Discount for Defects

The statutory regulation of claims arising from defective piece of work appears to be clear. Should the defects represent a material breach of contract, the injured party can choose from several applicable remedies, i. e. repair of defects, subsequent delivery / delivery of goods superseding the defective ones (as the case may be), price discount or withdrawal from the contract.

If no material breach occurs, the injured party can choose only between repair of defects or subsequent delivery on the one hand or price discount on the other hand. Should the injured party fail to notify remedy choice arising from the material breach to the other party without undue delay, it shall be entitled to remedies only as if the breach was not material.

Irrespective of the fact that no significant misunderstanding is to be expected in this connection, the Slovak Supreme Court had to clarify the conditions of the price discount in one of its latest judgements.

The claimant ordered construction of a photovoltaic energy plant from the defendant. As a part of the plant was defective, the claimant claimed remedy of defects. The defendant accomplished the remedy, however intentionally not fully in compliance with the claimant’s request. Following this, the claimant arranged for the remedy as originally intended in cooperation with a third party and requested from the defendant a price discount equal to the costs paid to the third party.

Both lower courts denied claimant’s request ruling, inter alia, that the claim for a price discount can be made only until the remedy of defects is accomplished.

The Supreme Court considered this interpretation incorrect arguing that the injured party is entitled to request price discount if all of the following conditions are met:

(i)                 the piece of work is defective,

(ii)              the injured party notified the defects to the party in breach in due time,

(iii)            the party in breach shall be liable for the defects in question, and

(iv)             the party in breach fails to remedy the defects properly.

On top of it, the Supreme Court outlined that it is inevitable to strictly distinguish between notification of defects on the one hand and the notification of remedy choice on the other hand. If the injured party fails to notify the defects to the other party in due time, the injured party may – in certain circumstances – loose its claims arising from such defects.

In contrast, the delay in notification of remedy choice has different consequences. The delayed notification in case of material breach of contract weakens the injured party’s position – the other party is entitled to arrange for remedy of such breach through repair of malfunction or subsequent delivery, unless the injured party requires a price discount. Thus, the breaching party can basically freely decide on suitable remedy in such case. However, this ‘freedom of choice’ of the party in breach ends, if the injured party choses the price discount.

Considering the above stated and the fact that the breaching party in our case repeatedly refused to remedy the defects as requested, the Supreme Court ruled that the claimant as injured party was entitled to require the price discount from the defendant after the defects were fully remedied by a third party.

The court based its ruling on the fact that it would be completely unjustified to allow the injured party to arrange for a factual remedy of defects only after receiving the final judgement awarding the price discount to the injured party.

By JUDr. Zuzana Tužilová

Download

Author