A contractual penalty is not automatically payable as soon as the other party names an amount. It must first be established which clause applies, which obligation has been breached and whether the conditions for the penalty have been met. A court can reduce a penalty under strict conditions, but a high amount or limited damage is not sufficient for that in itself.
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Written by Onur Arslan, attorney at Arslan Advocaten. Registered in the specialisation register of the Netherlands Bar for employment law and personal injury. Last updated: 17 September 2026.
Penalty clauses are found in provisions on confidentiality, exclusivity, non-solicitation of clients, delivery deadlines and the termination of business relationships. For a self-employed professional (zzp’er) or an SME, a daily penalty can quickly add up. Respond on the substance, therefore, and at the same time investigate whether the alleged breach can be stopped without giving up your legal defence.
This explanation concerns business agreements under Dutch law. Special protective rules apply to employment contracts and consumer contracts. Moreover, a self-employed person is not an entrepreneur solely because of the heading of a contract; the actual relationship may be relevant.
What is a penalty clause?
Article 6:91 of the Dutch Civil Code (BW) concerns a clause providing that a party that fails to perform must pay a sum of money or render another performance. For that classification, it does not matter only whether the parties call the amount a penalty, compensation or a buy-out sum. The content and function of the arrangement are decisive.
A penalty can encourage performance and estimate the damage in advance. As a result, the creditor does not always have to calculate the full actual damage in order to claim the agreed amount. It must, however, be substantiated that the situation to which the clause applies has actually occurred.
An agreed termination fee is not necessarily the same as a penalty for breach of contract. Sometimes an amount is payable upon lawful termination. The classification determines which statutory rules and defences apply. So start with the wording and background of the contract.
Is the clause part of your agreement?
Check the signed agreement, annexes, amendments and applicable general terms and conditions. A penalty in a document that was only sent after acceptance has not automatically been agreed. There may also be a dispute about which version of the terms and conditions applies.
In negotiated contracts, emails and drafts are relevant to interpretation. Did you discuss the amount, was a maximum added and is the penalty intended to apply to each breach separately? Also keep the documents that show why particular wording was chosen.
The fact that you did not read the clause does not automatically mean that it does not apply. Conversely, a signature on a main contract does not always prove that every annex sent later has been accepted. For these preliminary questions, see general terms and conditions for the self-employed and SMEs.
Exactly which conduct is prohibited?
A penalty can only be linked to the obligation covered by the clause. In the case of a non-solicitation clause, for example, it must be clear which clients, activities and period are covered. In the case of confidentiality, it must be established which information was confidential and which act counts as a breach.
Read the main obligation and the penalty clause together. A broad definition elsewhere in the contract can affect the scope. Exceptions, consent and the way the contract was actually performed also count. A penalty clause may not be interpreted in isolation from the rest of the agreement.
Ask the other party, therefore, to state the date, the act and the evidence for each alleged breach. A list of suspicions or a general accusation is no substitute for specific substantiation. At the same time, assess which of your own documents support your interpretation.
Must the failure be attributable?
Under the statutory main rule, a penalty cannot be claimed if the failure cannot be attributed to the debtor. The parties can influence the allocation of risk contractually, so the wording and the applicable rules must be examined.
A plea of force majeure does not automatically succeed because performance became difficult or expensive. Investigate what the obligation involved, why it was not performed and which party bears the risk under the law and the contract. A missed schedule caused by your own subcontractor may be assessed differently from an event that genuinely lies outside your sphere of risk.
Record causes and communications at the moment the problem arises. Merely claiming afterwards that there was nothing you could do is often insufficient. Timely warnings and opportunities to limit the consequences may also be important.
Is a notice of default required?
Article 6:93 of the Dutch Civil Code in principle links the requirements for a penalty to those for statutory damages. Where performance is still possible, default may be relevant. The agreement may also prescribe its own notification or cure period.
In the case of a prohibition on sharing certain information, a breach that has already occurred cannot always be undone. In the case of late delivery or a remediable administrative shortcoming, the analysis may turn out differently. Do not, therefore, draw a general conclusion that a notice of default is always, or never, required before any penalty.
Also check whether an agreed date is truly a strict deadline. The word “schedule” in an annex does not automatically mean that every day of delay immediately triggers a penalty. A business notice of default may be relevant if a final deadline for performance is needed.
