The Court of Justice of the European Union declares that companies that accepted the mechanisms of payment to suppliers cannot now claim the interest for late payment or compensation for recovery costs

Written on 17 Feb 2017

The judgment of 16 February 2017, handed down by the Court of Justice of the European Union, declares that the Spanish legislation on payment mechanisms for suppliers complies with Community legislation and, therefore, guarantees the free and consenting waiver of creditors to demand interest for late payment and compensation for recovery costs.  

The judgment handed down by the Fifth Chamber of the Court of the Court of Justice of the European Union (CJEU) in case C-555/14 declares that Article 7.2 of Directive 2011/7 of the European Parliament and Council of 16 February 2011, which establishes measures to combat late payment in commercial transactions (Directive 2011/7), does not preclude the creditor from freely waiving the right to claim interest for late payment and compensation for the recovery costs.

In accordance with the regulations governing the mechanism of payment to suppliers, creditors adhering to this agreed, in exchange for the immediate payment of the principal sum of the debt, to the waiver of default interest and compensation for recovery costs. However, many suppliers claimed the payment of interest through legal channels as a result of the direct application of the Community directives on combatting defaulting on payment that provided for an express prohibition on the exclusion of the right to recovery of interests as it could have been understood that such exclusion constituted an abusive clause or practice.

Given the multiple disparate pronouncements of the Courts and Tribunals that prosecuted the creditors´ debt claims, the Court of Judicial Review nº 6 of Murcia requested a preliminary ruling to clarify whether the provision that required the waiver of the interest for late payment, recovery costs, accessory costs and judicial costs in the case of adhering to the mechanism of payment to suppliers (specifically Article 6 of Royal Decree-Law 8/2013 of 28 June on urgent measures against the defaulting of the government institutions and supporting local authorities with financial problems), is in line with Directive 2011/7 (Article 7.2).

In response to the question referred for preliminary ruling, on 16 February 2017 the CJEU agreed to declare that the waiver of the payment of default interests and compensation for recovery costs laid down by the Spanish legislation does not constitute an unfair term for the following reasons:

  1. The purpose of Article 7(2) and (3) of Directive 2011/7 is to prevent the creditor´s waiver of the right to interest for late payment or to compensation for recovery costs from occurring at the time when the contract is entered into, that is to say, at the time of the exercise of the creditor´s freedom of contract and therefore of the possible risk of an abuse of that freedom by the debtor to the disadvantage of the creditor.
  2. By contrast, when, as in the case in the main proceedings, the conditions laid down in Directive 2011/7 are met and the interest for late payment and the compensation for recovery costs are payable, the creditor, having regard to his freedom of contract, must remain free to waive the sums owed in respect of that interest and compensation, inter alia, in exchange for immediate payment of the principal sum.
  3. Recital 16 of the Directive gives the creditor a margin of discretion in stating that the Directive should not oblige a creditor to claim interest for late payment, which in the Court´s opinion confirms the possibility of a waiver.
  4. Consequently, as the Advocate General notes, there is nothing in Directive 2011/7 to suggest that it prohibits the creditor from freely waiving the right to demand interest for late payment and compensation for recovery costs.
  5. In order to assess whether the waiver has been freely agreed to, it is necessary to ensure that the creditor was in fact able to rely on any effective legal remedy to seek, had he wished to, payment of the debt in full, including interest for late payment and compensation for recovery costs, this being a matter for the referring court to verify.

However, the ruling of the CJEU is striking given that it seems to depart from the doctrinal position which it had been maintaining up until now that established the necessity of restrictively interpreting those provisions which grant substantive or qualified rights to individuals (see C-25/62 Plaumann v. Commission and C-140/73 Mancuso, amongst others).

In conclusion, the judgment presents a blow to companies adhering to the mechanisms of payment to suppliers that, having already initiated their claims on the basis of the preliminary ruling referred, will see their hopes thwarted.