However, to avoid additional costs, it is worth knowing what to look out for when cancelling an electricity contract, so as not to incur extra charges, particularly contractual penalties. In this article, we will outline the key points to bear in mind when cancelling an electricity contract in relation to contractual penalties.
What is a contractual penalty?
Before we move on to discussing contractual penalties in electricity supply contracts, let us explain what a contractual penalty is. The legal definition of a contractual penalty is set out in Article 483 of the Civil Code. According to this provision*, a contract may stipulate that compensation for damage resulting from the non-performance or improper performance of a non-monetary obligation shall be made by payment of a specified sum (contractual penalty).* A contractual penalty is therefore a sum specified in the contract which one party undertakes to pay to the other party in the event of non-performance or improper performance of the contract. It is also possible to stipulate a contractual penalty in the event that either party withdraws from the contract. The institution of the contractual penalty is a form of safeguarding the interests of the contracting parties.
Variations in contractual penalties depending on the type of contract
Electricity supply contracts can take various forms, and their details depend on the type of customer (residential or business) and the specific energy supplier. From the perspective of electricity supply contracts, the most significant distinction is that based on the duration of the obligation – as this will determine whether the electricity consumer can be charged additional costs upon termination of the energy supply contract. In this regard, a distinction can be made between contracts of indefinite duration and fixed-term contracts.
The provisions of the Act of 10 April 1997 – Energy Law (i.e. Journal of Laws of 2024, item 266, as amended; hereinafter referred to as***: the Energy Law***) differentiate between the imposition of additional costs (including contractual penalties) upon termination of an electricity supply contract depending on the duration of the contract. Article 4j(3) of the Energy Law refers to the termination of an open-ended electricity contract, whilst paragraph 3a of that provision concerns fixed-term contracts.
Termination of an electricity contract concluded for an indefinite period and contractual penalties
Pursuant to Article 4j(3) of the Energy Law, an end user may terminate an indefinite contract under which an energy company supplies that user with gas or electricity, without incurring any costs, by submitting a notice of termination to the energy company. This means that, in the case of a contract for an indefinite period, the energy supplier cannot impose contractual penalties on its customer. However, it is worth noting the second sentence of the aforementioned provision, which states that a customer who terminates the contract is obliged to pay for the gas or energy consumed and for the transmission or distribution services provided. In light of this provision, therefore, the end consumer is obliged to settle charges for the electricity consumed, as well as for services related to its distribution
An energy company providing electricity supply services is obliged to ensure that the end consumer has the option to terminate an open-ended electricity supply contract without incurring additional costs, including contractual penalties for withdrawing from the electricity contract. Furthermore, even if the contract were to contain such provisions, they are invalid by operation of law, as Article 4(3) of the Energy Law is mandatory. The only charge the customer is obliged to pay to the energy supplier is the cost of electricity transmission (distribution).
Termination of a fixed-term electricity contract and contractual penalties
The situation is different where the contract was concluded for a fixed term. Pursuant to Article 4j(3a) of the Energy Law*, the end user may terminate a fixed-term contract under which an energy company supplies that user with gas or electricity, without incurring costs or paying compensation other than those specified in the contract, by submitting a notice of termination to the energy company.* The energy supplier is entitled to claim reimbursement of costs and any compensation, but only to the extent specified in the electricity supply contract. Therefore, any additional charges, such as contractual penalties, must be expressly provided for in the contract or the General Terms and Conditions (GTC). If the contract or the GTC does not provide for the imposition of a contractual penalty for its termination, such a penalty cannot be imposed on the end consumer.
The second part of the provision in question, however, contains specific regulations regarding the amount of additional charges in connection with the termination of an electricity contract. This provision applies to specific groups of end users:
- Households;
- Micro-entrepreneurs within the meaning of the Entrepreneurs Act;
- Small entrepreneurs within the meaning of the Entrepreneurs Act.
Pursuant to Article 4j(3a)(2), in the case of a household consumer of electricity or gas and an end-user of electricity or gas who is a micro-enterprise or small enterprise, to the extent that they consume electricity or gas for the purposes of their core business, the amount of such costs and compensation may not exceed the amount of direct economic losses incurred by the energy supplier as a result of the termination of a fixed-term electricity contract by the consumer. The amount of additional costs (including contractual penalties) may therefore not exceed the amount of direct losses incurred by the energy supplier in connection with the termination of a fixed-term contract. This provision therefore protects ‘particularly vulnerable’ groups of customers so that the termination of a business electricity contract does not entail a significant financial burden for them.
What should you do if an energy supplier imposes a contractual penalty on you?
If an electricity supplier imposes a contractual penalty on a customer, the customer has the option of taking various legal actions. Firstly, it is worth attempting an amicable resolution of the dispute (e.g. through negotiation), setting out one’s position regarding the penalty having been wrongly imposed or the contractual penalty being disproportionate to the energy company’s actual losses. If this method fails to reach an agreement, the matter may be referred to the courts. It is also worth bearing in mind the institution of mitigation of contractual penalties (Article 484(2) of the Civil Code), which allows for a reduction in the amount of the penalty, thereby lessening its impact.
It is also worth bearing in mind that the choice of the appropriate legal action depends on the individual circumstances of the electricity consumer – an analysis of the facts and knowledge of the remedies available to the customer will enable the selection of the optimal tools for resolving the dispute.
Termination of electricity contracts for businesses and contractual penalties – summary
Terminating an electricity contract may, but does not necessarily, entail the end user having to pay contractual penalties. This is because everything depends on the structure of the contract, its provisions, and, above all, the term for which it was concluded. Under energy law, the possibility of imposing additional charges such as contractual penalties, as well as their amount, depends on the term of the contract. A thorough analysis of the contract and knowledge of the law can protect us from having to pay a contractual penalty or help reduce its amount. If you have any doubts regarding the possibility of terminating your electricity contract, please contact HWW Hewelt Wojnowski Lindner i Wspólnicy.
He specializes in tax law, focusing on the liability of taxpayers, payers and collectors, as well as issues related to income taxes and fiscal criminal law. Her master's thesis, defended at the Department of Financial Law at the University of Warsaw, dealt with tax and criminal liability for tax fraud in income taxes.
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