Hidden between the lines of the Amendments to the Commercial
Code, which will become effective from 1 January 2012, is one of
the most important changes: the possibility to agree on limitation
of liability for damages in case of breach of a contract.
The Czech Parliament has approved an amendment of the Czech
Commercial Code ("Commercial Code") which will remove
statutory prohibition of contractual limitation of liability
relating to claims on compensation of damage prior to occurrence of
the damage.
Under the new wording of the amended part of the Commercial Code it
will be possible – in relationships governed by the
Commercial Code – to agree on a waiver or limitation of
liability for damages also prior to the occurrence of the damage,
i.e. before an obligation from which damage may arise is breached.
This would not, however, apply to any breach or damage caused
intentionally.
The amendment reflects long-standing discussions about the
possibility to contractually limit or even exclude liability. Up to
now, neither Czech case law nor Czech jurisprudence has ever
provided a consistent and clear answer on how to deal with these
matters of law. Due to contradictory decisions of the Czech Supreme
Court regarding this issue, it has been uncertain whether the
parties could agree on limitation of one party's liability for
damage incurred to the other party by or in connection with the
performance of their duties under a certain contract. By limiting
the potential claim to compensate damage the contractual parties
always put themselves at the risk of invalidity of such provision
in their contract. Such (in fact) unlimited liability represented
serious uncertainty for doing business in the Czech Republic and
was capable of complicating major transactions.
The Amendments to the Commercial Code will bring the Czech legal
system closer to European legal standards and will increase
flexibility for both foreign and Czech entrepreneurs. The extent to
which it will be possible to limit the liability in future will,
however, have to be carefully assessed in each individual case.
Parties to commercial contracts governed by Czech law will have to
be cautious while negotiating limits of their liability and have to
carefully assess the potential impacts on their businesses in case
such damage indeed occurs in the future. It will be also important
to see how Czech courts will be assessing the limitations of
liability, in particular in cases where an agreement would provide
for absolute exclusion of potential future liability for damage of
one of the parties to the contract.
Law: Act no. 513/1991 Coll, Commercial Code.
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The original publication date for this article was 06/12/2011.