Combating late payment in commercial transactions

On the 28 January 2020, in Commission v Italy (C-122/18), the court held that, by not having ensured and by continuing not to ensure, that its public authorities avoid exceeding the periods of 30 to 60 calendar days applicable to the payment of their commercial debts, the Italian Republic has failed to fulfil its obligations under Directive 2011/7/EU (on combating late payment in commercial transactions) (the “Directive”) and in particular Article 4 of that Directive.

Following a series of complaints from Italian economic operators and associations of economic operators, the Commission sent the Italian Republic (“Italy”) a letter of formal notice alleging that Italy had failed to fulfil its obligations inter alia under Article 4 of the Directive. Italy submitted, amongst other arguments, that the Directive aims to standardise, not the deadlines by which public authorities must actually pay the amounts due as remuneration for the commercial transactions, but only the deadlines by which they must fulfil their obligations without incurring automatic penalties for late payment. Italy also argued that the Directive requires Member States only to guarantee, in their legislation transposing that Directive and in contracts governing commercial transactions in which the debtor is one of their public authorities, maximum periods for payment in conformity with Article 4(3) and (4) of that Directive, and to provide for the right of creditors, in the event of non-compliance with those periods, to late payment interest and compensation for recovery costs.

The Court rejected Italy’s arguments and found that the aim of the Directive is to combat late payments in commercial transactions, in order to ensure the proper functioning of the internal market, thereby fostering the competitiveness of undertakings. It inter alia noted that, in the light of the large number of commercial transactions in which public authorities are the debtors of undertakings and the costs and difficulties created for undertakings by those authorities’ late payments, the EU legislature intended to impose increased obligations on Member States as regards transactions between undertakings and public authorities. Consequently, by not ensuring that its public authorities effectively comply with the periods for payment prescribed in Article 4(3) and (4) of Directive 2011/17, Italy failed to fulfil its obligations under those provisions.