Contractual Penalties Research Articles

Smanjenje ugovorne kazne prema čl. 354. Zakona o obveznim odnosima

The paper elaborates on the effects of Art. 354 of the Civil Obligations Act on the reduction of contractual penalty. According to this provision, the court will, at the request of the debtor, reduce the contractual penalty amount if it finds that the amount is disproportionately high, given the value and significance of the object of the obligation. The paper takes the position on the inadequacy of the value and significance of the subject of the obligation as a criterion for assessing the proportionality of the contractual penalty amount. At the same time, as a more appropriate measure, the paper points to the damage, and to other circumstances that enable the court to decide on the fairness of a contractual penalty as well. The paper also notes that the court must not neglect the creditor's interests when deciding on the reduction of the contractual penalty, and that it should permit such a reduction only when a disproportionality of the contractual penalty is evident. The paper also elaborates on certain procedural issues related to the reduction of contractual penalty.

Divergence and Convergence in the Law of Contractual Penalties and Liquidated Damages Clauses in England, Singapore, and Malaysia

Divergence and Convergence in the Law of Contractual Penalties and Liquidated Damages Clauses in England, Singapore, and Malaysia

Contractual Penalty in Labour Law? A Brief Reflection on the Agreement on Monetary Compensation in Paragraph 62(8) and Paragraph 83a(5) of the Labour Code

In the paper, the author deals with the issue of a contractual penalty in labour relations, while the reason for reopening this issue was the ongoing unclear nature of the agreement on monetary compensation in the provision of § 62 paragraph 8 and § 83a paragraph 5 of the Slovak Labour Code. After a theoretical introduction to the contractual penalty, its nature, functions and relationship to liability for damage under civil law and commercial law, she concludes that monetary compensation agreements, in fact, are contractual penalty agreements. However, they are characterized by peculiarities that affect the potential relationship of the general civilian regulation of the contractual penalty, especially in terms of the relationship of monetary compensation and liability for damage caused by violation of the same obligation and the moderating right of the court. In conclusions, she briefly formulates possible future relation between the Slovak Civil Code and the Slovak Commercial Code and she agrees with the need to set up full subsidiarity of the Civil Code to the Labour Code.

Contractual Penalty in Labour Law? A Brief Reflection on the Agreement on Monetary Compensation in Paragraph 62(8) and Paragraph 83a(5) of the Labour Code

In the paper, the author deals with the issue of a contractual penalty in labour relations, while the reason for reopening this issue was the ongoing unclear nature of the agreement on monetary compensation in the provision of § 62 paragraph 8 and § 83a paragraph 5 of the Slovak Labour Code. After a theoretical introduction to the contractual penalty, its nature, functions and relationship to liability for damage under civil law and commercial law, she concludes that monetary compensation agreements, in fact, are contractual penalty agreements. However, they are characterized by peculiarities that affect the potential relationship of the general civilian regulation of the contractual penalty, especially in terms of the relationship of monetary compensation and liability for damage caused by violation of the same obligation and the moderating right of the court. In conclusions, she briefly formulates possible future relation between the Slovak Civil Code and the Slovak Commercial Code and she agrees with the need to set up full subsidiarity of the Civil Code to the Labour Code.

The Amount Specificity Requirement of Contractual Penalties – A Commentary on the Judgment of the Polish Supreme Court of May 20, 2021 (IV CSKP 58/21)

This article discusses the Polish Supreme Court’s judgment of May 20, 2021, which constitutes another important contribution to the case law concerning the contractual penalty regulated in Art. 483 - 484 of the Polish Civil Code. The court’s judicial analysis covered the condition of “specificity” of the contractual penalty, i.e., the admissibility of stipulating a penalty in the form of a fraction (percentage) of the contract value for each time unit of delay, without specifying its maximum sum in advance. In summary, it can be stated that the presented statement of the Supreme Court should be regarded not as a final settlement, but rather a voice in the broad discussion on the requirement of specificity of contractual penalties.

