📍 contractual penalty, 📍 damages compensation, 📍 breach of contract, 📍 business cooperation agreement

In business cooperation, it’s not uncommon for a former partner or contractor to start working directly with your client — even though your contract may have prohibited that.

The key question is: Do you have a legal right to enforce a contractual penalty or claim compensation for the damage caused?

Let’s break it down based on a real-life legal case.

1. Breach of Business Cooperation Agreement

Many cooperation agreements include the following clauses:

• A non-solicitation clause (ban on taking over clients during and after contract duration),

• Confidentiality obligations,

• A defined contractual penalty in case of breach (e.g. €10,000).

If your former business partner continues providing services to your client — directly or indirectly — after the termination of the agreement, this is a clear breach of contract.

2. Right to Enforce a Contractual Penalty

🔴 Good news: To claim a contractual penalty, you don’t need to prove actual damage. You only need to prove the breach occurred.

📌 However, the penalty amount must be proportionate to the value of the contractual obligation.
Under Article 274 of the Serbian Law on Obligations, the court may reduce the penalty if it is excessively high in comparison to the value or importance of the breached duty.

✅ If actual damages exceed the penalty amount, you may claim the difference.
❌ If the damage is lower than the penalty, the penalty alone applies.

3. Compensation for Loss of Client

To claim damages compensation, the following must be proven:

• A harmful act was committed (e.g., breach of contract),

• You suffered damage (e.g., loss of revenue),

• There is a causal link between the two.

💡 Damages can include both actual loss and lost profit.

4. Misuse of Confidential Information

If the former contractor used confidential business data (e.g., client pricing, strategy, internal processes) to take over your client, this may constitute:

• Breach of the confidentiality clause,

• Unfair competition, and in some cases,

• Grounds for criminal liability.

5. Legal Remedies and Enforcement

There are two main legal pathways:

• A lawsuit to enforce the contractual penalty, or

• A claim for damages, or both if applicable.

🛑 Note: You generally cannot claim both full damages and a full penalty for the same breach — unless damages exceed the penalty amount.

Conclusion

If your contract clearly prohibits client takeovers and includes a valid penalty clause, and the former partner violated that — you have strong legal grounds.

Success depends on:

• Properly drafted contracts,

• Documented evidence of the breach,

• And a targeted legal strategy.

📞 If you’re facing a similar situation and need legal assessment or help with legal action — contact us today. Our legal team has extensive experience in enforcing penalty clauses and recovering damages in breach-of-contract cases.