Business Contracts with Czech Partners

Entering the Czech market offers significant opportunities for British companies, but assuming your UK commercial contracts will work here is a high-risk strategy. The Czech Republic’s civil law system is fundamentally different from the UK’s common law, creating legal traps that can render your agreements unenforceable and lead to severe financial losses. As a leading Czech law firm in Prague, EU, we see these mistakes regularly. This article provides clear answers on how to avoid them and secure your business interests.

Need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by "Mgr. Vojtěch Sucharda", an expert on the subject.

Two Worlds of Law: Why Your UK Contract Fails in the Czech Republic

The first step to success in the Czech market is understanding that you are entering a different legal world. The UK operates under common law, a system built on centuries of judicial precedent. In contrast, the Czech Republic, like most of continental Europe, uses a civil law system based on comprehensive written codes, primarily the Civil Code.

This isn't just a technicality; it has major practical consequences. In the UK, contracts must be exhaustive because courts primarily enforce what is explicitly written. In the Czech Republic, the Civil Code provides a detailed framework that fills in gaps a contract might leave open. This means a standard UK contract is often unnecessarily long and may contain clauses that are irrelevant or unenforceable here.

The Principle of Good Faith: A Duty You Can't Ignore

A critical difference is the principle of good faith (dobrá víra). In Czech law, it is a foundational pillar of all private law, requiring parties to act honestly and fairly in all dealings. English law, by contrast, does not recognise a general, overarching duty of good faith in contract performance.

This creates a significant risk. You might assume you can pursue your commercial interests as long as you don't breach the contract's explicit terms. However, a Czech court will interpret your actions through the lens of good faith, potentially creating obligations you never anticipated. Relying on the English approach can lead to disputes and unexpected liabilities.

FAQ – Legal tips about fundamental legal differences

• Why are Czech contracts often shorter than UK ones?
  Because the Czech Civil Code provides default rules that apply unless the contract states otherwise. UK common law requires every detail to be written down, as there is no comprehensive code to fall back on. For a review of your contract to ensure it's fit for the Czech market, contact us at office@arws.cz.

• Can I be held liable for something not explicitly written in my Czech contract?
  Yes. The duty of good faith is implied in all Czech contracts. A court may find that you breached this duty even if you followed the literal text of the agreement. To understand your obligations, get tailored legal solutions by writing to office@arws.cz.

Mistake #1: The "Smluvní Pokuta" – A Penalty Clause That Bites Back

Of all the legal traps awaiting British companies, the most financially dangerous is the misunderstanding of the Czech contractual penalty, or smluvní pokuta. Assuming it functions like an English penalty clause is a mistake that can cost millions.

In English law, a clause that imposes a penalty for a breach of contract is generally unenforceable unless it represents a "genuine pre-estimate of loss". Its purpose is compensatory. The Czech smluvní pokuta is fundamentally different. It is a powerful and flexible tool designed to be preventive and punitive.

Under the Czech Civil Code, a smluvní pokuta can be used to secure any contractual obligation, including monetary ones like late payment. Crucially, the penalty is enforceable even if the creditor suffered no actual financial damage from the breach. A British company might overlook such a clause, assuming it’s unenforceable, only to face a crippling financial demand.

For example, a contract might stipulate a penalty of 0.5% of the total contract value for each day of delay in payment. A ten-day administrative delay could trigger a penalty of 5% of the entire deal—a sum that could erase your profit margin. While Czech courts can moderate an "unreasonably high" penalty, this is a costly and uncertain litigation strategy.

Risks and penalties	How ARROWS helps
Enormous financial liability from an overlooked penalty clause. A minor breach, like a few days' delay in payment, triggers a penalty far exceeding any actual damage.	Contract drafting and review. We draft and review contracts to ensure any smluvní pokuta is fair and its risks are clearly understood. Need a contract review? Contact us at office@arws.cz.
Unenforceable contract in the UK, but fully valid in the Czech Republic. A clause that would be void as a penalty in the UK is upheld by Czech courts, leading to unexpected enforcement action.	Legal opinions. We provide clear legal opinions on the enforceability of specific penalty clauses under Czech law. Understand your exposure by writing to us at office@arws.cz.
Losing negotiation leverage. Your Czech partner may use the smluvní pokuta as a powerful tool, knowing foreign companies often misunderstand its power.	Representation in negotiations. Our lawyers represent you during negotiations to ensure a balanced contract that protects your interests. For immediate assistance, write to us at office@arws.cz.

 

Mistake #2: Ignoring Czech Formal Requirements

While English law can be flexible regarding contract formalities, Czech law is often stricter. Relying on verbal agreements or failing to meet specific written requirements can render your entire agreement void.

For example, certain agreements, such as agency agreements, must be in writing to be legally valid under the Czech Civil Code. A verbal agreement with a commercial agent in the Czech Republic is void from the start. This means you would have no legal recourse to enforce exclusivity, protect confidential information, or claim damages if the agent fails to perform.

Termination procedures also demand strict adherence. In the Czech Republic, unilateral termination of a commercial contract generally requires a written notice delivered correctly, and statutory notice periods often apply. Simply sending an email may not be sufficient, and failing to follow the correct procedure can invalidate the termination, leaving you exposed to claims for damages.

Mistake #3: Underestimating Post-Brexit Enforcement Challenges

Before Brexit, enforcing a UK court judgment in the Czech Republic was almost automatic under the Brussels I bis Regulation. That simple regime is now gone, making cross-border enforcement significantly more complex, costly, and time-consuming.

