Key Contract Risks for Czech Exporters Under Australian Common Law

Differences between the Czech and Australian legal systems

The fundamental issue starts with the fact that Czech law is based on a continental (civil law) system governed by codified statutes that supplement contractual arrangements. Australian law, by contrast, is based on a common law system, where precedents and court decisions play a key role, while written statutes regulate only specific areas.

Australian lawyers follow the principle that a contract must contain everything, because if a right or obligation is not explicitly stated in the contract text, it is very difficult to rely on it in the event of a dispute. This means that Czech contracts that rely on “self-evident” rules arising from Czech law are often full of gaps in Australia and legally risky.

Attorneys from ARROWS advokátní kancelář regularly handle cases where a Czech contract did not stand up to Australian reality, resulting in unexpected losses for Czech exporters.

Common law versus civil law: contract interpretation

The difference between common law and civil law systems determines how courts will interpret your contract. Under the Czech legal system, when interpreting a contract the court takes into account the parties’ intent, prior negotiations, and subsequent conduct.

In Australia, the parol evidence rule applies, meaning that if a contract is in writing, the court will limit its interpretation exclusively to the text of the document and will not take into account prior oral promises. This has concrete consequences: ambiguities and “gentlemen’s agreements” carry no weight in court.

The risk of relying on external circumstances

An Australian court will focus primarily on the words written in the contract. If you want something to be enforceable, it must be in the text, because arguments based on business customs in the Czech Republic will not succeed in Australia.

Warning: If your Australian partner tells you that you do not need to put something in writing, be alert. In Australia, if it is not in writing, it is as if it does not exist, and proving oral agreements in a common law system is extremely difficult and expensive.

Structure of an Australian contract

Australian contracts have a different structure and conventions. While a Czech contract is often more concise, Anglo-Saxon contracts tend to be very extensive, full of definitions and detailed procedural provisions.

In Australia, it is expected that the contract sets out a precise dispute-resolution process—from management negotiations through mediation to arbitration—which is critical for cost savings. Australian contracts also traditionally include detailed indemnity and limitation-of-liability provisions.

These clauses allocate risk much more aggressively than in the Czech Republic. If the contract does not include a liability cap, your liability for damages may be essentially unlimited.

Incoterms and their critical role

Incoterms determine the transfer of costs and risks and are applied very strictly in Australia. An abbreviation such as CIF Sydney has precise legal consequences, and many Czech entrepreneurs underestimate them.

If you write DDP Sydney, you bear all costs, risks, and the obligation to handle customs clearance and pay Australian GST, which can mean losing your entire margin. Confusing these clauses can have fatal financial consequences for an exporter.

Attorneys from ARROWS advokátní kancelář routinely review Incoterms clauses to ensure they reflect the actual logistics and pricing agreement and do not expose the client to unnecessary risks.

Contractual penalty and damages

This is where one of the most dangerous mistakes appears, because in the Czech Republic we are used to contractual penalties that serve a punitive function. The court may reduce them if they are disproportionate, but the principle is valid.

In Australia, the concept of a punitive penalty in civil-law relationships is unenforceable, and if a clause is intended to punish the other party, the court will declare it invalid. Instead of a contractual penalty, Australia uses the concept of liquidated damages, which must represent a genuine pre-estimate of loss.

If you include a high contractual penalty in an Australian contract without any link to reality, an Australian court will likely strike it down as an impermissible penalty. The Czech party is then left without any compensation unless it proves the actual amount of damage through complex evidence.

Vague terms and their interpretation

Czech law often uses terms such as “without undue delay” or “within a reasonable time”. In Australia, using such vague terms is an invitation to litigation.

If you write delivery “within a reasonable time”, for an Australian court this will mean complex evidence as to what is customary in the given industry, and the outcome is unpredictable. Australian contracts must be specific and include clear dates or a number of days.

Attorneys from ARROWS advokátní kancelář recommend avoiding any subjective time limits, because a specific date is the only certainty in international trade.

