What happens if your Czech supplier fails to deliver - and how to prepare

When a supplier misses a delivery deadline, the financial impact can be devastating. Lost production and contractual penalties can quickly turn a routine transaction into a crisis. In the Czech Republic, the legal framework offers tools to protect your business. This article explains what remedies are available under Czech law and how to structure agreements to prevent costly disruptions.

Understanding your legal position when delivery fails

Supplier delays (known as "prodlení dlužníka") are among the most common disputes in Czech commercial law. What makes the Czech legal environment particularly important to understand is that the remedies available to you depend entirely on whether the breach is classified as a material breach or a non-material breach of contract. This distinction fundamentally determines what action you can take.

A material breach is one where the breaching supplier knew or reasonably should have known at the time of signing the contract that you would not have agreed to the deal if you had foreseen this specific breach.

When a supplier is significantly late on delivery—particularly when it disrupts your operations or causes you to lose contracts—Czech courts typically consider this a material breach. If the breach is material, you have the strongest remedies available, including immediate withdrawal. If it is not material, your options are procedural and require giving the supplier a "second chance."

The Czech legal system recognizes this complexity, which is why many commercial disputes arise not from the failure to deliver itself, but from disagreements over whether the failure was material enough to justify the buyer's immediate termination.

Your remedies when a supplier misses the delivery date

Czech law provides you with a hierarchy of remedies when a supplier fails to deliver on time (delay). Understanding which remedy applies to your situation is essential because choosing the wrong one can limit your recovery.

If the breach is material (according to Section 1977 of the Civil Code), you have the right to choose immediately between insisting on performance or withdrawing from the contract.

You must notify the supplier of your choice without undue delay. If you fail to do so, the breach may be treated as non-material.

If the breach is non-material (Section 1978 of the Civil Code), your remedies are more limited, and you generally cannot withdraw immediately.

Instead, you must provide the supplier with an additional reasonable period to perform. Only if the supplier fails to deliver within this additional period can you withdraw from the contract.

Note: While "price reduction" (sleva z ceny) is a standard remedy for defective goods (vady), it is not the primary statutory remedy for late delivery (prodlení). In cases of delay, financial compensation is typically handled through damages or contractual penalties.

The right to demand performance

The most straightforward remedy is simply demanding that the supplier deliver the goods. This works best when time is no longer critical and you can absorb the delay. However, in real-world business, this option is often impractical. By the time you recognize that a supplier will miss the deadline, you have already suffered losses.

The lawyers at ARROWS Law Firm regularly handle disputes where clients demand performance only to discover weeks later that performance will still not happen, wasting valuable time.

This is why many sophisticated commercial agreements include a clause requiring the supplier to notify you of any anticipated delays immediately—allowing you to invoke penalties or switch suppliers sooner.

Withdrawal from the contract

Terminating a contract when a supplier has materially breached is a powerful remedy, but it comes with strict procedural requirements. Under Czech law, withdrawal (known in Czech as "odstoupení od smlouvy") is a unilateral legal act—you do not need the supplier's permission or agreement. However, the withdrawal must be validly delivered to take effect.

The notice of withdrawal must be delivered to the supplier in a way that leaves no doubt it was received.

Czech law strongly recommends using either the Czech data box system (datová schránka) or registered mail with confirmation of delivery. An email without read receipt, or a verbal statement, will not suffice in court. If your withdrawal notice is not properly delivered, the contract remains in force.

When you validly withdraw from a contract, the relationship is cancelled retroactively (ex tunc) as if it never existed. Both parties must return what they have received. However, this does not eliminate your right to claim contractual penalties or damages for breaches that occurred before the withdrawal.

The Supreme Court of the Czech Republic has strictly interpreted these rules, meaning a valid withdrawal must clearly state the specific grounds for termination.

Vague language such as "the contract is terminated due to your breach" is insufficient. You must specifically describe what obligation the supplier failed to perform (e.g., failure to deliver by the agreed date).

Contractual penalties as your first line of protection

Before even considering termination, Czech law offers another powerful tool: the contractual penalty (known in Czech as "smluvní pokuta"). This is one of the most effective remedies available to buyers in the Czech Republic.

A contractual penalty is an agreed-upon financial sanction imposed automatically when a supplier fails to perform—regardless of whether you can prove you suffered actual damage.

This is fundamentally different from damages claims, where you must prove the losses you incurred. The penalty applies simply because the breach occurred. For example, if your contract states that the supplier must pay 0.2% of the contract price for each day of delay, the penalty is due immediately.

Crucial Legal Nuance: Under Section 2050 of the Civil Code, unless agreed otherwise, payment of a contractual penalty precludes the right to claim damages for the same breach. This means if you have a penalty clause, you cannot claim damages in excess of that penalty unless your contract explicitly states otherwise.