Can Second Chance Provisions Increase the Effectiveness of Penalty Contracts? Evidence from a Quasi-Field Experiment

Can Second Chance Provisions Increase the Effectiveness of Penalty Contracts? Evidence from a Quasi-Field Experiment

Instytucja kary umownej w latach 1965–1989 — wybrane zagadnienia

The basis of this article is the analysis of the functioning of a contractual penalty in the years 1965–1989, i.e. from the time the Civil Code entered into force until the end of the Polish People’s Republic period. The research was carried out by means of analysing the legal provisions, the caselaw of the Supreme Court and the views of the doctrine. Its purpose is to reflect and draw conclusions on the functioning of the civil law institution — a contractual penalty — under authoritarian governments. The considerations were focused on selected problems, first of all concentrating on the Supreme Court’s case-law. Legal relations with the participation of socialized economy units become an important element of these considerations. The provisions of the Civil Code constitute the starting point, but they cannot be interpreted in isolation from the provisions of other normative acts that introduced special legal solutions in contracts with the participation of units of the socialized economy. The confrontation of theory and practice shows how the obligations imposed on entities of civil law are enforced. Against this background, issues of key importance for civil law emerge. They relate to the principles of concluding contracts, the performance of obligations, and the consequences of a failure to perform the contract.

The Accessory Nature of the Penalty and the Peculiarities of Payment

This paper focuses on analyzing the accessory nature of the penalty, the peculiarities of its payment, and the legislative provisions regulating the penalty. It also presents their shortcomings and criticizes the wrong opinions in the legal literature on the concept and types of the penalty. The penalty is considered as the institutions with only accessory nature. Reduction of the penalty requires the debtor's counterclaim, without which the court is deprived of the possibility of reducing the penalty. The provision of Article 417 of the Civil Code is considered a serious legislative gap by the paper. The novelty is the provisions of the paper and the necessity of introducing norms on legal penalties in the Civil Code is substantiated, without which the case law may become a factor of unjustified violation of the rights of the participants of the private relations. There is also substantiated provision, which refutes the validity of the opinion of the authors who exclude the initiative of the court in the issue of reduction of the penalty. The aim of this paper is to analyze certain aspects of the regulation of penalties, which, together with the theoretical aspects, have practical significance that will provide better understanding of a number of issues as well as the correct qualification of the rights and obligations arising from the payment of penalties. Logical and systematic analysis of norms, as well as comparative-legal methods, are used to achieve the above-mentioned goal. Using these methods, it is possible to determine the progressiveness of Georgian law norms and to identify existing gaps in them. This further provides a better understanding of their content so as to develop suggestions and recommendations to improve the norms and practices. Problems are analyzed on the examples of Georgian and German civil law. In terms of types and concepts of penalties, common characteristics and shortcomings between Georgian and German models were revealed. The efficiency of the Georgian model was also examined in terms of establishing the penalties. The study revealed that the Civil Code of Georgia determines the type of contractual penalty and allows its reduction. Based on this, a wrong conclusion has been made in science and practice about the existence of only one type of penalty in Georgian law. The circumstance that private law legislation does not consist solely of the Civil Code was not taken into account. The paper examines the applicable legislation of Georgia, which sometimes does not even use the term “penalty”, but actually provides for a legal penalty in various provisions. It is inevitably necessary to reflect the norms in detail in order to regulate the payment of legal penalties in the Civil Code of Georgia.

Six Impossible Things Before Breakfast

Six Impossible Things Before Breakfast

Design and optimization of performance guarantees for hybrid power plants

This article introduces the problem of performance guarantee design for hybrid power plants (HPPs) with renewable generation. To solve it we propose a novel framework for the determination of performance guarantee levels under weather and load uncertainty. The framework is intended as a decision support tool for HPP solution providers during contract negotiations with owners, where they have to strike a balance between competitive bidding and possible contractual penalties. It is formulated as a stochastic risk-constrained optimization problem, which maximizes guarantee values subject to the risk preferences of the solution provider. HPP performance variability is included into the framework via detailed plant operation simulations. Furthermore, it allows to condition the guarantee levels on the stochastic availability of renewable resources and loads. We demonstrate the application of the framework with the design of a renewable energy output guarantee for a PV-battery storage-diesel plant. Moreover, we introduce guarantee benchmark models based on the performance ratio, least square and quantile regression and illustrate the advantages of the proposed framework in comparison to them. Performance guarantees computed with the proposed framework simplify performance risk assessment for owners and financiers in HPPs, which may lower financing costs of HPP solutions and speed up their adoption.

