Commercial contracts with Czech partners:

For Austrian companies, assuming Czech commercial law is familiar is a costly mistake. This guide offers specific answers to hidden contractual risks, showing why you need an English-speaking lawyer in Prague. At ARROWS, a leading law firm in Prague, European Union, we specialize in securing your cross-border agreements with confidence.

Do you 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.

Shared history, divergent paths: Why Czech contracts are not what they seem

The legal systems of Austria and the Czech Republic share a common ancestor: the Austrian General Civil Code (ABGB) of 1811. For over a century, this code formed the basis of civil law in the Czech lands, creating a deep-rooted legal and cultural connection that persists today.

This shared heritage, however, creates a deceptive sense of familiarity for Austrian businesses, masking significant differences that have emerged over the last century.

The paths of the two legal systems diverged dramatically after 1948, and the most significant modern shift came with the Czech Republic's new Civil Code (Občanský zákoník), which took effect on January 1, 2014.

This comprehensive legislation replaced the old civil code and the separate commercial code, creating a unified but distinctly Czech framework for private law.

While Austrian law continues to be governed by the ABGB and the Uniform Commercial Code (UGB), Czech law now operates under its own modern principles.

Relying on an intuitive understanding based on Austrian law can lead to critical errors in contract negotiation and drafting. This risk is magnified by cultural nuances in business communication. 

Czech counterparts may adopt a non-confrontational or indirect communication style, which can be misinterpreted as agreement. An Austrian partner might leave a meeting believing all points are settled, while unresolved ambiguities remain, creating a perfect storm for future disputes where only the written terms of the contract will matter.

FAQ – Legal tips about Czech-Austrian legal foundations

1. Isn't Czech law just a variation of Austrian or German law?

While they share historical roots in the ABGB, Czech law has evolved independently, especially with the 2014 Civil Code. It has its own unique rules on liability, contract formation, and penalties that differ significantly from Austrian and German law. For a reliable legal strategy, contact our experts at office@arws.cz.

2. My Czech partner seems to agree on all points verbally. Is that enough?

Verbal agreements are extremely risky in commercial dealings. Czech business culture can be indirect, meaning a verbal "yes" may not signify a firm commitment. Furthermore, certain contracts, like commercial agency agreements, legally require written form in the Czech Republic. Always insist on a detailed written contract. Need help formalizing an agreement? Write to us at office@arws.cz.

3. What is the single biggest misconception Austrian companies have about Czech contracts?

The biggest misconception is that the legal principles are fundamentally the same. This leads companies to use unmodified Austrian contract templates, overlook critical differences in liability rules, and miss crucial deadlines, exposing them to significant financial and legal risk. For a legal review tailored to the Czech market, email us at office@arws.cz.

The "Battle of the Forms": Whose contract terms prevail?

A frequent and perilous scenario in B2B transactions is the "battle of the forms." This occurs when you send an offer with your company's standard terms and conditions (T&Cs), and your Czech partner responds with a purchase order or acceptance that references their own, conflicting T&Cs.

The critical question then becomes: which set of terms governs the contract? Assuming your terms automatically apply because you sent them first or last can be a disastrous error.

Both Czech and Austrian law have moved towards the same solution for this problem: the "Knock-Out Rule".

This modern approach replaces the older "Last-Shot Rule" (where the last set of terms sent was deemed accepted), which was the standard in the Czech Republic before 2014.

Under the Knock-Out Rule, any clauses in the parties' respective T&Cs that contradict each other are effectively cancelled or "knocked out."

The consequences are profound. The contract is still considered formed based on the agreed-upon core elements like price and quantity. However, a legal vacuum is created where the conflicting clauses once stood. This vacuum is automatically filled by the default provisions of the governing statutory law—in this case, the Czech Civil Code.

You may find that your carefully drafted limitations on liability, specific payment terms, or warranty disclaimers have vanished, replaced by standard legal provisions that are entirely unsuited to your transaction and expose you to unforeseen risks.

For any of this to matter, the T&Cs must first be validly incorporated into the contract. In both jurisdictions, this requires that the other party has a reasonable opportunity to familiarize themselves with the terms before the contract is concluded. 

A simple reference on an invoice or delivery note sent after the fact is generally insufficient to make your terms legally binding.

Dangers in contract formation and standard terms

Legal risk and potential issues	How ARROWS helps
Conflicting T&Cs nullified: Your crucial liability caps and payment terms are voided by the "Knock-Out Rule," exposing you to unlimited liability and unfavorable statutory payment deadlines.	Contract drafting and review: We ensure your T&Cs are properly incorporated and prevail, avoiding the "Knock-Out Rule." Need your contract reviewed? Write to office@arws.cz.
Improper incorporation of terms: Referencing your T&Cs on an invoice is too late. A court may find they were never part of the contract, leaving you unprotected.	Legal consultation: We advise on the correct procedure for including your T&Cs so they are legally binding from the start. For immediate assistance, write to us at office@arws.cz.
Gaps filled by unfavorable Czech law: When your clauses are "knocked out," the gaps are filled by the Czech Civil Code, which may have provisions that are disadvantageous to your business model.	Legal analysis: We analyze the potential outcomes and draft a master agreement that explicitly overrides statutory defaults. Want to understand your legal options? Email us at office@arws.cz.
Uncertainty leads to disputes: Ambiguity over which terms apply is a primary driver of costly commercial litigation, delaying projects and damaging business relationships.	Drafting legally required documentation: We create clear, unambiguous contracts that define the governing terms from the outset. Do not hesitate to contact our firm – office@arws.cz.