Furthermore, under Section 2051 of the Czech Civil Code, a court can reduce a penalty if it is "disproportionately high."

Czech law has evolved significantly on this point. Today, Czech courts (specifically the Supreme Court) focus on whether the specific penalty claim in your particular case is reasonable given the circumstances of the breach and the function of the penalty.

This evolution means that a penalty of 0.5% of contract value per day—which might seem reasonable for a 5-day delay—could be challenged as excessive if the supplier is 100 days late. This is why working with experienced lawyers who understand the current case law is essential.

Determining when you can suspend work or payment

One question that arises frequently in practice is whether you can simply stop paying the supplier or suspend your own performance if the supplier is late.

Under Czech law (Section 1912 of the Civil Code regarding "synallagmatic contracts"), if the performance of both parties is to be simultaneous, you can refuse to pay until the supplier performs.

This is the plea of non-performance (námitka nesplněné smlouvy). However, if your contract requires you to pay an advance or perform before the supplier delivers, you generally cannot simply stop payment unless you can prove that the supplier's performance is jeopardized (Section 1913).

The lawyers at ARROWS Law Firm see this scenario repeatedly: a buyer tries to suspend payment as leverage to force a late supplier to perform, only to discover they have breached the contract themselves.

To avoid this, sophisticated contracts include a clause explicitly permitting the buyer to suspend any payments (even unrelated ones) if the supplier is in default.

microFAQ – Legal tips on supplier remedies under Czech law

1. If my supplier is 5 days late, can I immediately withdraw from the contract?
Not automatically, unless the contract stipulated a fixed date (fixní termín) or defined any delay as a material breach. If not, you generally need to set an additional reasonable time for performance (e.g., "deliver within 5 extra days or we withdraw") before you can terminate.

2. Can I demand both a contractual penalty and damages for the same delay?
Only if your contract explicitly says so. By default (Section 2050), the contractual penalty covers all damages arising from that specific breach. If your actual loss is 1 million CZK but the penalty is only 100,000 CZK, you lose the difference unless the contract explicitly allows claiming damages in excess of the penalty.

3. If I withdraw from the contract, do I lose my right to claim the contractual penalty that accrued before withdrawal?
No. You retain the right to claim contractual penalties and damages for breaches that occurred before the withdrawal became effective. The withdrawal cancels future obligations, but it does not retroactively erase the debt created by the penalty clause.

The critical importance of limitation periods and timely notice

One of the most insidious risks in Czech commercial law is the limitation period (promlčecí lhůta). The general limitation period for contractual claims in the Czech Republic is three years (Section 629 of the Civil Code). This clock starts running from the date the right could first be exercised—typically the day the penalty became due or the damage occurred.

The Supreme Court of the Czech Republic has indicated in various decisions that waiting too long to enforce a right, even within the limitation period, can sometimes be viewed as contrary to good morals.

This could lead to moderation of the penalty, particularly if the penalty accumulates to astronomical heights without the creditor alerting the debtor. What does this mean in practice? If your supplier is 30 days late, you should notify them of the accruing penalty immediately.

The lawyers at ARROWS Law Firm regularly advise clients to send written notice of penalty claims within days of the breach.

This documentation protects you and demonstrates to any future court that you acted diligently. Prompt notice and enforcement of your contractual rights is not just good business practice; it helps defend the enforceability of the claim in court.

Preventing supplier failure through better contract design

The best remedy for supplier failure is prevention through careful contract design. Yet many businesses operate with generic purchase agreements that do not adequately protect them.

A robust supplier contract must define with precision what constitutes a material breach.

Rather than relying on the statutory definition, explicitly state in the contract a specific timeframe (e.g., delay of more than X days) that constitutes a material breach entitling the buyer to withdraw. This removes ambiguity and strengthens your position.

The contract should also include a detailed contractual penalty schedule. Rather than a simple "0.2% per day" formula, consider tiered penalties or a specific lump sum. Crucially, ensure the contract explicitly states that claiming the penalty does not affect your right to claim full damages.

The contract must also address force majeure—extraordinary, unforeseeable events that excuse performance (Section 2913).

Without a force majeure clause, statutory rules apply, but a custom clause can define specific events (e.g., supply chain disruptions, pandemics) and, importantly, set a time limit after which you can cancel the contract even if force majeure is ongoing.

Payment terms and retention clauses

Payment terms are equally critical. A common arrangement is to retain a portion of the payment (typically 5–10%) until the supplier has completed all work and resolved any defects. This is known as a retention (pozastávka).

This distinction matters enormously if the supplier enters insolvency. If a retention clause is properly drafted as a condition precedent for the maturity of the final payment, then the supplier's right to that retained payment does not arise until the condition is met.