May the other party claim both a penalty and damages?
Article 6:92 of the Dutch Civil Code contains principles on the relationship between a penalty, performance and statutory damages. The parties may deviate from these in their contract. The wording “without prejudice to the right to full compensation” therefore deserves attention.
Investigate whether the penalty replaces damages, can be claimed in addition to them or relates specifically to delay. An obligation to remedy or to cease may also be at issue alongside other claims. The answer does not follow from a single general rule that everything may always be added together.
Ask for a breakdown of the claim. Which principal sum, penalty, interest, damages and costs are being claimed, and on what basis? This allows you to identify possible double counting and incorrect accumulation. Also have the relationship with any liability cap assessed.
How is a daily penalty calculated?
Start with the contractual start and end dates. Is the penalty linked to each calendar day, working day, breach or continuation? Is there a maximum? Is one continuing course of conduct treated as a single breach, or are different acts counted separately?
Make a verifiable calculation with dates and events. A spreadsheet showing only a final amount does not give sufficient insight. Check whether the other party has taken into account an earlier notice of remedy, consent given or a contractual maximum.
Stop a possible breach where that is possible and appropriate. You can record in writing that the measure does not constitute acknowledgement of the alleged penalty. A dispute about the past is no reason to allow avoidable daily exposure to continue.
When can the court reduce the penalty?
Article 6:94 of the Dutch Civil Code gives the court the power to reduce a penalty at the debtor’s request if fairness clearly so requires. The Supreme Court (Hoge Raad) applies a restrictive standard: in the circumstances, application must lead to an excessive and therefore unacceptable result.
Relevant circumstances may include the relationship between the actual damage and the penalty, the nature of the agreement, the content and purpose of the clause and the circumstances in which it is invoked. This calls for coherent substantiation. Merely saying that the penalty is high or that you cannot pay is not sufficient.
Moreover, a reduction is something different from a finding that the clause does not apply or has not been breached. Raise your defences in a logical order: first applicability and liability to pay, then, if necessary, the amount and, in the alternative, a request for reduction.
Which documents help with a request for reduction?
Gather the contract and the negotiations, the nature and duration of the breach, the consequences for the other party and your remedial measures. Substantiate why the outcome would be disproportionately harsh in the specific relationship. A general reference to the small size of your business is not enough.
If the damage is limited, make that plausible with data rather than assumptions. At the same time, it must be acknowledged that a penalty may also serve to enforce compliance, so limited damage does not automatically lead to a reduction. The seriousness of the interest that was infringed also counts.
Discuss the costs and prospects of proceedings. A court may refuse a reduction while interest and costs continue to rise. Sometimes a settlement on cessation, payment and future compliance is a more manageable solution.
Fictitious example of a non-solicitation clause
A self-employed consultant has a business non-solicitation clause with a penalty per breach and per day. After the assignment ends, he starts working for a company that may fall under the definition of a client. The former principal claims a large amount.
The assessment starts with the applicability and interpretation of the non-solicitation clause: which company is protected, for which activities and for what period? Next, the actual activities, any consent and the penalty calculation are examined. Only then does a possible request for reduction come into view.
The consultant does not shut down his entire business without thinking, but does immediately have it assessed which activities may cause the alleged daily penalty to keep running. More on the main obligation can be found in non-solicitation clauses in a freelance contract. This example is fictitious and does not predict any outcome.
Example of an initial substantive response
Use this example to have the claim specified. A pending procedural or contractual deadline may require a more extensive response.
Subject: your reliance on the penalty clause of [date]
We have received your claim for a contractual penalty of [amount]. We do not acknowledge that it is payable or the way it has been calculated. For a substantive assessment, we ask you to specify the applicable clause, the contract version and the alleged breaches by date and act.
We would also like to receive your calculation of the starting point, the number of breaches or days, the applicable maximum and the relationship with any additional damages claims. Our provisional response to the facts is [specific explanation with documents].
To the extent necessary, we will take [measure] to limit further dispute or damage, without thereby acknowledging liability or the penalty. We reserve our defences regarding applicability, interpretation, liability to pay and amount, as well as a possible request for reduction.
A reservation alone is not a substantive defence. So supplement it with a factual response and have it assessed whether you need to pay on time, provide security, perform or start proceedings. Do not ignore a summons because you have already asked for an explanation.
