Lawyer: what can be done to prevent miscarriages from ending up in court? | Business

When concluding contracts, the parties often expect smooth cooperation, so the issues of mutual responsibility of the parties are forgotten or insufficient attention is paid to them, notes Dominykas Jončas, associate lawyer at Cobalt.

Personal archive photo/Dominykas Jončas

The consequences of this in the case of disputes are unpleasant – a complicated process of proving contractual liability, unclear scope of contractual liability and its scope of application are foreseen.

In order to avoid ambiguities, it is recommended to pay sufficient attention to the issues of contractual liability and to provide for the scope and cases of application of non-rights in the contract. Clear regulation of these issues during the conclusion of the contract allows both parties to the contract not only to avoid long disputes, but most importantly, it encourages the parties to execute the contract in good faith.

By clearly and in detail regulating these issues, the burden of proof of losses is relieved for the creditor, as defaults can be recognized as minimal losses for the creditor. There is also clarity between the parties regarding the scope of the application of non-judgments, the debtor is encouraged to fulfill the obligation properly and on time, because he realizes that if he does not do so, he may be subject to contractual liability.

Only compensate, not punish

The most common types of contractual liability (non-performance) found in contracts are fines and late interest. The law allows the parties to a contract to choose what liability will apply to the other party in the event of a breach of contract, but at the same time requires that such an agreement be made in writing. Therefore, if the issue of non-jurisdiction was discussed between the parties only verbally, the party demanding the application of non-jurisdiction would have the obligation to prove that such an agreement actually existed.

The provision of both fines and late payment interest in the contract must comply with the basic principle of civil liability – non-compliance must perform a compensatory function, not a penalty.

Criminal defaults might be those when, due to the improper performance of the contract, both the fulfillment of the obligation and the defaults will be demanded from the party who violated the contract, or an agreement when the defaults applied to the other party are unreasonably high. Also, cases where the contract provides for both a fine and late interest for the same violations are also recognized as criminal violations.

The court can reduce

Perhaps the most common dispute regarding miscarriages in practice is excessive miscarriages. The size of the deficit must meet the criteria of reasonableness and not be clearly excessive. These are the evaluation criteria that are evaluated by the court. However, in doing so, the court must take into account the nature of the contract itself and its breach, the consequences of the breach, the behavior of the debtor (for example, whether the debtor made efforts to reduce the consequences of the breach of the contract, or was benevolent) and other criteria.

Whether contractual damages are reasonable or not is assessed by the court, which has the right to reduce the required damages. Given that the agreement on alimony is an expression of the parties’ free will, the court’s right to reduce alimony is not absolute. At the same time, the law does not allow the court to reduce damages below the limit of losses incurred.

From a practical point of view, legal regulation and case law mean that the agreement on non-judgment must be clearly enshrined in the contract, reasonable and proportionate. When agreeing on non-liability, it is necessary to assess the nature of the contract, as well as the rights and obligations of the parties.

An agreement on non-liability cannot turn into the profit of one party at the expense of the other. Excessively strict (excessive) non-sentences may be considered by the court as fines. In such cases, the courts have the right to reduce them to a reasonable amount.

It is generally considered that defaults correspond to the minimum losses of the creditor and the amount of these defaults does not need to be proved by the creditor. However, if the debtor demands to reduce the damages, the creditor may have the obligation to prove his expected losses due to the breach of contract.

Therefore, both when stipulating non-performance in the contract and making a claim for compensation for non-performance, the creditor should assess the relationship of non-performance with the breach of contract, with the amount of claimed damages, as well as other circumstances, such as the debtor’s behavior. The insolvency claim must not turn into an additional punishment of the debtor – if the insolvency claim exceeds or equals the amount of the debt.

Double celibacy is a mistake

A case that occurs quite often in practice is double miscarriage. In court practice, cases where the creditor requires the debtor to impose defaults in the form of both late payment interest and a fine are recognized as double default claims.

At the same time, this also applies to the ratio of interest and penalties, when they are claimed together. In the practice of the Court of Cassation, it is recognized that in cases where interest performs the function of compensating losses and becomes a form of liability of the debtor, it is not possible to additionally award damages from the debtor, because losses that are already compensated by interest also include damages (damages are included in losses).

For the sake of additional clarity, it is recommended to establish in the contracts what cases are considered a breach of contract for which non-compliance is applicable. It is understood that it is impossible to provide an exhaustive list of possible cases of contract violations, but the contract should at least provide for the most likely contract violations.

This can be delays in payments, delivery of goods, defects in delivered goods, etc. If the contract stipulates at least the most common cases of violations and provides specific penalties for them, the scope of application of such contractual liability would be clear to both parties in the event of a dispute.