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Collection of penalties and fines under a commercial contract
The recovery of a penalty and fine under a contract is a form of commercial liability that encourages the counterparty to fulfill its obligations in good faith. Such types of liquidated damages are applied in cases of serious breaches of commercial contract terms and may be charged either as a one-time payment or throughout the entire period of violation until it ceases. In addition, inflation adjustments are added to the penalty and fine, partially compensating the creditor for losses caused by delayed payment of sanctions. More details are provided below.
What Types of Liquidated Damages Are Provided Under a Commercial Contract?
Liability of the parties is a critically important element of any contract. It must regulate not only compensation for the creditor’s losses but also stimulate the counterparty to properly perform the agreement. A commercial contract should clearly specify forms of penalties, other monetary obligations, compensation for damages, payment deadlines, and consequences of non-compliance. The main types of liquidated damages include:
- a fine (a one-time fixed payment);
- a penalty (calculated for each day of delay);
- monetary compensation (inflation losses and 3% annual interest);
- damages (actual losses and lost profits).
Penalty and Fine Under a Commercial Contract: When Are They Applied?
Liquidated damages perform two functions simultaneously: a security function (encouraging performance) and a compensatory function (covering potential losses of the creditor). Civil legislation clearly distinguishes between a fine and a penalty, which may be imposed in cases of:
- failure to meet performance deadlines;
- delivery of defective products;
- failure to properly inform the creditor of changes;
- non-payment for completed works or provided services;
- violation of confidentiality obligations, etc.
Important! Courts may simultaneously recover both a fine and a penalty for breach of a commercial contract, as they represent different types of liability.
Specifics of Penalty Recovery: Legal Framework and Court Practice
Court practice regarding contractual sanctions has evolved significantly in recent years. The Supreme Court has established the following legal positions:
- simultaneous recovery of a fine and a penalty is permissible; however, two identical sanctions cannot be applied for the same period;
- inflation adjustments and 3% annual interest cannot be reduced by the court, as they serve as a mechanism to protect monetary value from depreciation;
- the court has the right to reduce the amount of liquidated damages if it considers the amount excessive and constituting unjust enrichment of the creditor.
Important! Following the repeal of the Commercial Code of Ukraine in 2025, the previous 6-month limitation on penalty accrual was abolished. Currently, the accrual period is governed either by the contract or by the general statute of limitations (1 year).
For more detailed information, we recommend booking a consultation with
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Are Penalties and Fines Inherited?
The issue of inheritance of debts and contractual sanctions is regulated by civil law. The conditions for transferring the obligation to pay liquidated damages are as follows:
- a fine and penalty are inherited only if they were awarded by a court during the lifetime of the deceased;
- an heir has the right to apply to the court to reduce the amount of liquidated damages if it significantly exceeds the value of the inherited property;
- from the moment of the debtor’s death, accrual of new interest for heirs is prohibited.
Recovery of Penalty and Fine Through Court: Procedural Specifics
Before filing a claim, it is important to consider the specifics of this category of disputes. A special statute of limitations of 1 year applies to the recovery of liquidated damages. A detailed month-by-month calculation of the penalty and other sanctions must also be prepared for the court. Additionally, existing legislative restrictions on the accrual of penalties must be taken into account.
How Can a Commercial Litigation Lawyer Help?
A lawyer is a strategic partner and protector of business interests. Their task is not only to resolve commercial disputes but also to build a solid contractual foundation for future cooperation. A commercial litigation lawyer:
- provides legal consultations;
- conducts pre-trial dispute resolution;
- prepares court claims (including collective actions);
- analyzes and drafts commercial contracts;
- assists in enforcement proceedings;
- conducts negotiations with counterparties;
- represents the client’s interests in court.
To receive a consultation and learn the cost of legal support in cases involving recovery of penalties and fines under a commercial contract, please fill out the form below.
Calculate the cost of services
1 question
Did the counterparty violate the terms of the contract?
2 question
Does the contract provide for a penalty or fine?
3 question
Has 1 year passed since the breach of obligation?
Is a subscriber form of service possible to quickly resolve issues as they arise?
Yes, of course, we take companies for permanent support.
The subscription form of service allows you to receive a full range of legal services on an ongoing basis for a fixed monthly fee.
Our lawyers will accompany all economic legal relations of your company: from drawing up contracts and solving corporate issues to representing interests during inspections by regulatory bodies and in court disputes.
We have very flexible pricing, so contact us and we will discuss your specific case.
Do you work only in Kyiv?
Fortunately, modern technologies allow us to effectively solve almost any legal issue online regardless of your location. In cases where personal presence is necessary, our lawyers are ready to travel to any point in Ukraine. Moreover, thanks to our network of reliable partners abroad, we can provide legal support even in international cases. Our goal is to provide you with quality legal assistance wherever you are.
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