Recovery of contractual penalties, damages and interest

What is happening

A supplier delivered equipment two months late, the line stood idle and the company had to buy urgently from another seller at a higher price. The prepayment was eventually refunded, but the price difference and the downtime losses stayed with the company.

A buyer pays, but always late. The contract provides for a late-payment penalty that nobody ever charged, so as not to 'spoil the relationship'. Now the relationship is over, and the question is for which period penalties can still be recovered.

The reverse case: the company is sued for a penalty at a rate that, annualised, is many times the key rate. The task here is to test the calculation itself and show the court that the penalty is disproportionate.

What the law says

• A penalty is recovered under the contract or a statute; under the Civil Code the creditor need not prove it suffered loss, only that the obligation was breached.
• A clearly disproportionate penalty may be reduced by the court under Article 333 of the Civil Code; where the debtor is in business, only on its application and in exceptional cases.
• Interest for use of another's funds under Article 395 of the Civil Code accrues at the Bank of Russia key rate; where the contract sets a penalty for the same delay, interest is not recoverable as a general rule.
• Damages cover actual loss and lost profit (Article 15 of the Civil Code). Breach, amount and causation must be proved; a court may not refuse simply because the amount cannot be fixed with absolute precision, it is determined with reasonable certainty.
• Where the contract was terminated because of the counterparty's breach, the difference between the contract price and the price of a substitute transaction or the current price may be recovered (Article 393.1 of the Civil Code).
• Penalties and interest may be claimed up to the date of actual payment: the court says so in the judgment and accrual continues during enforcement.

What we do

• We analyse the contract: what sanctions it provides, whether liability is capped, and how the penalty relates to damages.
• We calculate penalties and interest for each breach, allowing for payment dates, part payments and periods when accrual was restricted.
• We gather evidence of loss: substitute contracts, price lists, downtime records, expert opinions.
• We prepare a claim letter and a statement of claim with a calculation the court can check line by line.
• We resist reduction of the penalty by showing the court the real consequences of the breach for the company.
• Where the company is the defendant, we test the claimant's calculation and plead disproportion and limitation.

What we will need from you

• The contract with annexes and every amendment to the liability provisions.
• Evidence of performance dates: delivery notes, certificates, payment orders, correspondence about extensions.
• For damages: substitute contracts, invoices, downtime records, loss calculations from accounts or production.
• Claim letters and replies, if positions have already been exchanged.
• Details of how the breach affected your own obligations to your customers.