Contractual penalties in international contracts
Contractual penalties in international contracts – is it worth introducing them to the contract?
Adam concluded the sale agreement of 1,000,000.00 calendars and undertook to send the ordered goods to Spain. The products were to be delivered within the time specified in the contract. The contract with the buyer had a written form. In the agreement the parties regulated mutual rights and obligations, including contractual penalties for late delivery of the ordered goods. In the final provisions of the agreement, the parties indicated that the provisions of Spanish law will apply to any claims arising from the concluded agreement in the field of contractual penalties. The parties also gave jurisdiction to the courts in Spain.
Unfortunately, Adam was unable to deliver the ordered calendars to the buyer, which is why he withdrew from the contract. The buyer called on him to return the advance payment made to him in the amount of half the price of the ordered goods. Adam did not return the amount paid to him within the time limit set for this purpose, due to which the buyer brought the case to court. The Spanish court determined that the provisions of Spanish law would apply to the case. Adam questioned the above, pointing out that the applicable law in the case should be Polish law.
According to given information, the parties concluded a sales contract, in which they specified that Spanish law would govern any claims related to contractual penalties arising from the agreement. However, they did not specify which law would apply to other types of claims arising from the contract. Thus, in order to determine the law applicable to the assessment of other claims, the parties should apply the provisions of the Regulation of the European Parliament and of the Council (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations (Rome I). According to the provision of Art. 4 sec. 1 lit. a) the above mentioned legal regulation in the scope in which the law applicable to the contract has not been chosen, the sale contract of goods shall be governed by the law of the country in which the seller has his habitual residence.
The above indicates that Polish law will be the applicable law in the discussed factual situation. This is because Adam has his habitual residence in Poland.
Adam is right in this case.
Joanna Lubecka
attorney
Contractual penalties in international contracts – is it worth introducing them to the contract?
The common commercial practice is to communicate only in electronic form, through the exchange of e-mails. It should be remembered that in this case a contract is also concluded in the form of a commercial custom adopted by the parties.
Economic cooperation with a foreign contractor can be formalized in several ways. Do you know them? Are any of them better than the others? Let’s see.
In practice, a significant part of the negotiations between the parties is devoted to these provisions.
The international sale of goods is very often associated with the use of Incoterms rules. What are they and why are they so helpful?
Entering into commercial relations with a foreign contractor involves risk. What is the risk in foreign trade and how to increase the security of such transactions? Read more.
Case study
You are engaged in discussions with a potential foreign partner regarding the terms of a possible economic partnership. During the negotiation process, you discover that the partnership is supposed to be governed by a straightforward agreement or purchase order and the standard General Terms and Conditions used by your business partner.
Confidentiality clause is a contractual provision on the basis of which the parties decide to accept that the information specified by them, indicated in the contract, will be confidential, and therefore cannot be freely available to third parties, under the pain of the consequences specified in the contract.
Case study