What is a commercial transaction? | In Principle

The question might seem simple. The payment gridlock regulations (the EU’s Late Payment Directive and, in Poland, the Act on Combating Excessive Delays in Commercial Transactions) apply to commercial transactions. Although the regulations have been in force for more than a decade, in practice they still raise numerous doubts.

Parties to a commercial transaction

Pursuant to Art. 2(1) of the Late Payment Directive (2011/7/EU), “commercial transactions” mean “transactions between undertakings or between undertakings and public authorities which lead to the delivery of goods or the provision of services for remuneration.” In turn, under Art. 2(2), “public authority” means “any contracting authority” as defined in Art. 2(1)(a) of Directive 2004/17/EC and Art. 1(9)(a) of Directive 2004/18/EC, “regardless of the subject or value of the agreement.”

The Polish parliament’s definition of a commercial transaction is contained in Art. 4(1) of the Act on Combating Excessive Delays in Commercial Transactions of 8 March 2013. Namely, it is an agreement for delivery of goods or provision of services for remuneration, if the parties referred to in Art. 2 of the act conclude it in relation to their business operations.

The parties to a commercial transaction can only be the entities expressly indicated by Art. 2 of the Polish act. Here, the act lists:

• Undertakings within the meaning of the Business Law of 6 March 2018
• Entities conducting activities referred to in Art. 6(1) of the Business Law
• Entities referred to in Art. 4, 5(1) and 6 of the Public Procurement Law of 11 September 2019
• Persons practising a free profession
• Branches and representative offices of foreign undertakings
• Undertakings from European Union member states, member states of the European Free Trade Agreement which are parties to the Agreement on the European Economic Area, or the Swiss Confederation.

This enumeration limits the scope of entities covered by the payment gridlock rules. The idea is that the heightened requirements for complying with payment deadlines in transactions should cover only professional entities. Indeed, the purpose of the Late Payment Directive and the Polish act is to ensure the proper functioning of the internal market, so that undertakings maintain financial liquidity in competitive conditions.

The guidelines for participation of public bodies in transactions must be noted. As the Court of Justice held in C-327/20, Starosta Nyski, a public authority’s claim against an undertaking for payment of money, as a creditor of the undertaking, does not fall within the definition of “commercial transaction” under the directive, and thus is excluded from the scope of the directive. This means that only if the public authority is the debtor in such a relationship can the parties be considered to be in a commercial transaction.

The court reached this conclusion primarily by relying on the objectives of the directive. Indeed, the explanatory memorandum to the directive indicates that its purpose is to counteract late payment in commercial transactions, to ensure the proper functioning of the internal market, thereby promoting business competitiveness. But in principle, public entities do not face liquidity problems, as they enjoy more secure, predictable and sustainable sources of income than private businesses. Additionally, public entities often enjoy preferable terms of financing not available to private entities. Thus, the court found, public authorities do not deserve additional protection under the directive. This holding concerns entities such as units of the public finance sector and certain public, sectoral or subsidised contracting entities.

The subject of a commercial transaction

Beyond the holdings of the Polish courts and the views of Polish legal commentators, a proper understanding of the nature of a commercial transaction requires an examination of the case law of the Court of Justice of the European Union. For many years, the CJEU has consistently mandated an extremely broad understanding of the concept of a commercial transaction. This is illustrated by the rulings below.

In its judgment in C-299/19, Techbau SpA, the Court of Justice held that a public procurement contract for construction works is a commercial transaction. Although the judgment cites superseded law, the ruling remains relevant. The court reasoned that Art. 6(3) of the Late Payment Directive in force at that time (2000/35/EC) did not provide for the possibility of excluding such transactions from the set of commercial transactions. The court also pointed out that a transaction the subject of which is not the delivery of goods or the provision of services may fall under the concept of a commercial transaction, as long as the transaction actually leads to delivery of goods or provision of services. In that judgment, the court applied this reasoning to a situation where, although the subject of a public procurement for construction works is execution of a structure or construction works, more specific obligations by the contractor to the contracting authority may follow from the contract. This can occur by the provision of services such as development of a design specified in the contract announcement or completion of administrative formalities, or through the delivery of goods, e.g. the supply of materials for the purpose of completing execution of the structure which is the main subject of the contract.

And in C-199/19, RL sp. z o.o., the Court of Justice held that an agreement in which the principal consideration is the provision of real estate for temporary use in return for payment is also a commercial transaction. The court’s main reasoning was that the notion of a “commercial transaction” should be interpreted in light of the Treaty on the Functioning of the European Union and relevant CJEU case law. The TFEU defines a “service” extremely broadly, so that activities not fitting into the concepts of other freedoms do not fall outside the reach of the EU’s fundamental freedoms. Thus the concept of a commercial transaction includes, for example, lease agreements.

