CJEU confirms when compensation for recovery costs is due under Late Payments Directive

Summary‍

The Court of Justice of the European Union (“CJEU”), in delivering a ruling in the case of Skarb Państwa – Dyrektor Okręgowego Urzędu Miar w K. vs. Z. sp.j. (Case C-279/23) on 11th July 2024, considered the applicability of Article 6(1) of Directive 2011/7/EU on combating late payment in commercial transactions (recast) (the “Late Payments Directive”). This clause states that where interest for late payments becomes payable in commercial transactions, the creditor is entitled to a minimum fixed sum of EUR 40 from the debtor as compensation for recovery costs. The CJEU confirmed that where a creditor is seeking to obtain the fixed minimum sum of EUR 40 as compensation for recovery costs in accordance with the Late Payments Directive, national courts are prevented from dismissing such an action on the following grounds: that the amount due by the debtor is a small amount or that the delay in making the payment is negligible.

Background to the case and Judicial Proceedings before the Polish Courts

The Office of Measures in Poland brought an action against a company governed by Polish law, before the Sąd Rejonowy Katowice – Zachód w Katowicach (District Court, Katowice-West, Katowice, Poland) (the “Referring Court”) in view of late payments by the defendant company for the provision of services, relating to the calibration of measuring instruments, regularly provided by the Office of Measures.

The Referring Court noted that under the Polish Civil Code, where the amount of a claim for delayed payment does not exceed a certain amount of money or the delay in payment has not exceeded a specific period of time, compensation to the creditor is considered to be contrary to the principles of communal coexistence, which the Referring Court treats as equivalent to being contrary to accepted principles of morality. The Referring Court added that according to settled case-law of Polish courts, where an action for payment of a fixed sum for recovery costs is brought before Polish courts, and the amount of the claim is small or the payment delay is negligible, such actions are dismissed.

In view of this, the Referring Court referred the case to the CJEU to clarify whether this interpretation of Polish law is compatible with Article 6(1) of the Late Payments Directive.

Legal Context and CJEU’s Legal Considerations‍

Prior to analysing the question raised by the Referring Court, the CJEU noted that in the present case, the Late Payments Directive is not applicable. However, since under Polish law, the right to compensation for recovery costs extends also to instances falling outside the scope of the Late Payments Directive, the CJEU held it was necessary to give a preliminary ruling in respect of the Referring Court’s question, to ensure uniform interpretation of EU law provisions.

The CJEU held that, upon an analysis of the various articles and recitals within the Late Payments Directive, there is no indication that the fixed minimum sum for the compensation of recovery costs, shall not be due in instances where the amount of the claim is low or in instances where the debtor is solely responsible for negligible delay in payment.

The CJEU held that late payment is defined in the Late Payments Directive as “[…] payment not made within the contractual or statutory period of payment […]” and that Article 6(2) of the Late Payments Directive states that the compensation of recovery costs is due automatically, even if the creditor does not issue a reminder to the debtor.

The CJEU went on to analyse the purpose and intention of the Late Payments Directive, which the CJEU declared was to effectively protect creditors by discouraging late payments and ensuring that late payments are not considered financially attractive to debtors, in view of low or lack of interest rates. It added that Article 7(3) of the Late Payments Directive also provides that “a contractual term of practice which excludes compensation for recovery costs […] shall be considered grossly unfair”.

In light of the above, the CJEU held that a debtor should not be exempted from paying the compensation for recovery costs on the ground that the amount due is low or the delay is negligible, as such exemptions would be contrary to Article 6(1) of the Late Payments Directive, which serves not only to discourage late payment but also to provide compensation for costs.

The CJEU referred to the Referring Court’s concern that compensation for recovery costs to the creditor in instances where the amount due is small or where the delay in payment was negligible, will be contrary to the principles of communal coexistence. In this regard, the CJEU held that if an interpretation of national law is incompatible with the objectives of a directive, national law is to be interpreted in conformity with EU law and national courts are to change established case law where necessary. It went on to state that while national law is to be interpreted in conformity with EU law, the whole body of domestic law and interpretative methods recognised by domestic law are to be considered and followed, in order to ensure that the outcome is consistent with the objective of an EU Directive. The CJEU added that the fact that a provision has been consistently interpreted in a manner that is incompatible with EU law, cannot result in a national court stating that it is impossible for it to interpret a provision in a specific manner, consistent with EU law.

CJEU’s Ruling

In view of the above and in accordance with the Late Payments Directive and its purpose, the CJEU concluded that Article 6(1) of the Late Payments Directive must be interpreted in a manner which prevents national courts from dismissing actions for the fixed minimum sum due to the creditor as compensation of recovery costs, in instances where the time delay in payment is negligible or the amount of the claim is small.

Disclaimer: Ganado Advocates is responsible for contributing to this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report. This article was first published in 'The Malta Independent' on 28/08/2024.

Author: Erika Gabarretta (Associate, Ganado Advocates)