Success in a dispute over payment of a contractual penalty

Success in a dispute over payment of a contractual penalty

Initiated in 2014 by the Sowisło & Topolewski Law Firm on behalf of the Client – a construction company specializing in the construction of transmission pipelines and distribution networks – the dispute, conducted against a foreign contractor, ended with the success of the Sowisło & Topolewski Law Firm. On 16 July 2019, the Court of Appeal in Szczecin issued a judgment in this case, which finally resolved the case in favour of the Client of the Law Firm.

The case concerned contractual penalties calculated by the Client, acting as a contractor, for withdrawing from the construction works contract between the parties to the dispute for reasons attributable to the counterparty – a subcontractor – namely a significant delay in the implementation of the subject of the contract. The total amount of contractual penalties charged was almost PLN 5 million, and the Client sought payment of over PLN 600,000 in court. The counterparty disagreed with the position of our Client, questioning the existence of grounds for withdrawal from the contract and the imposition of contractual penalties. In the dispute initiated on behalf of the Client by the Law Firm, the counterparty filed a counterclaim demanding payment by the Client of almost PLN 7 million.

Among the important issues examined by the Courts one should mention the fulfilment of the premises for effective withdrawal from the contract by the Client, the existence of grounds for calculation of contractual penalties and the legitimacy of counterclaim amounts pursued by the counterparty. Resolving these issues required the use of an expert witness. In the judgment of 7 March 2018 the Regional Court in Szczecin allowed the main claim in its entirety, granting the counterclaim to a small extent (less than 2%). The opponent filed an appeal in respect of the main action in its entirety, and in respect of the counterclaim in part.

Finally, as a result of appeals brought by both parties to the dispute, the Court of Appeals in the judgment of 16 July 2019 shared the position presented by the Client, represented by legal adviser Przemysław Przerywacz, dismissing the appeal of the opponent.

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