In C-585/20, BFF Finance Iberia S.A.U, the Court of Justice indicated that whether a transaction qualifies as commercial is determined by the fulfilment of only two conditions:

• The transaction must be concluded between undertakings, or between undertakings and public authorities
• The transaction must result in the delivery of goods or provision of services for remuneration.

These rulings are particularly important because the directive does not define the concept of delivery of goods or supply of services. But both concepts should be interpreted autonomously and uniformly across the EU, taking into account the context and purpose of the regulations in question. The interpretation of these provisions should ensure effectiveness and uniformity in the application of EU law throughout the EU (e.g. C-199/19, RL sp. z o.o., and C-276/14, Gmina Wrocław).

Following this reasoning of the Court of Justice, the concepts of “delivery of goods” and “provision of services” must also be understood broadly in Poland. Thus they are not limited to a supply or sales agreement. Indeed, under the 1968 case 7/68, Commission v Italy, for purposes of the EEC Treaty, “By goods … there must be understood products which can be valued in money and which are capable, as such, of forming the subject of commercial transactions.” This ruling, which is on point here, leads to the conclusion that goods include not only things, but also intangibles such as energy or rights.

To understand what “provision of services” is, it is also useful to consider Art. 750 of the Polish Civil Code, under which “service” is understood as the performance of factual acts with a specific purpose, without the obligor being obliged to achieve that purpose. Polish judicial rulings have also developed a definition of service as any paid activity other than production or trade (Supreme Court judgment of 15 November 2017, case no. II CSK 122/17). The notion of a service should not be limited to a service agreement in the traditional sense, such as a contract of mandate or contract to produce a work. Indeed, the case law from the Court of Justice extends this concept to an agreement for use of another person’s property, thus including a lease or tenancy agreement, for example.

This reasoning is confirmed by the Polish courts. For example, in the judgment of 3 January 2020 (case no. VII AGa 358/19), the Warsaw Court of Appeal pointed out that according to the established understanding, supply of goods means a sale or other form of disposing of things, known as goods, for consideration, which includes any asset of value, such as waste or energy. And most generally, the provision of services means any paid activity other than production and trade. These concepts do not have statutory definitions, and there are no plans to construct them, and thus their understanding is left to the courts and legal commentators. However, it is consistently argued that supply of goods and provision of services means the realisation of non-monetary benefits for which a monetary consideration (price, fee, rent or other remuneration) is due. This does not include mutual financial transactions.

The Szczecin Court of Appeal ruled similarly in the judgment of 21 June 2021 (case no. I AGa 20/21) that the concepts of supply of goods and provision of services, as well as the concept of commercial transactions referred to in Art. 2(1) of the Late Payment Directive, should be understood broadly. The TFEU defines the concept of service in a manner allowing it to include any benefit not covered by other fundamental freedoms, so that no economic activity remains outside the scope of the treaty. An agreement under which the principal consideration is the provision of real estate for temporary use against payment may constitute a supply of goods or provision of services within the meaning of the foregoing provisions. In the Polish legal system, this primarily means lease or tenancy agreements and other similar agreements not expressly categorised in the Civil Code.

What is not a commercial transaction?

However, this broad interpretation of the concepts of commercial transaction, delivery of goods and provision of services does not mean that all claims arising from agreements in professional trade are subject to the Act on Combating Excessive Delays in Commercial Transactions. For example, the concept of a commercial transaction does not cover incidental claims. Particular examples would be claims for liquidated damages or compensation for breach of contract. Also, claims for capitalisation of interest for late payment in commercial transactions, or various types of compensation, e.g. for collection costs, cannot be classified as commercial transactions.

The common view is that such claims do not constitute the subject of a contract, but are only a consequence of conclusion of the contract. This is particularly important, as neither EU nor Polish legislation expressly indicates that the payment gridlock rules apply to claims for breach of contract. Therefore, any notion aimed at treating such claims as falling under the concept of a commercial transaction should be rejected as unfounded.

Concluding remarks

Although the term “commercial transaction” has existed in EU and Polish law for years, doubts persist as to what a commercial transaction really is, and when the Act Combating Excessive Delays in Commercial Transactions applies. These doubts are exacerbated by the use of vague concepts in the legal definition of a commercial transaction—concepts that have no clear definition in the Polish and European legal systems. But in this regard, a number of indications are provided by the body of case law of the Court of Justice, which for years has consistently indicated the need for a broad understanding of these concepts. There is no indication that this will change in the foreseeable future. The judgments of the Polish courts are also consistent with the Court of Justice case law, which stresses the importance of a broad interpretation of the concept of “commercial transaction” and the supply of goods and provision of services.

Karol Maćkowiak, Environment practice, Wardyński & Partners