Prague Update: Opening door to (even) more contractual freedom

In its recent decision, the Supreme Court has accepted a broader concept of contractual autonomy and allowed the use of fictions and presumption in contracts. In law these instruments are used in times when it is necessary to artificially create a situation with which certain legal consequences are associated, even in cases when such situation may not have in fact really occurred. Until the recent decision such contractual provisions were not accepted by the case law of the Supreme Court.

On 23/03/2022, the Supreme Court decided a case concerning just such an arrangement. The case concerned a dispute arising out of a work contract in which the parties had agreed, inter alia, on a legal fiction. This consisted in the fact that if the client unreasonably and repeatedly frustrated the final handover of the construction works, the works would be deemed to have been duly and timely handed over by the contractor. In the present case, the claimant was the client, who did not take over the works, resulting in the contractor withdrawing from the contract in question. The claimant then filed a claim for payment of a certain amount as a deposit paid by him on the grounds that the contractor had not completed the works.

In its decision, the Supreme Court upheld the judgments of the lower courts and thus confirmed the possibility of contractually agreeing a legal fiction or presumption in a contract. The court justified its findings by the fact that the impossibility of contractual presumptions or fictions as stipulated by the older case law, was still based on the old Civil Code, which was much more formalistic. The current Civil Code is built primarily on contractual freedom, and therefore, unless a particular arrangement contradicts the law and fundamental legal values such as good morals or the very purpose of a legal norm, there is no reason why a contract cannot contain a fiction or presumption.

Of course, this does not mean unlimited freedom and it will still be necessary to examine whether such a provision concerns rights and obligations with which the parties are allowed to dispose with. However, if the parties use one of the aforementioned institutes to express the consequence envisaged by them in order to regulate their contractual relations and thus facilitate the interpretation and performance of their mutual claims, this will not automatically render such a provision invalid in the future.

By Konečná & Zacha law firm, Central Europe, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact centraleurope@transatlanticlaw.com

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