Glosa do uchwały Sądu Najwyższego z dnia 20 listopada 2019 r., III CZP 3/19

The aim of this article is to critically respond to the resolution of the Supreme Court of 20th November 2019 (III CZP 3/19). In the author’s opinion, the resolution of the Supreme Court deserves approval. In the current legal status, there is no possibility of a valid reservation of liquidated damages (in Polish literally referred as a contractual penalty) in case of withdrawal from the contract due to non-performance of an obligation of pecuniary nature. In the author’s opinion, this kind of reservation is contrary to the provisions concerning the legal nature of the statutory right of withdrawal (art. 491 et seq. of the Polish Civil Code), as well as provisions concerning liquidated damages (art. 483 et seq. of the Polish Civil Code). The author approves the final decision of the Supreme Court, however, is critical of its justification. In particular, he notices to the inaccuracies in the concept proposed by the Supreme Court explaining that the liquidated damages reserved in the analysed circumstances are considered invalid. Moreover, he draws attention to the technical and workshop issues of the justification, pointing to chaos and lack of clarity and transparency of the Supreme Court’s arguments.

Payment of forfeit as a legal consequence of the breach of obligations by the parties under the vehicle hire agreement

Problem setting. One of the legal consequences of the breach of obligations (including vehicle hire agreement) is payment of forfeit is both a way to enforce commitments and extent of civil liability and civil rights remedy Despite the fact that a significant amount of research has been devoted to the study of forfeit, the legislation governing the issue of forfeit in relation to vehicle hiring is imperfect and needs to be amended accordingly. Analysis of resent researches and publications. The issue of payment of forfeit as a legal consequence of a breach of contractual obligations has been studied by legal scholars in various respects. Basic research in this area has been conducted by A. Karapetov, K. Hrave, O. Ioffe, N. Maliein, V. Raikher, M.Brahinskyi, V.Vitrianskyi, R.Stefanchuk, O. Otradnova, I. Puchkovska, N. Raskazova, and others. At the same time, the issue of forfeit application as a result of violation of legal obligations under the vehicle hire contract was given insufficient attention, and thus the matter is urgent and requires further investigation. Target of research. The purpose of this paper is a general study and analysis of forfeit as a legal consequence of breach of obligations by the parties under the vehicle hire agreement. Article’s main body. The article provides general study and analysis of forfeit as a result of violation of obligations under the vehicle hire contract, as well as the grounds for its establishment. The provision is substantiated that at the stage of normal course of the obligation under the vehicle hire agreement forfeit performs only a security function, and it becomes the extent of civil liability only after the breach of the obligation by one of the parties whose obligation was secured by forfeit. The shortcomings of the current legislation dealing with the issue of legal regulation of forfeit, which is applied in case of breach of their obligations by the parties under the vehicle hire agreement, have been identified. Conclusions and prospects for the development. Forfeit, established by Part 2 of Article 785 of the Civil Code of Ukraine for delay by the lessee of the obligation to return the vehicle to the lessor in the amount of double payment for the use of the thing during the delay is essentially a fine, as calculated from the amount of unfulfilled or improperly fulfilled obligation – fees for the possibility of using the vehicle for the relevant period (hire fees). When deciding which type of forfeit to establish in the contract (fine or penalty), the parties to the vehicle hire contract should proceed from the fact that the type of forfeit applied should correspond to the essence of the obligation for violation of which it is established.