Documentation and inspection requirements

Your contract must clearly state how and when the buyer will inspect goods for defects, and what constitutes timely notice. Under Czech law (Section 2112), you must inspect goods and notify the supplier of defects "without undue delay" after you could have discovered them. Failure to do so can result in the court refusing your claim.

Unlike consumer contracts, in a standard B2B commercial relationship, the burden of proof is generally on you (the buyer) to prove the defect existed at the time of transfer of risk.

This applies unless you have negotiated a Warranty for Quality (Záruka za jakost). Therefore, a "Warranty for Quality" clause is essential for buyers. It shifts the burden, making the supplier liable for any defects that occur during the warranty period, regardless of when they originated.

The lawyers at ARROWS Law Firm routinely advise clients to photograph unpacking and inspect goods immediately.

This creates contemporaneous evidence that is invaluable if a dispute later arises.

microFAQ – Legal tips on contract design for supplier protection

1. Should I include a force majeure clause?
Yes. While the law recognizes force majeure (vis maior) as a defense against damages, a contractual clause allows you to define exactly what counts and, more importantly, allows you to terminate the contract if the force majeure event lasts too long (e.g., more than 30 days).

2. What is the difference between a retention clause and simply delaying payment?
A retention (pozastávka) is a contractual agreement where a part of the price is not due until a specific condition is met (e.g., successful protocol of handover). Simply delaying payment without such a clause puts you in breach of contract (prodlení).

3. If my supplier delivers goods but I discover a defect three months later, can I still claim the supplier is liable?
In B2B, only if you can prove the defect existed at the time of delivery (hidden defect) OR if you have a Warranty for Quality (Záruka za jakost). If you have a warranty, you can claim. If you rely only on statutory rights, you must prove the defect was latent at delivery. You must also have notified the supplier "without undue delay" after discovery.

Risks and consequences of supplier failure

Risks and Penalties	How ARROWS Law Firm Helps (office@arws.cz)
Production stoppage and lost revenue: When a supplier fails to deliver, your production line halts, customer orders are missed, and you lose the profit margin on those orders.	Damages quantification and claim preparation: ARROWS Law Firm quantifies the direct and consequential losses resulting from supplier failure and prepares detailed claims that withstand court scrutiny, helping you recover actual losses beyond contractual penalties (provided the contract allows it).
Inability to enforce contractual penalties: If the penalty clause is poorly drafted or does not account for Czech case law on proportionality, the supplier can challenge it in court and a judge may reduce it.	Penalty clause review and enforcement: ARROWS Law Firm reviews existing penalty clauses to ensure they are enforceable under current case law, negotiates penalties with suppliers, and enforces them through debt collection if necessary.
Loss of contractual rights due to expired limitation period: You may discover a supplier breach after three years have passed, at which point you have no legal remedy—your claim is time-barred and unenforceable.	Limitation period monitoring and timely claims: ARROWS Law Firm maintains calendars of key dates and ensures that notice of claims is sent before limitation periods expire, preserving your legal rights.
Forfeiture of defect claims by failing to inspect: Goods arrive defective, but you fail to inspect immediately or notify the supplier within "undue delay." The supplier then successfully objects in court.	Inspection protocols and warranty clauses: ARROWS Law Firm drafts robust Warranty for Quality clauses and advises on proper inspection protocols to ensure your claims are not dismissed on procedural grounds.
Ineffective withdrawal from contract: You terminate a supplier contract via email, but months later the supplier claims the termination was invalid because it wasn't delivered via Data Box or registered mail.	Valid termination notice preparation and delivery: ARROWS Law Firm drafts termination notices that meet all formal requirements, arranges delivery via registered mail or data box, and represents you in disputes over the validity of termination.

Managing disputes with underperforming suppliers

Not every supplier failure requires litigation. In many cases, negotiation and settlement are faster and less expensive than court proceedings. However, negotiation from a position of strength—where the supplier understands your legal rights—is far more effective.

Before entering settlement discussions, document everything: the delivery date in the contract, the actual delivery date, any notices you sent, the damages you incurred, and the contractual penalties accrued. Then, prepare a detailed demand letter citing the specific contractual provisions and the amount owed.

ARROWS Law Firm has decades of experience negotiating supplier disputes.

Many of our clients find that a single professionally drafted demand letter (předžalobní výzva) resolves the matter—the supplier realizes you are serious and settles to avoid litigation costs.

Alternative dispute resolution in the Czech Republic

Czech law encourages use of alternative dispute resolution (ADR).

Mediation involves a neutral third party who facilitates discussions.

It is voluntary and non-binding until a settlement is signed. Arbitration is more formal. You and the supplier agree to submit the dispute to a private arbitrator who issues a binding decision. Arbitration is generally faster than court litigation, and awards are enforceable internationally.