Liability and penalties: Are your contractual safeguards enforceable?

One of the most dangerous areas of divergence between Austrian and Czech law lies in the treatment of liability, damages, and contractual penalties. 

Clauses that provide robust protection under Austrian law may be ineffective or interpreted very differently by a Czech court, leaving your business exposed when a breach occurs.

A key difference is the concept of recoverable damages. Austrian law distinguishes between contractual and tortious liability, and generally allows for the recovery of pure economic loss in contract disputes.

Czech law, however, takes a much stricter approach. It does not recognize the concepts of "consequential loss" or "indirect loss". 

To claim damages for a breach of contract, you must prove a direct causal link between the breach and the harm suffered. A contract clause excluding liability for "consequential loss" is therefore legally meaningless in the Czech Republic and will not protect you from claims you intended to exclude.

Another critical area is the use of a contractual penalty (smluvní pokuta). Many companies rely on high penalty clauses to deter breaches and ensure timely performance. 

However, a landmark 2023 decision by the Czech Supreme Court has fundamentally changed how these clauses are enforced. Previously, a penalty's fairness was assessed based on the circumstances at the time the contract was signed. 

Now, Czech courts have the power to moderate—that is, to reduce—a penalty they deem "unreasonable" by considering the specific circumstances at the time of the breach and even its subsequent effects. 

This means a high penalty you are counting on could be significantly slashed by a judge, severely weakening your primary enforcement tool.

Risks in liability, warranty, and penalty clauses

Legal risk and potential issues	How ARROWS helps
Unenforceable penalty clause: Your high contractual penalty, designed to ensure performance, is drastically reduced by a Czech court as "unreasonable," leaving you with minimal compensation for a major breach.	Drafting enforceable clauses: We draft penalty clauses that are structured to withstand judicial moderation under the new Czech case law. Get tailored legal solutions by writing to office@arws.cz.
Exclusion of "consequential loss" is meaningless: Your contract clause excluding liability for indirect or consequential loss is ineffective under Czech law. This can lead to disputes over the scope of damages.	Precise contract drafting: We define recoverable damages with precision according to Czech legal principles, ensuring clarity and avoiding disputes. Need legal help? Contact us at office@arws.cz.
Assuming Austrian warranty standards: Relying on Austrian B2B practices for limiting warranty claims may conflict with mandatory provisions of the Czech Civil Code, rendering your limitations void.	Compliance review: We ensure your warranty and liability clauses are fully compliant with Czech law, protecting you from invalidity claims. Our lawyers are ready to assist you – email us at office@arws.cz.
Reversal of burden of proof: In Austrian contract law, the burden of proof is reversed for fault; the defendant must prove they were not at fault. This is not the default in all Czech commercial scenarios, creating unexpected evidentiary challenges.	Representation in court: Our litigators understand the procedural nuances of Czech courts and can build a robust case that meets local evidentiary standards. For representation, contact us at office@arws.cz.

When disputes arise: Critical deadlines and jurisdictional traps

When a commercial relationship sours, procedural rules become just as important as the contract's substantive terms. For Austrian companies, misunderstanding Czech procedural law, particularly the rules on deadlines for filing claims, can lead to the complete loss of an otherwise valid claim.

The most significant trap is the statute of limitations. Austrian law provides a very long default "long" limitation period of 30 years for many claims, creating a sense that there is ample time to act.

The Czech Republic, however, operates on a much shorter timeline. The general subjective limitation period for commercial claims is only three years from the date the right could first be exercised, with an absolute "objective" limit of ten years.

An Austrian company that waits four or five years to pursue a claim, believing it is well within its rights, may discover that its claim has become permanently unenforceable in the Czech Republic.

To prevent such outcomes, a clear Choice of Law and Jurisdiction Clause is essential. Without one, the parties are thrown into a complex and expensive preliminary dispute just to determine which country's laws apply and which courts will hear the case. 

As both nations are EU members, regulations like Rome I often determine the applicable law in the absence of a clause, but this default outcome may not be favorable. Explicitly defining the governing law and the venue for dispute resolution in your contract provides crucial legal certainty.

Finally, even with a favorable judgment, enforcement can present challenges. While judgments from EU courts are readily enforceable under EU regulations, recent Czech case law has introduced complexities regarding the enforcement of foreign arbitral awards. 

The Czech Supreme Court has ruled that foreign awards may require a more cumbersome court enforcement process compared to domestic awards, potentially causing delays and giving debtors an opportunity to frustrate collection efforts.

