Commercial Contracts between Dutch and Czech Partners:

For Dutch companies expanding into the Czech Republic, the opportunities are significant. But assuming Czech commercial contracts operate like Dutch ones is a costly mistake. This guide provides critical insights from an English-speaking lawyer at a leading Czech law firm, outlining three specific legal traps and how to avoid them. Whether you are negotiating your first contract or managing ongoing partnerships, understanding these differences is key to protecting your investment. 

Need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by "Mgr. Vojtěch Sucharda", an expert on the subject.

The foundation of risk: Why Czech contracts are not "business as usual"

The most fundamental error Dutch companies make is underestimating the philosophical difference between Czech and Dutch contract law. This is not about minor regulatory details; it is about the very foundation of how a business relationship is legally understood and enforced. Failing to grasp this distinction is the root cause of nearly every subsequent contractual problem.

The dutch safety net vs. Czech literalism

Dutch commercial law is deeply influenced by the principle of redelijkheid en billijkheid (reasonableness and fairness). This concept is not just an ethical guideline; it is a powerful legal tool codified in the Dutch Civil Code. It has a "derogating function," meaning a Dutch court can set aside a clear, written contractual term if its enforcement would be grossly unjust or "unacceptable" under the circumstances. This creates a legal environment where parties often feel protected by an overarching safety net of fairness, even if the contract's literal text is harsh.

The Czech legal system, shaped by its Austrian and German heritage, operates on a different premise. Here, the written contract is paramount. A core principle of the Czech Civil Code is that "a promise is binding and contracts are to be executed". In a Czech court, the written agreement is not merely a reflection of the parties' relationship; it is the legally recognized relationship. Any ambiguity, omission, or vaguely worded clause will be interpreted strictly, and often, exploited by the other party.

This creates a dangerous disconnect. A Dutch business leader might sign a Czech contract with a particularly tough clause, assuming that the spirit of redelijkheid en billijkheid will prevent its unreasonable application. This assumption is incorrect. In the Czech Republic, adhering to the explicit text of the contract is the primary expression of good faith. The safety net you are accustomed to in the Netherlands does not exist in the same way here.

Mistake #1: Underestimating the power of the Czech contractual penalty (smluvní pokuta)

Of all the legal traps awaiting Dutch companies, the most immediate and financially dangerous is the misunderstanding of the contractual penalty, known as the smluvní pokuta. Treating this clause as the equivalent of the Dutch boetebeding can lead to severe and unexpected financial liabilities.

What is a smluvní pokuta?

The smluvní pokuta is a contractual provision that obliges a party to pay a specified penalty if they breach a contractual duty. Its primary purpose under Czech law is not merely to compensate for damages but to be preventive and punitive—it is designed to create a powerful motivation for strict compliance with the contract's terms.

Czech smluvní pokuta vs. Dutch boetebeding: A critical comparison

While both legal systems use penalty clauses, their application and enforceability differ dramatically. A Dutch company, accustomed to its domestic framework, might overlook a smluvní pokuta clause, assuming it is either a minor issue or easily moderated by a court. This is a critical error.

• Scope of Application: The Dutch boetebeding generally replaces the compensation for damages that would be due by law, and a creditor cannot typically demand performance of both the penalty and the original obligation. In contrast, the Czech smluvní pokuta is a far more flexible and potent tool. It can be used to secure any contractual obligation, including purely monetary ones like a delay in payment.
• Proof of Damage: A key feature of the Czech smluvní pokuta is that the penalty is enforceable even if the creditor suffered no actual financial damage from the breach. The breach itself triggers the liability.
• Judicial Moderation: While a Dutch court may reduce a penalty if "reasonableness and fairness" require it , the bar for judicial moderation of a smluvní pokuta in the Czech Republic is very high. A Czech court may only lower a "disproportionally high" penalty, and relying on this is a risky and expensive litigation strategy.

This legal asymmetry can be weaponized in negotiations. A savvy Czech partner might propose a contract with a high smluvní pokuta on a seemingly minor obligation, knowing their Dutch counterpart is likely to underestimate its enforceability. A minor, unintentional delay can then trigger a massive, legally enforceable debt, fundamentally altering the economic balance of the deal.

A real-world example: How a small delay creates a major debt

Imagine your Dutch company signs a €1 million supply contract. The contract contains a smluvní pokuta clause stipulating a penalty of 0.1% of the total contract value for each day of delay in payment. A 20-day delay caused by a simple administrative issue in your accounts department would result in a €20,000 penalty. This amount is completely separate from any statutory interest and is fully enforceable in a Czech court, potentially erasing your entire profit margin on the project.

