When can a court reduce a contractual penalty in Georgia?

The dispute arose from penalties withheld under a public procurement contract. The Supreme Court partly upheld the challenge and addressed the proportionality of the amount withheld. The decision does not mean that every penalty is unlawful: contractual liability may remain valid while the amount requires judicial scrutiny.

Before arguing over a percentage, establish what obligation was delayed, its financial value, the period of delay and whether the penalty was calculated against the full contract or only the unperformed part. In procurement and construction contracts, these distinctions can have material consequences.

The court explained the procedural relevance of an express request to reduce an excessive penalty. A party should identify the requested correction and substantiate it through the agreement, payment records, delivery or acceptance documents and the breach timeline. Merely describing the penalty as unfair is unlikely to replace evidence.

Penalty disputes have three separate stages. First establish whether the contractual obligation was breached; second verify that the agreed mathematical formula was applied to the right base and period; only then consider whether the resulting amount is excessive under the legal standard. Confusing an incorrect calculation with a request for judicial reduction can lead to a poorly framed defence. The practical value of the case is its attention to the specific contractual obligation and the relief requested. Businesses should preserve delivery schedules, partial performance, acceptance acts and extension correspondence so that any proposed reduction rests on demonstrated circumstances rather than an unsupported appeal to fairness.

Define a daily rate, cap and calculation base clearly. Document partial delivery, notices, extensions and acceptance dates. If a dispute arises, compare the penalty with the gravity and practical consequences of the breach, and raise objections at the procedurally appropriate stage.

Suppose a supplier completes most deliveries on time but delays one part. The agreed clause might calculate daily penalties on the whole contract value or only on the delayed part; these formulas produce different figures and must first be interpreted against the contract. The supplier might rely on an approved extension or an employer-caused delay, while the buyer might show the delayed element was essential for using the entire procurement. Only after resolving breach and calculation should the parties argue about excessive size and a court’s power to reduce it. The evidence should connect the actual consequence of the delay, the contractual risk allocation and the specific monetary request. This is much stronger than asking the court simply to be lenient.