{"id":49660,"date":"2025-07-03T10:57:55","date_gmt":"2025-07-03T10:57:55","guid":{"rendered":"https:\/\/my.legal500.com\/developments\/?post_type=legal_developments&p=49660"},"modified":"2025-07-08T10:05:27","modified_gmt":"2025-07-08T10:05:27","slug":"cjeu-clarifies-scope-of-amount-due-under-late-payments-directive","status":"publish","type":"legal_developments","link":"https:\/\/my.legal500.com\/developments\/thought-leadership\/cjeu-clarifies-scope-of-amount-due-under-late-payments-directive\/","title":{"rendered":"CJEU Clarifies Scope of \u201cAmount Due\u201d under Late Payments Directive"},"content":{"rendered":"

On 12 December 2024, the Court of Justice of the European Union (\u201cCJEU\u201d) delivered an important ruling in Case C\u2011725\/23 in the name of M. sp. z o.o. I. S.K.A. v. R.W. The case arose from a request for a preliminary ruling by the District Court in Katowice-East, Katowice in Poland. <\/strong><\/p>\n

<\/p>\n

The ruling concerns the interpretation of the term \u2018amount due\u2019 under Article 2(8) of Directive 2011\/7\/EU (the \u201cLate Payments Directive\u201d or the \u201cDirective\u201d), which is aimed at combating late payment in commercial transactions. This Late Payments Directive plays a crucial role in protecting the financial health of businesses by discouraging late payments and fostering fair commercial practices. In delivering this preliminary ruling, the CJEU provides much-needed clarity on whether reimbursable costs, such as utilities or property-related expenses, are included within the scope of the \u2018amount due\u2019 in the context of commercial agreements.<\/p>\n

The Late Payments Directive: Purpose and Scope
\nThe Late Payments Directive was adopted to address systemic late payment issues in the European Union, which undermine the liquidity and financial stability of businesses, particularly small and medium-sized enterprises (SMEs). Late payments not only complicate financial management but also harm competitiveness and profitability, often forcing creditors to seek external financing during cash flow shortfalls.<\/p>\n

The Directive applies broadly to \u201call payments made as remuneration for commercial transactions\u201d, with \u2018commercial transactions\u2019 being defined as \u201ctransactions between undertakings or between undertakings and public authorities which lead to the delivery of goods or provision of services for remuneration.\u201d The Directive\u2019s key provisions include:<\/p>\n

\u2022 ensuring interest for late payments is due without requiring reminders where the creditor has fulfilled its contractual and legal obligations and has not received the \u2018amount due\u2019 on time, unless the debtor is not responsible for the delay;<\/p>\n

\u2022 introducing a fixed sum (at least EUR 40) as a minimum amount of compensation for recovery costs; and<\/p>\n

\u2022 mandating that payment terms are adhered to unless otherwise explicitly agreed upon and not grossly unfair to the creditor.<\/p>\n

A central concept in this Directive is the \u2018amount due\u2019, defined in Article 2(8) as \u201cthe principal sum which should have been paid within the contractual or statutory period of payment, including the applicable taxes, duties, levies, or charges specified in the invoice or equivalent request for payment.\u201d<\/p>\n

However, the Directive does not define \u201cremuneration\u201d for commercial transactions, leaving room for interpretative disputes, as demonstrated by this case.<\/p>\n

Factual Background of the Case
\nThe dispute arose from a lease agreement between M. sp. z o.o. I. S.K.A (\u201cM.\u201d) and R.W., two Polish undertakings. Under the lease agreement, R.W. occupied commercial premises and was required to pay:<\/p>\n

\u2022 rent plus value-added tax (VAT);
\n\u2022 utility charges, including heating, gas, and electricity; and
\n\u2022 a flat-rate monthly contribution covering property-related costs, such as building common charges and municipal taxes.<\/p>\n

Following R.W.\u2019s failure to pay 26 invoices, including those for rent, utilities, and flat-rate contributions, M. sought payment and invoked its right to compensation for late payment under Directive 2011\/7\/EU. This included the EUR 40 fixed sum for each overdue invoice.<\/p>\n