Contractual Penalty Risks

Risks and Penalties	How ARROWS Helps
Excessive penalties for minor breaches: Agreeing to a high penalty (e.g., 0.5% of contract value per day) for a simple administrative delay.	Contract review and negotiation: We identify and renegotiate unreasonable penalty clauses before you sign. Need a contract reviewed? Contact us at office@arws.cz.
Penalties on monetary obligations: Facing a large penalty for late payment, which is uncommon and less enforceable under Dutch law.	Legal analysis: We explain the full legal and financial implications of each clause under Czech law. Want to understand your legal options? Email us at office@arws.cz.
Penalties without actual damage: Being liable for a full penalty even if your Czech partner suffered no financial loss from the breach.	Drafting documentation: We draft contracts that link penalties to material breaches and protect you from punitive measures. Get tailored legal solutions by writing to office@arws.cz.

FAQ – Legal tips about Czech penalties

• Can a Czech court reduce an excessive contractual penalty?
  Yes, under Section 2051 of the Czech Civil Code, a court can moderate a "disproportionally high" penalty. However, the court will consider the value and importance of the secured obligation, and the process is complex. It should be seen as a last resort, not a negotiating strategy. To avoid this risk, have your contract reviewed by writing to office@arws.cz.
• Can I be charged a penalty and interest for the same late payment?
  Yes. The smluvní pokuta does not affect the creditor's right to claim damages caused by the breach, including statutory interest on late payments, unless the contract explicitly states otherwise. Our lawyers can draft clauses to prevent this double liability. For assistance, email us at office@arws.cz.
• Does the penalty replace the right to claim for damages?
  No, not automatically. The contractual penalty is separate from a claim for damages. The creditor can claim damages exceeding the penalty amount if the contract allows it. It is crucial to draft this clause carefully. Get expert help by writing to office@arws.cz.

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Mistake #2: The validity trap: Relying on informal agreements

The Dutch business culture often values efficiency and trust, where a handshake or a clear email exchange can seal a deal. This reliance on informal agreements can lead to a devastating "validity trap" in the Czech Republic, where strict formal requirements can render an agreement void from the very beginning.

The Dutch handshake vs. The Czech signature

In the Netherlands, a spoken (oral) agreement is generally just as valid as a written one, with only specific exceptions like real estate transactions or non-compete clauses in employment contracts. Many commercial relationships are built on verbal understandings that are later formalized on paper.

This practice is extremely risky in the Czech Republic. The Czech legal system imposes a strict requirement of written form, or písemná forma, for certain types of contracts. For these agreements, a verbal understanding is not merely difficult to prove; it is legally non-existent.

Understanding písemná forma: When written form is non-negotiable

The most common and dangerous example for foreign companies is the Agency Agreement. An Italian or Polish company might engage a Czech sales agent based on meetings and emails, believing a binding relationship exists. However, under Section 2483 of the Czech Civil Code, an Agency Agreement must be executed in writing (písemná forma) to be legally valid and enforceable. A verbal agreement is void from the start.

This principle extends beyond agency agreements. Any contract that is not properly documented, with clear and complete identification of the parties (including registration numbers and statutory representatives), can face significant enforcement challenges.

Case study: The "phantom contract" and wasted investment

The true risk of ignoring formal requirements is not just that an agreement is unenforceable, but that your company may operate for months or years under the illusion of a valid "phantom contract." You invest significant resources—time, money, confidential data, and market strategy—based on a legal relationship that, in the eyes of a Czech court, never existed.

Consider this scenario: Your Dutch company engages a Czech sales agent based on a series of positive video calls and a follow-up email outlining the commission structure. You proceed to provide them with product samples, client lists, marketing materials, and your strategic plans for the region. After six months of poor performance, you discover the agent is also working for your direct competitor, using your confidential information.

When you seek legal recourse, you make a devastating discovery. It is not that the agent breached the contract; it is that there was no contract at all. All your investment is lost, your confidential data is compromised, and you have no legal basis to sue for performance or breach. This is a strategic catastrophe, not just a legal dispute.

