The Supreme Court interprets the Late Payment Act and confirms that the maximum deadline to pay suppliers cannot exceed 60 days

Ruling no. 688/2016 of the First Civil Chamber of the Supreme Court, dated 23 November 2016, confirms that said maximum payment deadline set out in the Late Payment Act (Ley de Morosidad) is mandatory and that the counterparties may not reach an agreement to go over the 60-day payment deadline. Therefore, any agreement to pay suppliers after the 60-day deadline will be null and void.

Although the payment deadlines have been reduced significantly, neither Law 3/2004, of 29 December, on measures against late payments in commercial transactions (Ley 3/2004, de 29 de diciembre, de lucha contra la morosidad en las operaciones comerciales; “LLCM“), nor the Public Administration’s payment scheme for suppliers, implemented by the Government in 2012, have been successful in fighting against the practice of setting abusive commercial transaction payment deadlines between companies, or between companies and the Administration, to the detriment of creditors.

Through this sentence, the Supreme Court aims to give an answer to the interpretation regarding the payment deadline set out in the LLCM, after the changes provided by Law 15/2010, of 5 July, modifying the LLCM and Law 11/2013, of 26 July, on measures to support entrepreneurs, stimulate growth and create employment (Ley 11/2013, de 26 de julio, de medidas de apoyo al emprendedor y de estímulo del crecimiento y de la creación de empleo; “LMAE“).

The appeal for reversal (recurso de casación) is the result of a lawsuit brought by Aucasa Obras y Transportes, S.A., a construction subcontractor, against its contractor (U.T.E. Villazopeque), in which a court claim was made for the payment of 652,446.73€ in unpaid invoices for works carried out by the subcontractor, in addition to 174,118.70€ in interests accrued due to the deferred payment, in violation of the provisions set out in Law 5/2010, of 5 July, on the modification of the LLCM, based on the nullity, as a result of their abusive nature, of the contractual clauses that extend payment deadlines beyond the legal ones (the agreements included a 180-day deadline for the payment of invoices).

The ruling accepts the appeal for reversal, which was divided in two grounds.

The first ground reports the violation of article 4.1 (which establishes a maximum payment deadline of 60 days) in relation to article 9.1 (on the nullity of clauses that go against the legal provisions) both included in the LLCM, as worded in Law 5/2010, of 5 July, so that the harmonization of both articles can be carried out taking into account that the limitation of the payment deadline, as set out in article 4.1, is mandatory for both parties, without the possibility of reaching an agreement to go over the 60-day payment deadline.

The Supreme Court confirms that the deadline to pay any invoices cannot exceed 60 natural days, as set out in article 4.1 of the LLCM.

To support the nullity of those clauses that do not respect said maximum payment deadline, the Supreme Court considers as mandatory the nature of the provisions of article 4 of the LLCM. Therefore, any agreement exceeding this payment deadline shall be null and void as it contravenes a mandatory legal provision (article 6.3 of the Civil Code).

The option based on the mandatory nature of the deadline limitation (as a ius cogens rule), was the one already applied by our legislator when Law 5/2010, of 5 July, was modified. This option was not only reflected in the wording of article 4.1 of said Law, but also in its Introduction regarding the purposes and objectives regarding the modifications made to the initial text of the LLCM. The mandatory nature of the deadline limitation has also been followed in the 2013 reform of the LMAE, where article 4.3 clearly states that “The payment deadlines specified in the above sections may be increased if the parties reach an agreement, however, under no circumstance, they may agree to a period above 60 natural days“.

The only exception that would allow applying a 30-day extension, that is, a maximum of 90 natural days (as from the supply date of the goods or services), would be in those cases where, as a result of a legal order or an express agreement, an acceptance or verification procedure exists that confirms compliance with the goods or services being supplied (article 4.2 of the LLCM).

All of which, without prejudice to the mechanism, set out in article 9 of the LLCM, to control any abuse (control de abusividad) that, as can now be deduced from the Supreme Court’s ruling, not only is not opposed to the provisions of article 4 but it also complements it and allows the court to control any abuse under the agreed conditions, even if the maximum deadline has been respected.

In the second part of the appeal of reversal, the applicant reported the wrongful application of the estoppel principle (principio de los actos propios) when applying article 9.1 of the LLCM, as it considered that the sentence being appealed, which was issued by the Provincial Court of Badajoz, incurred in said infraction because, when examining a potential abuse, it considered that the applicant was acting against its own previous conduct when it alleged the nullity of several clauses whose validity was not contended by the applicant until the agreement was terminated and it had to claim the unpaid invoices.

The Supreme Court rejects applying the estoppel doctrine to this case: it considers that the fact that the subcontractor had not previously contended the agreement, as a result of the abusive content of some of its clauses, does not mean, under any circumstance, that it has become an own previous conduct, therefore preventing the subcontractor from making a claim during the execution of the agreement. The reason for this is that the provision to control any abuse, as set out in article 9 of the LLCM, is based on the action of protecting the weakest party in an agreement, taken as a reference by the legislation (normally, this would be the subcontractor, not the contractor).

In relation to the same issue, the Secretary of Treasury and Public Administration, Mr Cristóbal Montoro, during his update to the Treasury committee of the Spanish Parliament, on 12 January 2017, announced that large companies that delay payment to suppliers, thus exceeding the 60-day payment deadline set out in the current late payment legislation, will be tax penalised.