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Contractual penalties under Dutch law

Many contracts contain so-called penalty clauses to safeguard contractual obligations. The aim of such contractual penalties under Dutch law is to impose mutual penalties on the contracting parties if a certain breach of duty occurs. Such clauses generally stipulate a monetary amount to be paid, i.e. a contractual penalty, which the party committing the breach of contract must pay to the other party. Contractual penalties in the Netherlands are a particularly useful tool to induce the parties to comply with their contractual obligations and can be agreed in many forms under Dutch law. Our Dutch attorneys in the Netherlands specializing in penalty clauses will be happy to help you with any questions you may have regarding contractual penalties.

Penalty clauses in the Netherlands

Our Dutch lawyers in the Netherlands very often advise on the question of whether and how contractual penalty clauses in the Netherlands can be agreed and how a court in the Netherlands will assess them. The contractual penalty is regulated in the Dutch Civil Code. Fines can be an incentive to fulfilment, or serve to pre-determine the damage in the event of a breach. Frequently asked questions include, for example, whether an agreed contractual penalty can be reduced by a judge or even overruled for reasons of probity. Our English-speaking law firm in Amsterdam will be pleased to advise you on the subject of contractual penalties under Dutch law.

Mitigating a contractual clause under Dutch law

Dutch law defines a penalty clause as a contractual provision which provides that the party in breach of the contract must pay the other party a sum of money or provide another service, irrespective of whether this sum of money or this other service is intended as compensation for damages or merely as an incentive to fulfil the obligation. As Dutch lawyers, we receive many questions on this subject.

It is important to note with regard to contractual penalties that under Dutch law payment of the contractual penalty can only be demanded if the party is also at fault for the non-performance of the contractual obligation. Depending on the wording of the clause, a creditor under Dutch law cannot demand both the performance of the penalty and the performance associated with the clause. This is often undesirable, as the penalty then takes the place of the claim for damages. It is therefore advisable to consult a Dutch lawyer if contracts are concluded under Dutch law that contain a penalty. A contractual penalty may be mitigated if it leads to an excessive and therefore unacceptable result. However, the courts make reluctant use of this.

Enforceability of a contractual penalty in the Netherlands

Under Dutch law, contractual penalties are enforceable even if there is no connection between the penalty and the loss or damage caused by a breach of contract. The main purpose of such a clause (about the enforceability of a contractual penalty in the Netherlands) is to act as a deterrent and subsequently to impose a penalty. As such, a penalty must be disproportionate to the loss or damage caused by the breach of contract in question. In addition, parties claiming a penalty may, in addition to the recovery of the penalty, also claim damages for the actual loss suffered, provided that this has been contractually agreed.

The influence of probity on contractual penalties in the Netherlands

It is true that contractual penalties do not, in principle, have to be proportionate to the damage suffered as a result of the infringement. However, they must also not be completely disproportionate. Proportionality is a legal principle which only recently evolved in UK courts due to the influence of EU and civic jurisdictions. If a penalty is too severe a judge may, at the request of the debtor, reduce the penalty in accordance with the principles of honesty and fairness. It should also be noted that there are also certain types of contract (such as general terms and conditions used in consumer transactions) to which special rules apply which prevent contractual penalties.

Dutch specialist lawyer specialized in contract penalties

Do you have any questions about Dutch contract law or do you need specific legal advice in Holland on the subject of contractual penalties under Dutch law? Our Dutch specialist lawyer specialized in contractual penalties, Remko Roosjen, will be happy to help you.

Office:  +31 (0)20 – 210 31 38