Criteria for Assessing the Adequacy of a Contractual Fine

Contractual parties can stipulate that a party shall pay a contractual fine in case of a breach of a contractual obligation.

The amount of a contractual fine has to be stipulated with caution because if the amount was found disproportionate, the court would be entitled to reduce it. The Supreme Court of the Czech Republic has recently issued a judgement (Reference Number 33 Cdo 1947/2014) in which it expressed its opinion on adequacy of a contractual fine.

For assessing the adequacy of contractual fine it is necessary to take following aspects into consideration: circumstances under which the contract and the contractual fine were stipulated, purpose, character and value of the secured obligation and the mutual proportion of the value of the main obligation and the contractual fine. Crucial for the assessing are only those circumstances that had existed when the contractual fine was concluded.