May national courts assess the proportionality of the termination penalty fees of contracts between energy suppliers and SMEs? For the CJEU, the answer is yes. Case C-371/22 G Frais de résiliation anticipée

  • Lucila de Almeida

Introduction: factual and legal background

The case concerns a dispute between G, a small-medium enterprise (SME thereon), and the electricity supplier W, located in Poland. On 23 February 2015, the parties concluded an electricity supply agreement at the retail level with a fixed price and an expiration date in December 2016. The parties also agreed to the possibility of earlier termination under the condition that W could charge a penalty fee corresponding to the price of the electricity that was supposed to be purchased by G until the expiration day of the agreement, which is known as the ‘take or pay clause’. On 25 February, two days after starting the agreement, G terminated the supply agreement, switching the energy supplier to a new energy utility company. As a result, W charged G the termination penalty fee, as suggested in the contract. G, in turn, contested the validity of the charge before the national court.

By the judgment of 7 February 2020, the District Court of the City of Warsaw considered the penalty fee charged by W justifiable according to Article 484(1) of the Polish Civil Code for two reasons. Firstly, the national civil law does not request for a contractual penalty to be subject to proof of the existence of the damage. Secondly, the amount claimed corresponds to what the parties have agreed in the abovementioned energy supply agreement. The decision motivated G to appeal to the referring judge, which seeks guidance on the interpretation of Articles 3(5) and (7) of Directive 2009/72 on the common rules of the electricity market in light of the application of Article 484 of the Polish Civil Code.

Reasoning of the CJEU

The Court of Justice starts its reasoning by refreshing the wording of Article 3(5) of Directive 2009/72, which establishes that customers willing to switch energy suppliers must have this change performed by operators within three weeks. Moreover, Article 3(7) requires the Member States to take appropriate measures to protect final customers and guarantee a high level of consumer protection, referring to more protective measures applied to residential customers as established in Annex I.

Although Directive 2009/72 does not define consumers, final customers mean customers purchasing electricity for their own use according to Article 2(9), while household customers are customers purchasing electricity for their own household consumption, excluding commercial or professional activities, within the meaning of Article 2(10). For the Court, it follows from the foregoing that the wording of Article 3(5) and (7) is limited, in substance, to the following three protective rights (para 36). First, it guarantees that final customers can, if they wish, effectively and easily change electricity supplier in compliance with the terms and the conditions of its electricity supply contract; secondly, it ensures that contractual terms and conditions are transparent, and thirdly, provides a mechanism for settling disputes which could arise between final customers and their electricity supplier (para 36). Moreover, the CJEU also clarifies that Member States must adopt the measures in Annex I, which establishes in paragraph 1(a) that household customers have the right to switch suppliers without any fee, reserving to Member States the discretion of extending these rights to other final customers (para 39).

However, the Court of Justice notes that the non-extension of protective measures of Annex I to final customers other than residential customers might not lead to the interpretation of Article 484(1) of the Polich Civil Code suggested by the national courts. It follows from the context of Directive 2009/72 that such national legislation must ensure that customers have the right to choose their suppliers, are informed in a clear and understandable manner of their rights, and are enabled to enforce them through a dispute resolution mechanism (para 44). Moreover, the ultimate purpose of Directive 2009/72 is to create competition in the internal market of electricity. Allowing customers to switch suppliers with better offers is a means to this end (para 45).


The Court then reaches a relevant conclusion. On the one hand, Articles 3(5) and (7) do not oppose the measures in the Polish Civil Code, which does not provide any criteria for the calculation of such a penalty or its possible reduction. On the other hand, Articles 3(5) and (7) require that such a contractual stipulation must be clear, understandable, and freely agreed upon, as well as provide for a possibility of appeal, administrative or jurisdictional. Within this framework, the adjudication authority can assess the proportionate nature of this penalty in view of all the circumstances and, where appropriate, impose its reduction or elimination (para 55).

Acknowledgment: this case law is part of our seasonal article publication in the European Review of Contract Law. For reference, use the following citation:

  • Lucila de Almeida