Liquidated damages for failure to pay or delayed payment of remuneration to subcontractors — comments on the background of the resolution of the Supreme Court of 30 June 2020, III CZP 67/19

The subject of this work is the issue of the admissibility of stipulating liquidated damages for failure to pay or delayed payment of remuneration to subcontractors in the light of article 483 par. 1 of the Civil Code, which allows stipulating contractual penalties only in non-pecuniary obligations. The basis for the considerations is the content of the resolution of the Supreme Court of June 30th, 2020 (III CZP 67/19), which took a firm position in the ongoing legal discourse. This publication is a comparison on the basis of the previous jurisprudence and the doctrine of the relationship between liquidated damages defined in article 483 par. 1 of the Civil Code, and liquidated damages provided for in the Act of 29th January 2004 — Public Procurement Law.

Penalty Clauses in Commercial Contracts

This article analyses and compares the rules applying to contractual penalties in Austria, Germany, France, Italy and England, as well es under the UNIDROIT Principles on International Commercial Contracts, PICC and the Principles of European Contract Law, PECL. Also, the different approaches found in these legal systems are scrutinised with regards to their practical implications for contracting parties. More specifically, some civil law regimes unduly restrict the signalling function of contractual penalties. This is quite surprising in B2B contracts and while this aims at protecting a contracting party from promising a large penalty, it also restricts the use of one of the cheapest marketing instruments available to a contracting party.

STATE PROTECTION OF THE RIGHTS OF PARTICIPANTS OF CREDIT RELATIONS IN UKRAINE AND OTHER COUNTRIES

The article deals with the peculiarities of the state regulation of credit relations in Ukraine and other countries of the world. Special attention is devoted to problems of protection of the rights of individuals-borrowers and the liability of financial institutions for violation of the terms of the loan agreements.
 The authors draw attention to the imperfection of the domestic state regulations in protecting the rights of consumers of financial services. On the basis of analysis of normative sources, concludes that in Ukraine the rights of borrowers is implemented using the General civil-law methods, such as payment of penalty and compensation for damages and contractual penalties. Provides that when the borrower relationship involved a natural person, are also considered statutory provisions of the legislation on protection of consumer rights. The majority of legal provisions contained in the same law and to establish penalties for the violation of consumer rights does not apply to the provision of financial services. It is concluded that in connection with the above, means of influence on the creditor in the contract there are only penalties provided for by the parties themselves.
 Due to the fact that today there is no possibility of application of the financial, administrative and criminal sanctions against credit institutions for violations of the rights of consumers of financial services, the authors made proposals on improving legislation in this sphere. In particular, it is proposed to determine the grounds and amount of payment of legal damages by a creditor for non-fulfillment of their obligations established by contract or by law; to develop the procedure and consequences of termination of the contract of consumer credit in connection with the failure of obligations of third parties (seller, executor). The necessity of regulatory consolidation of financial sanctions, administrative and criminal responsibility of managers of financial institutions for violation of credit services; the possibility of suspension, termination or revocation of appropriate licenses.

Optimal Maintenance Scheduling of Transmission Assets in the Brazilian Electric System

An electric utility has as an objective to guarantee the continuity and quality of the service provided. In order to enforce an increase in the quality of service, the ANEEL (Portuguese for The Brazilian National Electric Energy Agency) introduced penalties in contracts with public electricity transmission utilities in case transmission facilities are taken out of service due to accidents, failures or scheduled maintenance. Traditional maintenance approaches to electric power transmission systems are based on actions taken periodically. Although these approaches aim to improve the performance of these systems, usually they do not accurately assess the impact of maintenance actions on their reliability related to the resources employed, as well as the resulting legal penalties. This paper proposes an approach for addressing this problem based on reliability/cost to find the best strategies for performing maintenance on electric power transmission equipment (assets), with a mathematical model that provides a feasible maintenance calendar while respecting the constraints of the electrical system operation. The proposed method consists of a combination of a constructive heuristic with dynamic programming, to find the best solutions for a given planning horizon.

