According to the Supreme Administrative Court, rules for public contracts need to be applied to the acquisition of shares, equity investments in companies, and businesses

On 29 October 2020, the Supreme Administrative Court issued a final ruling (file no. 9 As 139/2020) in which it addressed the case of the acquisition of shares and a business by a public contracting authority. The substance of the dispute is the issue of whether the term “thing” as used in Act No. 134/2016 Coll., on Public Procurement, as amended, corresponds to the definition contained in public procurement directives of the European Union, or the Czech Civil Code.

Under public procurement directives, the subject matter of a public contract for supplies may be only a product as defined in Article 2, par. 1, subparagraph 8, the first sentence of Directive 2014/24/EU of the European Parliament and of the Council on public procurement and repealing Directive 2004/18/EC. On the other hand, if the term thing as used in the Public Procurement Act corresponds to the definition of a thing contained in Section 489 of Act No. 89/2012, the Civil Code, then the public procurement rules apply to “everything which differs from a person and is used for the needs of people”.

The full text of the final ruling of the Supreme Administrative Court is available on the Court’s website.

In its prior ruling, the Regional Court in Brno used an interpretation in conformity with EU law stating that it was not the intention of the lawmaker to expand the scope of public procurement directives. However, the Supreme Administrative Court rejected the reasoning made by the Regional Court in Brno and, in agreement with the Office for the Protection of Competition, brings an opposite view of the matter. The Supreme Administrative Court concluded that the term “thing” under the Public Procurement Act should be interpreted in accordance with Section 489 of the Civil Code, meaning that both the business and the shares are things as defined by the Civil Code and the contracting authority was therefore obliged to award the acquisition of the shares and the business in a tender.

For this reason, it is currently necessary to assume that an acquisition of a share, an equity investment in a company, or a business falls under the legal regulation of the Public Procurement Act, and therefore it is necessary to make such acquisitions in this mode. Although the Supreme Administrative Court itself expressed some doubts regarding the appropriateness of such regulation, we can only hope that this issue will be definitively resolved by the planned amendment to the Public Procurement Act, which aims to introduce an exception for shares, businesses, and equity investments in companies into this act.

Public Contracts dReport newsletter

Upcoming events

Seminars, webcasts, business breakfasts and other events organized by Deloitte.

    Show morearrow-right