing the right to demand compensation to a single fixed sum in the situation of multiple delays in payment for successive deliveries under a single contract would have deprived the Directive of any practical effect,
- the objective of the Directive was to provide compensation for the recovery costs, which tend to rise in cases of larger arrears.
The CJEU’s judgment takes into account the objective of the Directive and may be of particular relevance to undertakings making deliveries under framework contracts concluded for a long period of time. In such cases, there are often multiple delays in payment for individual deliveries, which multiplies the costs of recovery through the courts on the part of the creditor. The CJEU’s judgment provides creditors with the ability to seek compensation in court for the costs of recovering individual late payments and will be relevant in similar debt collection cases before Polish courts.