Ambiguous Sticks and Carrots: The Effect of Contract Framing and Payoff Ambiguity on Employee Effort

Research suggests that employees work harder under penalty contracts than under economically equivalent bonus contracts. We build on this literature by examining how the motivational advantage of penalty contracts depends on a common aspect of real-world contracts: payoff ambiguity. With payoff ambiguity, employees provide effort without knowing how much pay they will receive for a given level of performance. According to our theory, this ambiguity opens the door for employee optimism, which has contrasting effects under each contract frame. Results from an experiment support this theory, with an increase in ambiguity leading to less employee effort with penalty contracts (as employees optimistically expect small penalties) and to more effort with bonus contracts (as employees optimistically expect large bonuses). We also find that these effects are stronger for more dispositionally optimistic employees. Overall, our results suggest that bonus contracts may be more motivating and penalty contracts less motivating than previously thought.

Law of obligations in Poland: Selected issues

The article provides a brief overview of the Polish law of obligations. In particular, the main sources of obligations are briefly presented, i. e., contracts, torts and unjust enrichment. Special attention is paid to mutual obligations, joint and several obligations, pecuniary obligations and obligations deriving from consumer contracts. The article discusses the legal instrument for concluding a contract such as preliminary contract, and also performance, discharge and remedies for breach of contract. In particular, the consequences of delay in the performance of an obligation and the types of such delay are considered. The author pays special attention to the issues of liability for non-performance of obligations, in particular, compensation for losses from non-performance. The article reveals the content of the pacta sunt servanda principle in Polish law and the existing exceptions to this rule. Such a method for the termination of an obligation is specifically considered, in addition to its performance, as a set-off. The author presents different measures that may discipline the parties to perform the obligation, such as contractual penalties and earnest money deposit. Finally, the article addresses the notion of damage, principles of liability and obligation to compensate. When describing the obligations from unjustified enrichment, special attention is paid to the fact that the loss of enrichment excludes its reclamation from the enriched person if he lost the enrichment without knowing about the obligation’s existence. In regard to tort law, it is emphasized that there are cases of innocent liability for causing harm in Polish law as an exception to the general rule. Only illegal actions or omissions can be qualified as guilty and entail responsibility. Polish law does not recognize the general obligation to refrain from causing harm. The culpability of misconduct is presumed. In some cases, the behavior cannot be recognized as illegal, even if it violates the general prohibition established by law. In particular, this concerns causing harm in the case of necessary defense, extreme necessity, permissible self-help and in a number of other cases.

Effects of CO2-Penalty Costs on the Production and Recycling Planning of Lithium-Ion Batteries

To reduce the high impacts of lithium-ion batteries, closed-loop supply chains using recycling and reuse are established. Simultaneously, car manufacturers face legal requirements based on the carbon emissions of their products. Therefore, these manufacturers aim to reduce carbon emissions in their entire supply chain. Hence, CO2-penalty costs in the form of taxes or contractual penalties are likely to be inforced. To analyze their effects, we formulate a model for the integrated production and recycling planning. By applying the model to an illustrative case study, it is shown that the level of the penalty costs influences carbon emissions.

A Predictive Multi-Tenant Database Migration and Replication in the Cloud Environment

With the rapid adoption of multi-tenant databases, the cloud provider consolidates multiple tenants’ database on server machines, where the tenants share a common application and database instances. To ensure the quality of service (QoS) for the leased resources, both sides (i.e., the user and the provider) create a Service Level Agreement (SLA). Higher SLA violations result in high SLA contractual penalties and increase the possibility of losing the tenant. In addition, the unusual workload patterns of each tenant transactions require seamless adjustments due to the sudden burden changes and variability. As a result, to satisfy simultaneously availability and performance tenant requirements, it is necessary to perform reliable tenant migration and replication to distribute the workload to a flexible set of sites and avoid SLA violations. In this research, a cluster-based multi-tenant database management system (CB-MT DBMS) is proposed, which takes the migration and replication decisions in advance by monitoring and acting before the violation of the SLA occurs. In addition, a dynamic proactive multi-tenant database migration and replication MTDB-MR algorithm is proposed to reduce collisions and inconsistencies between migration and replication decisions for a group of violated tenants. Experimental results show that the proposed MTDB-MR algorithm is the ideal candidate for migration and replication of the violated multi-tenant databases, as it minimizes the total number of SLA violations, the number of multi-tenant clients SLA violations, client sites average response time and total execution time of each multi-tenant client site as compared to the previous algorithms.