Contract validity and formal requirement risks

Risks and Penalties	How ARROWS Helps
Void Agency Agreements: Relying on a verbal or email agreement with a sales agent, which is legally non-existent under Czech law.	Contract drafting: We ensure your key commercial agreements meet all statutory requirements for written form. Do you need a contract prepared? Contact us at office@arws.cz.
Unenforceable Terms and Conditions: Sending your standard T&Cs after the main contract is signed, making them invalid under Czech law.	Legal consultations: We advise on the correct procedure for incorporating terms and conditions to ensure they are binding from the start. For immediate assistance, write to us at office@arws.cz.
Disputes over Party Identity: Using incomplete or incorrect company details in the contract, leading to significant enforcement challenges later.	Drafting documentation to prevent fines: We verify all party details against the Czech Commercial Register for absolute accuracy. Our lawyers are ready to assist you – email us at office@arws.cz.

Mistake #3: The ticking clock: A critical mismatch in the statute of limitations

One of the most insidious risks in cross-border commerce is the silent expiration of legal rights. A Dutch company, operating under the assumption that it has ample time to pursue a claim, can discover too late that its right to legal action in the Czech Republic has vanished due to a much shorter statute of limitations. This procedural trap is absolute; even with a perfect claim, a missed deadline is a complete bar to recovery.

How long do you have to sue in the Czech Republic?

In the Czech Republic, the clock ticks much faster than in the Netherlands. The subjective limitation period for many civil claims is only three years, while a four-year period often applies to commercial relationships. This period typically begins from the date the right could have been exercised for the first time (e.g., the day a payment was missed or a defective product was delivered).

The Dutch five-year standard: A dangerous assumption

This contrasts sharply with Dutch law. The right to claim performance of a contractual obligation in the Netherlands, known as verjaring, generally expires after five years from the date the cause of action arises. This extra time often encourages a more prolonged period of negotiation before litigation is considered.

This difference creates a dangerous blind spot, particularly for a Dutch company's in-house legal team or their regular Dutch law firm. These professionals, operating daily within the 5-year Dutch framework, may inadvertently provide incorrect advice, assuring management that there is "plenty of time" to negotiate a settlement. Their expertise in Dutch law becomes a liability when misapplied to a Czech case.

The absolute deadline: Why a missed date forfeits your claim

Imagine a dispute arises over a defective delivery from your Czech partner. Your in-house counsel, familiar with the 5-year Dutch verjaring, advises a patient approach, suggesting you spend a year or two negotiating a settlement. The negotiations drag on. At the 4.5-year mark, you finally decide to sue.

You contact a Czech law firm like ARROWS, only to be informed that the 4-year Czech limitation period expired six months ago. Your multi-million Euro claim is now legally worthless. The merits of your case have become irrelevant. This highlights the absolute necessity of engaging local Czech counsel at the first sign of a dispute, not as a last resort.

FAQ – Legal tips about claims and deadlines

•  When does the limitation period start to run in the Czech Republic?
  Generally, it starts from the day the right could have been exercised for the first time. For a claim for payment, this is typically the day after the invoice was due. For a claim related to a defect, it is often from the date of delivery. Need to clarify the deadline for your specific claim? Contact us at office@arws.cz.
• Can the limitation period be paused or "interrupted"?
  Yes, the period can be interrupted, most effectively by filing a claim in a Czech court or with an arbitral tribunal. Acknowledgment of the debt by the debtor can also interrupt the period. However, the rules are complex and require formal legal action. Our lawyers can manage this process for you. For help, email us at office@arws.cz.
• Does sending a demand letter stop the clock on the statute of limitations?
  No. Unlike in some jurisdictions, simply sending a formal demand letter to your Czech partner does not interrupt or "toll" the statute of limitations under Czech law. You must initiate formal legal proceedings to stop the clock. For immediate assistance with filing a claim, write to us at office@arws.cz.

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Proactive protection: How to secure your business in the Czech Republic

Understanding these risks is the first step. The second is implementing a proactive legal strategy to protect your interests from day one. Relying on assumptions or using unmodified Dutch legal templates is a recipe for future disputes and financial loss.

Step 1: Conduct thorough legal due diligence

Before signing any agreement, it is essential to verify your Czech partner. The due diligence process in the Czech Republic can be challenging, as there are limited independent sources for verifying issues like litigation history or regulatory risks. It is crucial to have local experts check the Commercial Register to confirm the company's legal status and the authority of the individual signing the contract.

Step 2: Draft a "Czech-Proof" contract

Do not use your standard Dutch contract template. Your agreement must be drafted or reviewed by a lawyer with deep knowledge of the Czech Civil Code. This means ensuring all formal requirements are met, defining all terms with precision to avoid ambiguity, and carefully negotiating clauses like the smluvní pokuta to be reasonable and balanced.