The Polish referring court questioned whether Article 2(8) is to be interpreted as including within its scope, in addition to the principal sum for the performance characteristic of the contractual relationship in question leading to the supply of goods or the provision of a service, also the reimbursement of costs incurred in connection with the performance of the contract, which the debtor has contractually agreed to pay.<\/p>\n

Key Legal Issues and Question Referred
\nThe central issue before the CJEU was whether the term \u2018amount due\u2019 in Article 2(8) of the Directive includes not only the principal payment for the main service (in this case, the lease) but also sums reimbursed by the debtor for costs incurred by the creditor in performing the contract (such as utilities or property-related charges).<\/p>\n

The Polish referring court raised concerns about a narrow interpretation that might exclude such reimbursable costs. It argued that this would be inconsistent with the Directive\u2019s objective to combat late payments and prevent financial burdens from shifting unfairly to creditors. Such an exclusion could also undermine creditors\u2019 ability to recover full compensation for financial harm caused by late payments.<\/p>\n

The CJEU\u2019s Analysis and Findings
\nThe CJEU emphasised that the wording of Article 2(8) supports a broad interpretation of \u2018amount due.\u2019 The use of the term \u2018including\u2019 in the definition indicates that the list of items covered\u2014such as taxes, duties, and charges\u2014is non-exhaustive. This suggests that additional amounts linked to the main contractual obligation may also be encompassed.<\/p>\n

Furthermore, the inclusion of charges distinct from the principal sum, such as taxes and levies, reflects the EU legislature\u2019s intent to address all amounts contractually due between parties, provided they are connected to the performance of the contract.<\/p>\n

The CJEU highlighted that the Directive applies to all payments made as remuneration for commercial transactions. Importantly, Article 1(2) of the Directive does not differentiate between payments intended to remunerate the main contractual obligation (e.g., rent) and those reimbursing ancillary costs (e.g., utilities). This lack of distinction reinforces the Directive\u2019s broad scope in addressing all payment obligations arising from a commercial transaction.<\/p>\n

Taking an objective-oriented interpretation, the CJEU explained that the Directive aims to protect creditors from the adverse effects of late payments, including liquidity challenges and financial instability. These effects are not limited to unpaid principal amounts but extend to any contractually agreed costs that the creditor must temporarily bear due to the debtor\u2019s non-payment. Recital 19 of the Directive underscores the need for fair compensation, including recovery of administrative and internal costs incurred due to late payment. The CJEU reasoned that excluding reimbursable costs from the \u2018amount due\u2019 would expose creditors to the very risks the Directive seeks to mitigate, thereby defeating its purpose.<\/p>\n

The Court\u2019s Conclusion
\nThe CJEU concluded that the term \u2018amount due\u2019 under Article 2(8) of Directive 2011\/7\/EU encompasses both the principal sum payable for the main contractual service or obligation and any additional costs or charges that the debtor has contractually agreed to reimburse, provided they are linked to the creditor\u2019s performance of the contract. This interpretation ensures that creditors are fully compensated for all overdue payments, reinforcing the Directive\u2019s deterrent effect against late payment practices.<\/p>\n

This ruling provides clarity for businesses across the EU by confirming that reimbursable costs \u2013 such as utilities or property-related charges \u2013 are protected under the Directive confirming the comprehensive scope of the Directive. Creditors can confidently claim interest and fixed compensation on all amounts due under a contract, not just principal sums. By affirming this broad interpretation of \u2018amount due\u2019, the CJEU strengthened protections for creditors. This is particularly beneficial for SMEs, which are more vulnerable to cash flow disruptions caused by late payments.<\/p>\n

Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgment being covered in this law report. This article was first published in \u2018The Malta Independent\u2019 on 15\/01\/2025.<\/p>\n

Author: Ria Micallef<\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-49660","legal_developments","type-legal_developments","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments\/49660","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments"}],"about":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/types\/legal_developments"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/media?parent=49660"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}