EU member states must not only ensure that the payment terms provided for in the EU’s Late Payments Directive are correctly transposed into national law but must ascertain that their public authorities honour such terms of payment in their business dealings with private undertakings, the Court of Justice of the European Union (CJEU) has recently affirmed.
The EU’s Late Payments Directive aims to protect businesses, particularly small- and medium-sized enterprises (SMEs), from late payments in commercial transactions by regulating the payment of invoices. It sets out time periods within which bills must be settled and provides for financial penalties if these are not honoured.
Businesses must, in the absence of a contractual clause regulating the matter, pay invoices within a maximum of 30 days. If expressly agreed upon by contract, the said time period may as a rule be extended to a maximum of 60 days. Public authorities must also pay for the goods and services which they purchase within 30 days.
In exceptional circumstances, the deadline may be extended to 60 days, for example in the healthcare sector or for specific industrial or commercial activities. Creditors who have fulfilled their legal and contractual obligations and who have not been paid within the time limits specified, are entitled to interest and compensation on the late payment.
Delayed payments could have a crippling effect on SMEs, the backbone of Europe’s economy
The facts of this case were briefly as follows. The European Commission received various complaints from Italian economic operators and associations of economic operators regarding the excessively long periods within which Italian public authorities systematically pay their invoices pertaining to commercial transactions with private operators.
To this end, the Commission brought an action against Italy before the Court for failure to fulfil its obligations to ensure that the provisions of the Late Payments Directive are enforced in so far as public authorities are concerned. In its defence, Italy argued that the said directive requires member states only to ensure the correct transposition of the periods stipulated in the directive into national law, the application of such periods in contracts governing commercial transactions in which the debtor is one of their public authorities and to provide for creditors’ right, in the event of non-compliance with those periods, to late payment interest and compensation for recovery costs.
The directive does not, however, require member states to guarantee effective compliance with such periods by their public authorities in all circumstances, Italy claimed.
The CJEU rejected Italy’s argument, observing that the directive also places an onus on member states to ensure effective compliance by their public authorities with the periods for payment prescribed by the said law. The Court affirmed that it was the specific intention of the EU legislature to impose such an obligation on member states. This is so, in view of the large number of commercial transactions conducted by public authorities and the costs and difficulties encountered by private undertakings arising from such authorities’ late payments, it went on to explain. Hence, member states must invariably ensure that their public authorities honour the time periods provided for by the directive not only on paper but even in practice.
Delayed payments could have a crippling effect on SMEs which are the backbone of Europe’s economy.
The enforcement by member states of the legal periods for payment for goods delivered and services rendered by industry to their public authorities ensures a healthy competitive environment within Europe.
Mariosa Vella Cardona M’Jur, LL.D., is a freelance legal consultant specialising in European law as well as competition law, consumer law, data protection law and intellectual property law. She is also a visiting examiner at the University of Malta.