It can, but not automatically. In commercial relationships, Section 301 of the Commercial Code allows a court to reduce an excessively high contractual penalty, but this is an exceptional intervention in freedom of contract. Where a daily rate is agreed, a high accumulated total does not itself mean the penalty is excessive: the rate and circumstances when the obligation was breached are decisive. The defence therefore rests on specific assertions and evidence, rather than an impression of the final amount.
A penalty agreed at a daily rate can grow during a long dispute to an amount that threatens a business’s survival. Whether the court reduces it depends on what you assert and prove in the proceedings, rather than how high the total becomes.
The court may reduce a penalty, not simply waive it
The Commercial Code (Act No. 513/1991 Coll.) grants the court a power to reduce penalties:
The court may reduce an excessively high contractual penalty, taking account of the value and importance of the obligation secured, down to the amount of loss caused before the court’s decision by the breach of the contractual obligation covered by the penalty. The injured party is entitled to compensation for loss arising later, up to the amount of the contractual penalty, under Sections 373 et seq.
— Section 301 of the Commercial Code (unofficial English translation)
In case 3 Obdo 11/2019, the Slovak Supreme Court summarised that reduction is an exceptional intervention in freedom of contract, justified only in appropriate cases. The court may not rely on a single criterion: it considers the value and importance of the secured obligation, whether and how much loss the creditor suffered, and the debtor’s fault and attitude to the obligation undertaken.
A high total does not itself mean the penalty is excessive
For a daily rate, the same decision makes the amount of the penalty when the obligation was breached decisive, rather than the total on the judgment date. If the total grew only because the breach continued for a long time, that does not establish excessiveness: the debtor controlled the growth and could have stopped it at any time by performing the obligation.
A defence based solely on the final amount being high or exceeding the secured obligation will therefore usually fail. A more meaningful approach addresses the rate itself, its disproportion to the importance of the secured obligation, and the absence of any loss to the creditor from the breach.
Czech developments: assessing the penalty over separate periods of delay
Czech reduction rules rest on the differently worded Section 2051 of Act No. 89/2012 Coll., but the development can usefully inform arguments. In case 23 Cdo 1051/2025, the Czech Supreme Court overturned a decision that had treated a daily rate as reasonable and the accumulated total as merely the result of prolonged delay. Since entitlement to the penalty arises separately each day, the court should examine the penalty’s function and the actual impact on the creditor’s protected interests during individual periods. It may reduce only the part of the claim relating to a period in which the penalty was no longer reasonable.
How to build the defence
A properly reasoned request for reduction must be made in the proceedings, supported by the necessary assertions and evidence: what obligation the penalty secured and its importance to the creditor, the loss actually suffered, how the situation changed over time and what the breach actually caused. Alongside reduction, the penalty clause itself should be checked for sufficient certainty and valid conclusion. We discuss this in contractual penalties.
If the relationship is not commercial, the court’s reduction power is governed by Section 545a of the Civil Code, and the criteria differ in part. This is another reason to assess the agreement’s legal regime at the outset of a dispute.
How we can help
We take over court representation in contractual penalty disputes and prepare the defence, including a request for reduction. Before a new agreement is signed, a contract review identifies risky penalty clauses. For your own contracts, we design penalties that can withstand litigation through our bespoke commercial agreements service.
If the claim has already been served on you, contact us promptly: the deadlines for responding are running.
This answer provides general information on the law as at 29 August 2026. It does not constitute legal services or replace an assessment of an individual case. The details of your situation may differ. Book a consultation to discuss them.
