Charlie Bavington

French to English Freelance Translator - I.T. specialist

Bringing a pragmatic eye to meeting your needs

Oh look, a penalty clause

November 5th, 2014 | Categories: agencies, business

A couple of weeks ago, I tweeted that “Last year, agency began introducing very tight deadlines. Last week, agency sent mass email about increase in missed deadlines. Coincidence?”.  That is only half the story.

I gather this agency has quite ambitious plans for expansion.  One tactic it seems to have adopted in the last year is to offer projects with fairly tight deadlines, of a kind requiring maybe 3,000 words per day to be churned out, rather than the 2,000 or so previously. Me, I just turn those projects down.  Other people obviously don’t, and some of them are, according to a recent email,  missing their deadlines. Tsk tsk.

The agency, not unreasonably, sees the need to address this issue. Somewhat less reasonably, it has opted to do so by sending out a take-it-or-leave-it (for “leave it”, read “never work for us again”) change to its terms and conditions, introducing a scheme of payment reductions for late delivery.

I mused awhile. Not about the unilateral introduction of new terms per se; I am of the view that any entity in a business-to-business relationship (including me, and indeed you), is entitled to suggest whatever it likes, as long as it’s legal, and to brook no negotiation if that’s the mood it is in. I nonetheless remain very much in favour of ongoing review and subsequent regulation of what is actually legal, however, so don’t go running away with the idea I’m some kind of cheerleader for unfettered capitalism and exploitation of the powerless, for I am not.

No, it is in fact the legality of such terms in general, and these new terms in particular although the hard figures have yet to be announced, that is causing the pensive expression and furrowed brow on yours truly. I vaguely recalled (or thought I did) that the English legal system takes a pretty dim view of penalty clauses, and with the agency referred to in the introduction being in France, I decided to bone up a bit on both legal systems.

The law of England and Wales makes a distinction between penalty clauses and liquidated damages (LD) clauses. If a contract clause is viewed as being mainly designed to deter poor performance (e.g. delivering late), it will be deemed a penalty clause, and penalty clauses are unenforceable (hurrah!).

However, if the clause is based on a reasonable pre-estimate of the losses that will actually be incurred if a breach occurs (I summarise various online resources in describing it thus), it is an LD clause and is enforceable.

How a translation agency could possibly judge such losses is anyone’s guess. For some work, the LD would be nil. For another document, it could potentially be thousands (e.g. if the agency were to lose the future revenue of a major end-client because of a late delivery by you). The LD figure for each translation project assigned would have to calculated and set separately for each project. (Let us skip merrily over the issue of the LD potentially being vastly more than the value of the translation commissioned.)

Otherwise, any sum stipulated in the general T&C to be paid as compensation to the agency for late delivery, be it a fixed figure or a percentage, would surely be viewed as a penalty clause, and therefore unenforceable.

However, I draw attention to four factors before you scamper insouciantly off to blithely disregard all deadlines from now on.

Firstly, if an agency (or any client) does actually incur a loss as a result of your late delivery, the remedy exists to seek adequate financial compensation because of your breach under general contract law. (And this regardless of the presence or absence of any “time is of the essence” stipulation.)

Secondly, there is the enforceability of the unenforceability, if you see what I mean. If you, after delivering late, casually send an invoice for the full amount, how likely are you to be battering down the doors of your local solicitor if an agency invokes a penalty clause and slices 20% (say) from it? The sums involved, much to our regret, are probably too paltry – we could doubtless earn more in the time taken to seek redress than the amount at stake. (Case law in the area of penalty clauses invariably involves multi-million pound yachts and astronomical football management contracts, for instance, not 200 quid corporate newsletter translations.)

Thirdly, natch, is the fact I’m not a lawyer. And fourthly, that is only the situation in England and Wales, and indeed the United States as far as I can tell without having analysed in great depth.

Hopping merrily across the channel, we find the position is much clearer and very different. In essence, the French Civil Code allows for penalty clauses. Article 1226 basically defines a penalty clause as English law does, as “designed to ensure performance”, with the key difference they are enforceable, unlike in England (and indeed the USA). Note that Article 1229 specifically mentions penalties for lateness.