Currency risk and clauses

In trade between the Czech Republic and Australia, there is a risk of exchange-rate fluctuations, and if the contract does not address currency risk, one of the parties bears it in full.

The solution is currency clauses, which allow the price to be adjusted if the exchange rate moves beyond an agreed tolerance. Without such a clause, a Czech exporter may lose all profit if the AUD weakens against the Czech koruna.

Dispute resolution: arbitration vs. court litigation

Choosing the dispute resolution mechanism is one of the most important decisions. In Australia, arbitration is very popular due to its confidentiality and expertise, while court proceedings are procedurally very complex and expensive.

For Czech companies, it is often advantageous to agree on international arbitration with the seat in Europe or in a neutral venue. Being drawn into the jurisdiction of Australian state courts means enormous logistical and financial disadvantages in the event of a dispute.

Importantly, an arbitral award is usually easier to enforce in Australia under the New York Convention than a judgment of a Czech court.

Intellectual property and know-how

In Czech contracts, IP protection is often addressed only marginally, but in Australia it is necessary to explicitly define what each party brings into the relationship and what will be created during the cooperation.

Australian law does not provide automatic protection of your know-how to the same extent unless it is contractually treated as confidential information. If you export technology, software, or design, it is essential to include robust licence clauses and a prohibition of reverse engineering in the contract.

Export controls and sanctions

When exporting to Australia, you must take into account not only Czech and EU regulations, but also Australian controlled goods lists.

The contract should include an export controls compliance clause that shifts responsibility for obtaining any required import permits to the Australian partner. This protects you in case the goods are subsequently re-exported to sanctioned countries.

Absence of a governing law clause

If you do not specify the governing law in the contract, you expose yourself to significant uncertainty. An Australian court will have to determine, in a complex analysis, which law has the closest connection to the contract, and the result may be the application of Australian law.

The recommendation is always to expressly agree on the governing law. It is often possible to negotiate Czech law or a neutral law, but it must be contractually supported.

Typical mistakes in payment terms

In Australia, it is common for invoice due dates to run from the end of the month in which the invoice was delivered, which can significantly extend the payment period. It is necessary to define payment terms precisely.

If you supply goods under a retention of title arrangement, you must register this right in Australia in the PPSR register; otherwise, you will lose the goods if your partner goes bankrupt. If you do not do so, you will lose the goods even if your contract contains a retention of title clause, which is often a shocking finding for Czech companies.

Our attorneys in Prague at ARROWS help clients understand the PPSR system and secure their receivables so that they remain protected even in the event of the partner’s insolvency.

Non-discrimination and employment-law implications

When posting workers or hiring subcontractors in Australia, you must comply with strict anti-discrimination laws and modern slavery legislation.

Large Australian corporations require their suppliers to provide declarations of compliance with these standards throughout the supply chain. The contract should include commitments that both parties comply with these regulations; otherwise, termination of the cooperation may follow.

Interpretation of Incoterms 2020: watch out for changes

Always use the current version of Incoterms 2020, which clarifies the rules for FCA in connection with ocean bills of lading.

In particular, the EXW term creates issues in Australia when proving export for VAT exemption purposes. It is often more appropriate to use FCA, which more clearly defines the obligations related to export customs clearance.

Conclusion

Setting contractual terms with Australian partners is a discipline that requires precision. The differences between Czech and Australian law are systemic, and what works automatically in the Czech Republic may result in an invalid contract in Australia.

Our attorneys in Prague at ARROWS have experience bridging the differences between Czech and Australian law, and we know how to draft a contract so that it is enforceable.

If you are planning to do business with Australia, investing in high-quality contractual documentation is the best insurance. Contact us at consultation@arws.cz.

Read also:

• Australian Employment Law for Czech Employers: Fair Work Act, Awards and 2026 Risks
• Supply chain disputes in Czech law: How to win or settle smart
• Termination clauses that work – and those that don't in the Czech Republic
• How to protect your brand and online store from Czech copycats
• How to Structure Intercompany Agreements in a Holding to Avoid Disputes and Tax Risk