Late payment: penalties and statutory interest are not cumulative

Penalties and legal interest are designed to compensate for the same loss: late payment. The French Supreme Court (Cour de Cassation) ruled on April 24, 2024 that they cannot be combined.

Unpaid invoices: a company claims penalties and statutory interest for late payment

In this case, a company sued another company for payment of a provisional sum corresponding to unpaid invoices for two employee training contracts signed in 2016 and 2018.

Initially, the Court of Appeal rejected the applicant company's request, stating that late payment penalties and statutory interest cannot be combined, on the grounds that they are both intended to compensate for late payment. The applicant company therefore appealed to the French Supreme Court.

Identical penalties

It is worth recalling the conditions of application and legal regimes of penalties and legal interest for late payment of invoices.

Late payment penalties are a pecuniary sanction that applies for each day of late payment. They must be included in the supplier's general terms and conditions of sale. Their rate depends on the key interest rate of the European Central Bank (ECB). This rate changes every six months. During the 1st half of the year, it corresponds to the ECB rate in effect on January 1 of the year, plus 10%. During the 2nd half of the year, it corresponds to the ECB rate in effect on July 1 of the year, plus 10%.

As for legal interest on arrears, a distinction must be made between the simple legal interest rate used when the sum due is paid within 2 months of the date of application of the judgment, and the increased legal interest rate used in other cases. They are calculated differently. Simple legal interest is obtained by multiplying the amount due by the number of days overdue and by the legal interest rate applicable to the period, then dividing the result by 36,500. For the first half of 2024, the legal interest rate is 8.01% when the creditor is a private individual not acting for professional purposes, and 5.07% when the creditor is a professional. Since 2015, the higher rate has corresponded to the legal interest rate plus 5 points (13.01% or 10.07% in H1 2014).

In this case, the Commercial, Financial and Economic Chamber of the French Supreme Court (Cour de cassation), in a ruling dated April 24, 2024, dismissed the appeal lodged by the applicant company and ordered it to pay the costs, ruling, as did the Court of Appeal, that although these sanctions are identical in nature, they cannot be combined.