ARROWS Law Firm regularly represents clients in arbitration proceedings and can advise on whether arbitration or court litigation is preferable in your situation.

Court proceedings as a last resort

If negotiation fails, court proceedings are available. General commercial contract claims typically take 2–3 years to resolve through the district and appellate courts in the Czech Republic.

However, payment orders (platební rozkaz) can sometimes be obtained much faster if the debt is clear and documented. If the supplier does not object to the payment order within 15 days, it becomes a final judgment.

The lawyers at ARROWS Law Firm regularly represent clients in Czech court proceedings.

We manage the entire process—from filing the initial complaint, through evidence gathering and expert reports, to representation at trial.

Cross-border supplier relationships and international complications

If your supplier is based outside the Czech Republic—particularly in other European Union countries—additional considerations arise. While Czech law generally applies to contracts where the parties chose it, the Vienna Convention on Contracts for the International Sale of Goods (CISG) may automatically apply unless explicitly excluded.

ARROWS Law Firm is a leading law firm based in Prague, European Union, with extensive experience handling cross-border commercial disputes.

Our ARROWS International network spans 90 countries. This means if you need to enforce a judgment or collect a debt from a supplier in Germany, Poland, or Slovakia, we have immediate access to local counsel.

For cross-border disputes within the EU, the Brussels I Recast Regulation governs jurisdiction and enforcement. This means a Czech court judgment can be enforced in other EU member states.

Executive summary for management

1. Supplier failure is a material business risk with multiple legal remedies—but only if contracts are properly drafted. Most companies do not enforce contractual penalties or termination rights promptly.

2. The distinction between material and non-material breach determines your available remedies. A material breach grants you the right to terminate immediately. A non-material breach requires giving extra time.

3. Contractual penalties replace damages unless agreed otherwise. This is the most common mistake. If your contract has a penalty clause, you cannot claim damages exceeding that penalty unless the contract explicitly permits it.

4. The limitation period is three years. Thousands of Czech companies lose valid claims every year because they wait too long.

5. Modern supply chain management requires "Warranty for Quality" clauses. Relying on statutory liability is risky in B2B. A warranty clause shifts the burden of proof to the supplier.

Conclusion

When a supplier fails to deliver, your response must be swift, documented, and legally informed. Czech law provides powerful remedies—contractual penalties, damages claims, and the right to terminate—but these remedies are only available if you understand how to invoke them correctly.

The distinction between material and non-material breach, the rules for enforcing contractual penalties versus damages, and the strict requirements for withdrawing from a contract are areas where experienced legal guidance makes a difference.

Rather than navigating these issues alone, many business owners entrust supplier disputes to the specialists at ARROWS Law Firm.

We work with more than 150 joint-stock companies and 250 limited liability companies. If you are dealing with a supplier that has failed to deliver, or if you want to review your existing supplier contracts, contact ARROWS Law Firm at office@arws.cz.

FAQ – Frequently asked legal questions about supplier delivery failures

1. My supplier is 10 days late. Can I immediately withdraw from the contract?

Not automatically, unless your contract defines any delay as a material breach or sets a "fixed" delivery date (fixní termín). If not, you must typically set a reasonable additional deadline for performance. If they fail that second deadline, then you can withdraw.

2. What is the difference between a contractual penalty and damages?

A contractual penalty is automatically due if a breach occurs, regardless of actual loss. Damages require proof of loss and causation. Crucially, under Czech law, the penalty replaces damages unless your contract expressly says otherwise. You usually cannot claim both cumulatively unless agreed.

3. If I send a termination notice to the supplier via email, is it valid?

It is risky. Czech law requires proof of delivery. Email without a qualified electronic signature or read receipt is vulnerable to dispute. The safest methods are the Czech data box (datová schránka) or registered mail.

4. How long do I have to enforce a claim?

The general limitation period is three years from the date the right could first be exercised.

5. My contract doesn't mention what happens if the supplier is late. What remedies do I have?

You have statutory rights under the Civil Code: demand performance, or withdraw (after additional time if the breach is not material). You can also claim damages for the delay, but you must prove the amount of loss. You cannot claim a contractual penalty if it was not written in the contract.

6. Can I withhold payment to my supplier because they are late on delivery?

If payment and delivery are supposed to be simultaneous, yes (plea of non-performance). If you agreed to pay in advance, generally no, unless you can prove their performance is endangered (Section 1913).

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we strive for maximum accuracy in the content, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation, it is therefore necessary to contact ARROWS Law Firm directly (office@arws.cz). We accept no responsibility for any damage or complications arising from the independent use of the information in this article without our prior individual legal consultation and expert assessment. Each case requires a tailor-made solution, so please do not hesitate to contact us.