FAQ – Legal tips about Cross-Border dispute resolution

1. Can I just specify in the contract that Austrian law and Austrian courts will apply?

Yes, you can, and this is often a good strategy for an Austrian company. However, your Czech partner must agree to it. Furthermore, certain mandatory provisions of Czech law (e.g., related to real estate located in the Czech Republic) may apply regardless of your choice of law. Get professional advice by emailing office@arws.cz.

2. Is arbitration a better option than litigation for Czech-Austrian disputes?

Arbitration can offer confidentiality, flexibility, and easier international enforcement under the New York Convention. However, given recent complexities in enforcing foreign arbitral awards in the Czech Republic, it's crucial to structure the arbitration clause correctly. Our firm can help you decide the best dispute resolution strategy. For a consultation, write to office@arws.cz.

Your strategic advantage: Proactive legal protection with ARROWS

Navigating the subtle but significant differences between Austrian and Czech commercial law requires more than just a standard contract template; it demands specialized, local expertise. 

The risks of getting it wrong—from unenforceable clauses and voided liability caps to expired claims and unexpected financial penalties—are too high to ignore. Proactive legal counsel is not a cost center; it is a fundamental part of your risk management strategy.

At ARROWS, our strength lies in bridging this legal and cultural divide. We combine a deep, nuanced understanding of the Czech Civil Code with extensive experience advising international clients.

 As an international law firm operating from Prague, European Union, we understand the expectations and concerns of foreign businesses. 

Our expertise is enhanced by the ARROWS International network, a global alliance built over 10 years that allows us to handle complex cross-border matters in 90 countries.

We provide a comprehensive suite of services designed to protect your interests in the Czech market, including:

• Contract drafting and review to ensure your agreements are robust, enforceable, and tailored to Czech law.
• Preparation of internal company policies to align your operations with local legal requirements.
• Legal opinions that provide clear analysis on the validity of specific contractual arrangements.
• Representation in court or before public authorities should a dispute arise.
• Professional training for your management and employees to equip them with the knowledge to avoid common legal pitfalls.

Secure your Czech business operations: What’s the next step?

The key to successful cross-border business is foresight. By addressing the unique legal challenges of the Czech market before you sign a contract, you can prevent costly disputes, protect your investments, and build stronger, more reliable relationships with your Czech partners. 

ARROWS law firm has a proven track record, supporting over 150 joint-stock companies and 250 limited liability companies in their operations.

Don't wait for a dispute to reveal the gaps in your contract. A proactive review of your commercial agreements is a small investment that secures your business against significant future losses. Protect your cross-border operations with a leading Czech law firm in Prague, EU, that understands your needs.

For a proactive review of your commercial agreements, contact our expert team today. Get tailored legal solutions by writing to office@arws.cz.

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

1. We've been using the same contract template for years in Austria. Can we use it for our Czech partners?

Using an unmodified Austrian template is highly risky. Key clauses on liability, contractual penalties, and warranties may be unenforceable or interpreted differently under the Czech Civil Code. It is essential to have your template reviewed and adapted by a specialist in Czech law. To ensure your contracts are secure, contact us at office@arws.cz.

2. What happens if our contract doesn't specify which country's law applies?

If no law is chosen, EU regulations (the Rome I Regulation) will determine the applicable law, which often defaults to the law of the seller's or service provider's country of residence. This creates uncertainty and can lead to costly preliminary legal battles just to decide which rules to follow. A clear choice of law clause is vital for predictability. Need help drafting one? Email us at office@arws.cz.

3. My Czech partner's T&Cs are in Czech. Am I bound by them if I don't understand them?

You are only bound if you were given a "reasonable opportunity" to understand the terms before concluding the contract. If negotiations were conducted in German or English, presenting T&Cs only in Czech could make them invalid. However, this is a point of contention best avoided by insisting on a bilingual contract or a certified translation. For assistance with contract negotiations, write to office@arws.cz.

4. How can I ensure my contractual penalty clause will be enforced in the Czech Republic after the 2023 Supreme Court ruling?

Extremely high, punitive penalties are now at risk of being reduced by a court. The penalty should be drafted to be reasonable in relation to the importance of the obligation it secures and the potential damage a breach could cause. Professional drafting is key to creating a clause that is both a strong deterrent and legally enforceable. Get expert drafting assistance by contacting office@arws.cz.

5. Is an oral agreement with my Czech partner legally binding?

While Austrian law is more permissive of oral agreements, this is a high-risk practice. In the Czech Republic, certain agreements, such as for a commercial agency, explicitly require written form to be valid. For any significant commercial transaction, a detailed written contract is essential to prevent disputes over terms and to have enforceable proof of your agreement. Let us help you formalize your agreements by writing to office@arws.cz.

6. If we win a case in an Austrian court, is it difficult to enforce that judgment in the Czech Republic?

Enforcement of court judgments between EU member states is streamlined by regulations like Brussels I bis, making it a relatively straightforward, though formal, process. However, it is important to follow the correct procedures. It is worth noting that enforcing foreign arbitral awards has recently become more procedurally complex in the Czech Republic. For guidance on cross-border enforcement, get in touch with our legal team at office@arws.cz.