Key Contract Risks for Czech Exporters Under Australian Common Law

Mgr. Vojtěch Sucharda
Mgr. Vojtěch Sucharda
7.4.2026 | ARROWS law firm

The Australian legal system based on common law differs fundamentally from the Czech continental tradition, which creates hidden risks for Czech exporters. Mistakes in contract setup may lead to unexpected obligations, financial losses, and disputes. This article will guide you through the key risks and practical steps on how to avoid them effectively.

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.

FAQ – Legal systems and their impact on contracts

1. Do I have to draft a contract with an Australian partner in English?
Yes, it is essential. Although it is theoretically possible to conclude a contract in Czech, English is a necessity for business practice in Australia. In the event of a dispute before an Australian court, the entire documentation would have to be officially translated, which is extremely costly and time-consuming.

2. Which laws automatically apply to Australian contracts?
Even if you choose Czech law, mandatory rules of local law may apply to activities in Australia. This mainly concerns the Australian Consumer Law and the Fair Work Act, which cannot be contractually waived.

3. Do Australian contracts automatically include a duty to act in good faith?
In Australia, there is no general statutory duty to act in good faith in all commercial relationships, although this trend is evolving. It is always safer to expressly include this duty in the contract or to specify the cooperation processes in detail.

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.

FAQ – Penalty clauses

1. How should I set a sanction so that an Australian court will uphold it?
You must formulate it as “Liquidated Damages”. The amount must be calculated based on an estimate of actual losses (e.g., downtime costs, penalties payable to your customers).

2. Is there a difference in Australia between a penalty clause and liquidated damages?
Yes—fundamentally. A penalty is invalid and the court will not award it at all, whereas liquidated damages are enforceable. The terminology and, in particular, the method of calculating the amount are key to the validity of the provision.

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.

FAQ – Dispute resolution

1. Should I prefer arbitration or court litigation?
For international trade, arbitration is usually more suitable. It allows you to choose the language of the proceedings and avoid the specifics of national court procedural law; moreover, an arbitral award is easier to enforce internationally.

2. What happens if the dispute resolution clause is missing?
If not agreed otherwise, a claim is typically brought before the defendant’s court. So if you sue an Australian partner, you will have to go to court in Australia, which is a potentially business-ending barrier for many Czech companies.

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.

Risk

How ARROWS helps (office@arws.cz)

Vague terms: Unclear payment terms and deadlines lead to unenforceability.

Contract review: We ensure that the terms are specific and aligned with Australian standards.

Currency risk: The absence of a clause during exchange-rate fluctuations can wipe out your margin.

Financial clauses: We set up “Currency Adjustment” mechanisms to protect profits.

Invalid penalties: Czech “contractual penalties” are often invalid in Australia as “penalties”.

Liquidated Damages: We draft sanctions as an enforceable liquidated damages provision.

Loss of IP: Risk of losing know-how and technologies during cooperation.

IP protection: We set up licensing terms and protection of confidential information under common law.

Export compliance: Risk of breaching sanctions lists and export regulations.

Compliance clauses: We prepare clauses that shift responsibility and ensure regulatory compliance.

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.

Who can you contact?

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 office@arws.cz.

FAQ – Frequently asked questions

1. What is the most important element of an Australian contract?
A combination of a properly chosen governing law and a dispute resolution clause. Without them, you do not know which rules will apply and where you will litigate in case of problems.

2. Is an oral agreement valid?
In the common law system, oral contracts are theoretically valid, but in business practice they are extremely risky and difficult to prove. Always insist on a written form and an entire agreement clause excluding prior oral arrangements.

3. Can I use a Czech contract translated into English?
We do not recommend it. The structure, terminology, and legal concepts differ, and such a contract may be invalid in key points or unclear to the Australian party.

4. Do I have to register retention of title?
Yes, in Australia, registration in the PPSR register is usually necessary for retention of title to be effective against third parties. The provision in the contract alone is not sufficient.

5. What is good faith?
The obligation to act honestly and in good faith. In Australia it is not automatic in all contracts, so for long-term cooperation it is advisable to expressly include it in the contract.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2026. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (office@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.

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