This link explains the situation quite well for France (although the emphasis is on whether the court can alter the amounts involved) and also talks a little about Germany, Italy, the Netherlands, Poland and Spain. http://www.acc.com/legalresources/quickcounsel/jpold.cfm

Indeed, it appears that civil law countries are generally quite accepting of the idea, such as Russia here http://uk.practicallaw.com/4-504-3733

A fairly comprehensive review is here: http://www.reedsmith.com/files/Publication/e5e3e826-020f-4c4d-b5b1-ab1a8b50530f/Presentation/PublicationAttachment/085e07b6-e8f9-402c-b980-cc660a4956d2/0804crit.pdf, which is an ugly link but I wanted to keep them all transparent in this post – it is to Reed Smith, “The Critical Path”, Spring 2008; article on Liquidated Damages and Penalty Clauses – A Civil Law verses Common Law comparison. Includes interesting translation of dommages-intérêts in the context of Article 1152 as “liquidated damages”, and is well worth reading generally.)

From all of which I conclude that the agency email I mentioned at the beginning is entirely legit. You live and learn.

  1. Shai
    November 5th, 2014 at 10:52
    Quote | #1

    Might be legally valid, but at the same time morally repugnant.

    Another aspect of the race to the bottom.

    I don’t think that one needs to be convinced about the connection between the very short deadline, probably coupled with lower fees, and the less-than-reliable nature of the people accepting those terms. Tight deadlines are one of the biggest factors of quality issues and reliable service. I’m not saying that there aren’t circumstances when something is really urgent, but those should be the exception, not the rule, and all parties involved should be aware and accept the trade-of.

    This, however, is not the case here. The ‘we do it cheap and fast’ mentality is not an isolated case, but the selling point of that agency. Which brings me to the business model. Not all agencies work with direct clients. In fact, many agencies serve bigger agencies – and this type of broker tends to be the one with all those clauses that aim to put all liability on the independent translator. Instead of promoting ethical, more efficient, and professional practices and conduct, they try to protect themselves from any potential liability, knowing perfectly well that their business model is filled with quality and other pitfalls.

    Those brokers scam both translators and client (the end client, even if they don’t serve them directly). This is in part why in so many MpT (Machine pseudo-translation) conversation it is claimed that MpT improves quality and reliability. When compared to the business model of the brokers, with its inherent quality and reliability issues, it indeed might – but only because the bar is buried deep the ground.

  2. Charlie
    November 5th, 2014 at 11:30
    Quote | #2

    Hi Shai,
    In this specific case, to the best of my knowledge, this agency’s clients do tend to be the end-client. For example, their glossaries name individuals at the client who have approved various terms, responses to queries are usually fairly swift, one can become the preferred translator for a client, and so on. None of which is conclusive proof, admittedly. Just a feeling.

    And although I chopped it out of the original post for brevity, while they are not the highest payers, they are average, and I just get the feeling (them feelings again!) they have considered the famous old speed-price-quality triangle and have opted to push for speed rather than cheapness. Hence pressure on deadlines, but not constant requests to shave a centime off the rate, for instance. Of course, this is only seen from my viewpoint, and the wider picture might be different. And I might be trying to rationalise my continuing to accept work from them.

    That said, yes, a vicious circle can result. The best people will rarely be available instantly to meet deadlines with no slack at all, so they will be bound to sometimes use less conscientious people, so they’ll need penalty clauses, which will then deter the more conscientious and professional (who would never miss a deadline anyway), and so the cycle will go on. I imagine, anyway :-)
    (I suppose the counter-argument is that if you’ve never missed a deadline, you won’t be affected, so why worry.)

    I always think penalty clauses send the wrong message about trust as well, but I’ve translated a fair number of French contracts that include them. ‘course, no idea how many actually get signed!

  3. Shai
    November 7th, 2014 at 16:55
    Quote | #3

    I’m also naïve to the bigger picture, of course, and could be wrong about any number of individual cases. I just gave my general impression.