Step 3: Choose your battlefield wisely

The "boilerplate" clauses at the end of a contract—governing choice of law and dispute resolution—are often the most neglected during negotiations, yet they become the most important when a disagreement arises. An improperly drafted clause can force you into a costly and time-consuming legal battle in an unfamiliar system. We can help you draft clauses that specify a favorable jurisdiction or a neutral arbitration forum, giving you control and predictability if a dispute occurs.

Leverage global expertise with local knowledge

Navigating cross-border legal challenges requires a partner with both international reach and deep local roots. As a leading Czech law firm in Prague, EU, ARROWS combines an understanding of foreign clients' expectations with mastery of Czech law. Through our ARROWS International network, built over 10 years, we provide seamless legal support across 90 countries, ensuring your business is protected both locally and globally.

Dispute resolution and enforcement risks

Risks and Penalties	How ARROWS Helps
Unfavorable jurisdiction: Being forced to litigate in a Czech court under unclear procedural rules due to a poorly drafted clause.	Strategic clause drafting: We draft clear dispute resolution clauses that specify favorable jurisdictions or arbitration forums. Need legal help? Contact us at office@arws.cz.
Slow enforcement: Enforcing a contract in the Czech Republic can be a lengthy process, taking up to 611 days on average, delaying recovery of funds.	Representation in court or before authorities: Our experienced litigators navigate the Czech courts efficiently to enforce your rights. For immediate assistance, write to us at office@arws.cz.
Uncertain legal position: Not knowing the strength of your claim or potential liabilities under Czech law before entering a dispute.	Legal opinions: We provide clear, comprehensive legal opinions on your contractual rights and obligations, enabling you to make informed strategic decisions. Get tailored legal solutions by writing to office@arws.cz.

Your legal partner in Prague: How ARROWS delivers certainty

Navigating the Czech legal landscape does not have to be a source of risk. With the right legal partner, you can operate with confidence and certainty, focusing on growing your business while we handle the legal complexities.

At ARROWS, a leading law firm based in Prague, European Union, our international team regularly helps Dutch and other foreign companies succeed in the Czech market. We support over 250 limited liability companies and 150 joint-stock companies, providing services known for their speed and quality.

We protect your investments by providing comprehensive services, including: meticulous contract drafting and review to eliminate ambiguity, representation in court and before public authorities to defend your interests, and professional training for your management to ensure ongoing compliance. Don't let preventable legal mistakes undermine your success.

For a consultation on your specific needs, do not hesitate to contact our firm – office@arws.cz.

FAQ – Most common legal questions about Czech-Dutch commercial contracts

• We already signed a contract with our Czech partner using our Dutch template. Is it too late to fix it?
  It is not too late, but it requires immediate action. We can conduct a legal review to identify unenforceable or high-risk clauses and advise on a strategy for renegotiating or formally amending the contract to comply with Czech law. To assess your existing contract, write to us at office@arws.cz.
• Is an English-language contract fully valid in the Czech Republic?
  Yes, an English-language contract is valid and common in international business. However, in the event of a dispute before a Czech court, a certified Czech translation will be required, and the court will interpret the terms based on Czech legal principles, not Dutch ones. Our lawyers are ready to assist you – email us at office@arws.cz.
• What is the single biggest financial risk I should look for in a Czech contract?
  The contractual penalty, or smluvní pokuta. Unlike in the Netherlands, it can be applied to late payments and is enforceable even without proof of damage, posing a significant financial risk if not carefully negotiated and capped. For immediate assistance with contract clauses, write to us at office@arws.cz.
• Our Czech partner seems very informal and prefers to agree on things verbally. Is this a red flag?
  Yes, this is a major red flag. While this may be a cultural or negotiating style, key agreements like agency contracts are legally void in the Czech Republic without a proper written document (písemná forma). Always insist on formalizing all essential terms in a signed contract. Get tailored legal solutions by writing to office@arws.cz.
• How do I ensure the Czech company I'm dealing with is legitimate and the person signing has authority?
  This requires checking the public Czech Commercial Register (Obchodní rejstřík). We provide this verification as a standard part of our due diligence services, confirming the company's existence, its registered statutory representatives, and any limitations on their authority to sign on the company's behalf. Need legal help? Contact us at office@arws.cz.
• We have a dispute and the contract says "Czech law applies." Can our Dutch lawyer handle it?
  While your Dutch lawyer provides valuable business context, you need a Czech-licensed attorney for representation in Czech courts and for authoritative advice on Czech substantive and procedural law. Relying solely on a non-Czech lawyer can lead to critical errors, like missing the statute of limitations. Do not hesitate to contact our firm – office@arws.cz.

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