How do you draft a workable penalty clause yourself?
First describe the obligation that needs protection. An amount means little if it is unclear what someone must do or refrain from doing. Then choose a clear starting point, an appropriate method of calculation and, if necessary, a maximum.
Make it explicit how the penalty relates to performance, remedy and damages. Check that it is consistent with the limitation of liability and other sanctions in the contract. A penalty that unnoticed falls outside every cap can alter the agreed allocation of risk.
Consider an opportunity to remedy for breaches that can be put right easily and without lasting damage. For confidentiality, the balance may be different. The aim is a clause that suits the business relationship, not the highest possible amount to be invoked for every minor error.
Take care in negotiations and on termination
In a settlement agreement, it must be clear which old penalty claims are being settled and which future obligations continue to apply. A full and final discharge can be broad, but it operates according to the interpretation of the agreement. Do not waive unknown claims without understanding the consequences.
A new penalty for compliance with the settlement can be useful, but deserves the same care as the original clause. Prevent a minor administrative delay from immediately resulting in a much larger debt. Also record payment terms, remedy and communication.
Keep evidence of compliance after the settlement. If, for example, you have returned or deleted information, record what was done without unlawfully destroying relevant litigation documents. An arrangement on confidentiality must be consistent with statutory retention obligations and evidentiary interests.
Have the penalty and the main obligation assessed together
Through corporate law for entrepreneurs, you can have the contract, the claim and the calculation examined. Also send the messages about consent, remedy or termination. It is precisely those documents that can determine whether a penalty has arisen at all.
In the case of a daily penalty or announced interim relief proceedings, the next step is urgent. The substantive assessment can be worked out further afterwards, but do not let an avoidable breach or a formal deadline run unattended.
Calculate three scenarios before you negotiate
A business assessment of a penalty claim can work with three scenarios: the amount that is payable according to the other party, the amount that would follow from your interpretation of the contract, and the outcome if your main defence succeeds. These are not probabilities or predictions, but ways of making the discussion verifiable.
State the assumptions used for each scenario. Think of the date on which a breach began, the number of separate acts, a contractual maximum and the question of whether additional damages can be claimed on top of the penalty. This makes it clear which factual question makes the biggest financial difference.
For a daily penalty, also include an end date. A settlement that only buys off the past, while according to the other party the alleged breach continues, may not resolve the conflict. Agree which act will be accepted as remedy or cessation and how this will be confirmed.
Finally, pay attention to the authority of the person concluding a settlement. A project manager may be able to coordinate practical work, but cannot necessarily waive a large penalty claim. Have the correct party and an authorised representative sign. Keep the final version and prevent different drafts with differing amounts from circulating.
Frequently asked questions
Is a high contractual penalty always invalid?
No. Business parties can agree on penalties. Applicability, content and circumstances must be assessed. Reduction is subject to a strict standard and is not an automatic correction as soon as the amount exceeds the actual damage.
Can the court reduce the penalty of its own motion?
Article 6:94 of the Dutch Civil Code presupposes a request from the debtor. If relevant, make an explicit and substantiated request for reduction. Under other protective rules, for example in consumer relationships, the assessment may be different.
May the other party also claim damages?
That depends on the statutory principles and the agreement. Check whether accumulation has been agreed and which damage is being claimed. A penalty, remedy, performance and additional damages may not be added together without legal analysis.
Does a daily penalty continue to accrue during negotiations?
It can. Consultation does not automatically suspend the contractual consequences. If necessary, agree in writing that the count will be temporarily suspended, and assess which measures can bring an alleged continuing breach to an end.
Is a penalty possible without demonstrable damage?
A penalty clause can also encourage compliance. The absence of proven damage therefore does not automatically rule out liability to pay. The relationship with the actual consequences may, however, be relevant to interpretation and to a request for reduction.
Can I use a penalty clause from an employment contract for a freelancer?
Do not do so without adapting it. The legal relationship and the applicable protection differ. The actual working relationship may also be classified as employment. Have the main obligation, the penalty and the actual relationship assessed together.
Read also
Sources and legal basis
- Dutch Civil Code, Book 6: Articles 91–94 and relevant rules on default and general terms and conditions.
- Supreme Court, 27 April 2007, on the reduction of penalties.