    Although the speed-price-quality triangle is often described as an Equilateral, I don’t think that it is always the case. Even if one has opted to drop price and offer speed and quality, speed is a slippery slope in and of itself. Processes take time, and as the saying goes “money can’t buy me time”.

    To me, most penalty clauses addressing basic quality of service issues that should not happen in a professional environment mean one of two things: Either the parties the penalty is aimed at are incompetent in one form or another; or there is something very wrong with the business process.
    Sure, some of the clauses are just to protect the interests of the parties involved, but from your description I somehow don’t get the impression that this is the case here.

    Oh, well. Eventually the true nature of relationships and intentions gets uncovered, penalty clauses or not.

  4. Shai
    November 7th, 2014 at 19:31
    Quote | #4

    Reading the last paragraph of my previous post I noticed that I didn’t made myself clear as I intended, so the following is a quick clarification.

    What I meant to say was that I understand that in some cases penalty clauses might be needed to protect one party against any interruption to its service as a result of negligence on behalf on the other party involved. But unreasonably short deadlines inherently increase the risk of quality issues and/or missed deadlines,and because in this scenario the violation is not due to negligence (although in a way it is, committing to very short deadline that doesn’t leave any room to breath is also a type of professional negligence), but to intrinsic flaws in the workflow, the penalty clauses are of an abusive nature with the purpose of rolling liability onto the service provider (or in less ethical cases to setup the project for “failure” as a way to pad the margins a little more).

    • Charlie
      November 7th, 2014 at 21:27
      Quote | #5

      Having just been offered 8,000 words in two working days (I suppose it’s 4 days if you include the weekend), I think you could have a point.

      In general, taken in isolation, I’m happy to view penalty clauses, like many other clauses, as an exercise in sensible arse covering (I’ve just been reviewing my own T&C, and thinking “do I really need that bit” and then deciding, yes I do, just in case). And even taken in the context of the T&C as a whole, it doesn’t seem a particularly harsh idea.

      But it IS there (or will be soon), and they are (seemingly) hell-bent on telescoping deadlines, so who can tell? :-)

      I take your point too about the quality-speed-price triangle. It was a lazy shortcut to what I wanted to say. I suppose it comes from manufacturing, where you can perhaps in theory pay for man-hours to shorten lead times. It does assume all man-hours are (more or less) equal, and in service businesses, they are not. And indeed it takes time to source those additional man-hours too. I’ve been idly thinking about a post along the lines of the fallacy of the speed-price-quality triangle for, oh, months now. So why did I think it was a good idea to mention it? Buffoon that I am! Enjoy your weekend :)

  5. Shai
    November 8th, 2014 at 14:53
    Quote | #6

    Not a Buffoon at all.
    I only mentioned it in the context of arguing that some projects can be setup for failure on purpose, and in these scenarios the penalty clauses are abusive and not introduced in good faith.

  6. November 11th, 2014 at 16:19
    Quote | #7

    First of all, Charlie, kudos to your legal research skills. For a non-lawyer, you have a great eye!

    That said, as a lawyer, I would like to weigh in on one thing. Regardless of whether or not penalty clauses are legal in different jurisdictions, abusive clauses are not legal anywhere.

    So when you look at this issue from a legal perspective, finding out whether or not such clauses are legal from an abstract point of view is just the first step. The next step is to look at the clause itself (in terms of content) and weigh that against applicable law, principle, case law, etc. Legality does not equal non-questionability, and just because penalty clauses are legal in many jurisdictions that does not mean they are not subject to challenge on legal principle or other standards.

    • Charlie
      November 11th, 2014 at 19:03
      Quote | #8

      Thanks for that addition, encapsulated much more succinctly than I ever would have managed. :-)

      I should perhaps rephrase my conclusion that the email is “entirely legit” to something more equivocal. “Probably legit, but depends on the level of penalties they decide to stipulate.” See, I said I struggle with being succinct.

  7. November 12th, 2014 at 01:26
    Quote | #9

    Well, I think your new conclusion is right-on, and even I couldn’t have phrased it more succinctly! 😉

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