Contractual penalties in Polish B2B agreements: how should they be drafted?

When is a contractual penalty available under Polish law?

Article 483 § 1 of the Polish Civil Code allows the parties to agree that loss resulting from the non-performance or improper performance of a non-monetary obligation will be remedied by payment of a specified sum. In commercial contracts, penalties may secure:

Calling a payment a “contractual penalty” does not determine its legal effect. The protected obligation and the substance of the clause are decisive. A single clause covering both monetary and non-monetary duties without separating the triggers may create a dispute over validity and scope.

• delay in completing a milestone or rectifying a defect;
• breach of confidentiality;
• failure to hand over documentation, source code, files or property;
• breach of a non-compete, exclusivity or non-solicitation obligation;
• use of deliverables outside the agreed licence;
• failure to complete exit or offboarding obligations.

Why is a penalty for non-payment problematic?

A contractual penalty within Article 483 is not intended to sanction non-performance of a monetary obligation. Late payment should generally be addressed through interest and, in commercial transactions, the specific remedies available under legislation on excessive payment delays.

The issue cannot be avoided by describing the penalty as being due “upon withdrawal” if the actual and sole ground for withdrawal is non-payment. In its seven-judge resolution of 20 November 2019, case III CZP 3/19, the Polish Supreme Court held that a contractual penalty cannot validly be stipulated for withdrawal caused by the non-performance of a monetary obligation.

If the parties want to allocate the cost of an early exit, they should first identify the event to be addressed and the legal nature of the proposed payment. Not every exit fee is necessarily a contractual penalty, but changing the label does not circumvent mandatory law.

How should the breach be defined?

A frequent drafting defect is the failure to connect the penalty to a clearly defined duty. A clause stating that “the supplier will pay PLN 50,000 for failure to perform the agreement” does not identify the triggering conduct or explain whether one penalty covers all possible breaches.

A workable clause should answer at least the following questions:

The Polish concepts of ordinary delay (opóźnienie) and attributable delay (zwłoka) should not be treated as interchangeable. If the parties intend the supplier to bear risk even for circumstances outside its control, the agreement should address this consciously and consistently within the entire liability regime.

• which specific non-monetary obligation is secured;
• whether the penalty concerns non-performance, delay, qualified delay attributable to the debtor, or a defined defect;
• whether notice or a cure period is required before accrual;
• when accrual starts and what event stops it;
• whether the penalty is a one-off amount, a daily amount, per incident or per affected person;
• which amount or percentage base is used;
• whether individual and aggregate caps apply; and
• whether several penalties may be charged for the same event.

Must the creditor prove loss and fault?

Article 484 § 1 provides that the agreed penalty is due irrespective of the amount of loss. In its seven-judge resolution of 6 November 2003, case III CZP 61/03, the Polish Supreme Court confirmed that the absence of loss does not by itself eliminate the obligation to pay a contractual penalty.

This does not make the claim automatic. The creditor must prove that the contractually defined event occurred and calculate the amount correctly. It is also necessary to determine whether liability follows the default Civil Code rules or has been extended by the contract. Under the default regime, the debtor may defend the claim by showing that the breach resulted from circumstances for which it was not responsible.

The absence or limited amount of loss may nevertheless be relevant to a request for judicial reduction. A creditor should therefore document the commercial consequences of the breach even if a precise loss calculation is not a condition of the penalty claim.

Can the creditor recover damages above the penalty?

Unless the agreement provides otherwise, damages exceeding the contractual penalty cannot be claimed. Where the potential loss could materially exceed the penalty, the contract should expressly preserve the right to supplementary damages under the general rules.

This reservation must be coordinated with the general liability cap. A common inconsistency arises where one clause permits full damages above the penalty, while another imposes a low, absolute cap on every claim. The agreement should say whether penalties count towards the cap, sit outside it or are subject to specific carve-outs.

When may a Polish court reduce the penalty?

Article 484 § 2 allows the debtor to request a reduction where the obligation has been performed to a substantial extent or the penalty is grossly excessive. The assessment is fact-specific. Relevant considerations may include:

An aggregate percentage cap normally improves predictability, but it does not eliminate the statutory power to reduce a penalty. Conversely, a cap that is too low may remove the clause’s practical deterrent and compensatory value. The level should reflect the actual transaction risk rather than a percentage copied from an unrelated agreement.

• the relationship between the penalty, contract value and remuneration;
• the seriousness and duration of the breach;
• the extent to which the obligation was performed;
• the value of the interest protected by the clause;
• the amount or absence of loss;
• the creditor’s contribution to the breach; and
• the combined effect of overlapping penalties.