New tools for the recovery of arrears
Starting this year, the tax authorities are not limited by local jurisdiction when recovering tax arrears. At the same time, from 1 July 2025, the customs administration can use a new power in the event of an u…
Legal News [July 2024]: Withdrawing from a contract for delay on the side of the debtor
The introductory judicial decision of Legal News deals with the issue of withdrawal from a contract. It concludes that the right to withdraw from a contract for delay on the side of the debtor is to be applied without undue delay merely if the contract explicitly says so. In the following judicial decision, the Supreme Court stipulates that the solidarity of debtors with the repurchase of an interest in a controlled company arises from law; thus the authorised owner may require the purchase of an interest from each owner acting in conformity individually or from all owners simultaneously. In the third judgment, the Supreme Court concludes that the right for a contractual fine or the enforceability thereof does not expire, even though the creditor waived the enforcement of the guaranteed liability at court. The last judicial decision of the Supreme Court states that the claim to return an unwarrantedly drawn bank guarantee may be used as defence against the law; thus, the limitation of this claim cannot be achieved. Detailed information on these judgments may be found in the following article.
- In the judgment of the grand panel, issued under ref. no. 31 Cdo 3823/2023, the Supreme Court dealt with issues related to the possibility of withdrawing from a contract for the delay on the side of a debtor. According to the factual findings, the parties to the dispute concluded a letter of intent and a subsequent purchase contract including an explicit right of the seller to withdraw from the contract for the breach of the contract by the buyer. In the appellate procedure, the court concluded that the plaintiffs did not withdraw from the contract without undue delay, as they withdrew from the contract after 13 months from when they had provably found out about the buyer’s delay. The court deduced the plaintiffs’ obligation to withdraw from a contract with undue delay from the provisions of Section 2002 of the Civil Code. At first, the Supreme Court pointed out that the appellate court made a mistake by applying the general Section 2002 on the state of facts instead of Section 1977 including special provisions regarding the delay of a creditor. To judge the case correctly, it is necessary to examine the will of both parties, mainly regarding the replacement of the non-mandatory provisions of Section 1977 by the contractually arranged right to withdraw from the contract. As the contractual parties did not explicitly determine any other limitations for the withdrawal from the contract (in terms of the “without undue delay” period), these may not automatically be derived from the legal provisions without a more specific interpretation of the will of the contractual parties.
- In the judgment ref. no. 27 Cdo 1605/2023, the Supreme Court expressed its opinion on the question of whether the right to repurchase interest under Section 89 of the Business Corporations Act (BCA) also applies to entities acting in concord, when these do not fulfil the conditions for the right to repurchase an interest individually. In the company in question, there were four owners with the following interests: The defendant, the plaintiff and owner No. 1, each holding a 30% interest in the company; and owner No. 2 holding a 10% interest in the company. For an owner to use their right for repurchase, the following conditions must be met: 1) The company is a controlled entity; 2) The controlling entity makes use of its influence; 3) The owner’s position worsens significantly or another significant damage to their rightful interests occurs; 4) There is a causality between the controlling entity’s acts and the consequence under 3); 5) The owner in question cannot be reasonably asked to remain in the controlled entity. To meet the definition of a controlling entity according to 2), it is also important to consider Section 75 (3) of the BCA, according to which entities acting in concord and holding a share in voting rights representing at least 40% of all voting rights represent the controlling entity. The defendant and owner No. 1 met the definition of a controlling entity, as they managed a 60% interest in the company. Both the court of first and second instance concluded that, in that case, there was a solidarity of debtors based on the constitutive decision of the court, thus, the entity requiring the repurchase of an interest must require the repurchase simultaneously from all entities acting in concord. According to the conclusion of the Supreme Court, the solidarity of debtors is based on law (without a court’s judgment) and the rule “all for one, one for all” included in Section 1872 (1) of the BCA is to be applied. Thus, the authorised owner may apply their right for repurchase to all owners acting in concord individually or to all owners acting in concord simultaneously.
- In the judgment ref. no. 23 Cdo 342/2023, the Supreme Court dealt with addressing the issue of whether the right for a contractual fine or the enforceability thereof is preserved, even though the authorised entity waives the enforcing of the formerly guaranteed liability at court. The matter in dispute was the claim of the plaintiff arising from the contract agreement to build a photovoltaic power plant to remove defects, which was guaranteed by a repetitive contractual fine for each day of the breach of the guaranteed obligation. As for the contractual fine, the appellate court concluded that, if the authorised person abandons their right to enforce the secured claim (ie. the right to remove defects), then the contractual fine loses its reparatory and preventive function and, in this case, the right for the contractual fine or the enforcement thereof ceases to exist. According to the Supreme Court, such a conclusion of the appellate court is mistaken. The appellate court did not present properly, which specific functions were to be fulfilled by the fine; for example, whether the contractual fine was a sanction fine. The Supreme Court further stated that when the creditor does not require the guaranteed obligation be met in a court proceeding, this does not in itself mean that the creditor does not require the obligation to be fulfilled at all. The Supreme Court concluded that in this case, neither the extinction of a right for a contractual fine nor the termination of the enforceability of a contractual fine can be deduced from the facts stated above.
- In its judgment ref. no. 26 Cdo 749/2023, the Supreme Court dealt with the issue of whether the claim to return an unwarrantedly drawn bank guarantee, ie. unjustified enrichment (Section 2991 of the Civil Code), meets the condition of so-called defence against the law (Section 617 (1) of the Civil Code) when the lapse of such claim is not considered. In the dispute in question, the plaintiff made a claim to be paid a contractual fine in the amount of CZK 1.47 million arising from a contract for work, as the work had shown defects and arrears and was delivered late. For this reason, the plaintiff drew two bank guarantees (a performance bond and a warranty bond), amounting to CZK 1 million in total. Subsequently, the plaintiff took these receivables into account and claimed the remaining amount at court. In the proceedings, the defendant counted the receivables of the plaintiff against her claim arising from the contractual fine due to unjustified enrichment, as both bank guarantees were drawn unwarrantedly. The appellate court concluded, among other things, that such offset could not have been made because the defendant’s claim was time-barred. In the appellate court’s opinion, Section 617 (1) of the Civil Code cannot be applied, as the receivable arising from unjustified enrichment does not meet the conditions for the application of such provisions, if “both rights relate to the same contract”. The Supreme Court did not agree with the appellate court’s conclusions and stated that what is substantial is the connection between the receivable and the contract, ie. the defendant’s receivable for the return of unwarrantedly paid bank guarantees, as such receivable arises from the relation between parties in connection with the contract, which is why these may – as seen in terms of Section 617 (1) of the Civil Code – be considered interconnected. Therefore, the lapse objection cannot be applied successfully in this case, as in these cases, the period between the commencement of the claim and its subsequent application is not decisive.