Today, your options are limited. If your contract contains an exclusive jurisdiction clause, you may be able to rely on the 2005 Hague Convention. For other situations, the new 2019 Hague Judgments Convention, which entered into force in the UK in July 2025, offers a broader framework but is still new and untested in practice.

If neither convention applies, you must fall back on Czech domestic law, specifically the Act on Private International Law. This process is unpredictable and lengthy, taking anywhere from 12 months to over two years if opposed. It also involves additional costs for official translations and court fees. A poorly drafted dispute resolution clause could mean your UK judgment is practically worthless in the Czech Republic.

Risks and penalties	How ARROWS helps
A UK judgment that is unenforceable in the Czech Republic. You win your case in the UK but cannot access your counterparty's assets in the EU, making the victory hollow.	Drafting enforceable jurisdiction clauses. We draft dispute resolution clauses that maximise your chances of successful cross-border enforcement under the Hague Conventions. Need to draft a jurisdiction clause? Email us at office@arws.cz.
Costly and lengthy enforcement proceedings. Navigating Czech domestic law without expert guidance leads to delays and high legal costs, eroding the value of your claim.	Representation in enforcement proceedings. Our lawyers, based in Prague, handle the entire enforcement process in Czech courts, from recognition to seizure of assets. Need to enforce a judgment? Contact us at office@arws.cz.
Loss of assets due to delays. While you navigate the complex enforcement process, your Czech partner may move or dissipate their assets, leaving nothing to recover.	Securing interim measures. We can apply to Czech courts for interim measures to freeze the debtor's assets while enforcement proceedings are pending. For immediate assistance, write to us at office@arws.cz.

 

Mistake #4: Choosing the Wrong Dispute Resolution Method

The choice between litigation in a state court and private arbitration is a strategic decision that has major consequences post-Brexit. While London is a world-leading centre for both, the enforceability of the outcome in the Czech Republic is now very different.

As discussed, enforcing a UK court judgment is complex. In contrast, an arbitral award is far more easily enforceable internationally thanks to the 1958 New York Convention, which Brexit did not affect. This convention allows arbitral awards from institutions like the London Court of International Arbitration (LCIA) to be enforced in over 160 countries, including the Czech Republic, through a streamlined process.

Arbitration also offers confidentiality, which is crucial for protecting sensitive business information, and allows you to select arbitrators with specific industry expertise. While it has its own costs, for high-value international disputes, the certainty of enforcement often makes it the superior choice. ARROWS lawyers have extensive experience with international arbitration and can advise you on the best strategy for your specific contract.

FAQ – Legal tips about dispute resolution

• Is a London court judgment still a good option for a contract with a Czech partner?
  It can be, but enforcement is no longer straightforward. You must ensure your jurisdiction clause is drafted to comply with the Hague Conventions, or you will face a slower, more expensive process under Czech national law. For a review of your dispute clauses, write to us at office@arws.cz.

• Why is arbitration often recommended for UK-Czech contracts now?
  Because arbitral awards are easily enforceable in the Czech Republic under the New York Convention, a system unaffected by Brexit. This provides greater certainty and speed compared to enforcing court judgments. Our lawyers are ready to assist you – email us at office@arws.cz.

Mistake #5: Using a UK Template Contract

The most fundamental mistake is assuming that a standard UK contract, translated into English, is suitable for a Czech partner. This approach is a recipe for disaster because it ignores the core differences between common law and civil law.

A UK contract will be filled with concepts that have no meaning in Czech law, such as the doctrine of consideration (the requirement for something of value to be exchanged for a promise to be binding). Conversely, it will lack essential Czech concepts like the powerful smluvní pokuta. Its detailed, exhaustive nature, designed for a common law system, may also create confusion when interpreted by a Czech court accustomed to relying on the Civil Code.

This creates a legally weak document that fails to protect your interests. Clauses you rely on may be unenforceable, while you may be exposed to risks you never anticipated.

Secure Your Czech Business Ventures with ARROWS

Expanding into the Czech Republic, a safe European harbour, offers immense potential, but it requires expert legal guidance. As an international law firm operating from Prague, European Union, ARROWS provides the bridge between the UK's common law and the Czech Republic's civil law systems. Our lawyers combine deep local knowledge with extensive experience advising foreign clients.

We support over 150 joint-stock companies and 250 limited liability companies, and our ARROWS International network, built over 10 years, allows us to handle complex cross-border matters seamlessly. We are known for our speed, quality, and proactive approach—we even connect clients with mutual business interests.

Don't let avoidable contract mistakes undermine your success. Get tailored legal solutions by writing to office@arws.cz.

FAQ – Most common legal questions about Czech Commercial Contracts

• Does a contract with a Czech company have to be in the Czech language?
  No, contracts can be in English. However, in case of a dispute before a Czech court, an official certified translation will be required, which can be costly and time-consuming. A bilingual contract is often the safest solution. If you need a bilingual contract drafted, contact us at office@arws.cz.
• What is the statute of limitations for contract claims in the Czech Republic?
  It is generally shorter than in the UK. For most commercial claims, the limitation period is three years from the date the right could first be exercised. Missing this deadline means your claim is forfeited entirely. If you are concerned about a potential claim, do not hesitate to contact our firm – office@arws.cz.
• Can I terminate a contract "at-will" as is common in the UK?
  No, "at-will" termination is not a concept in Czech law. Unilateral termination by notice requires a statutory or contractually agreed reason, and strict procedural rules, including written notice, must be followed. For advice on contract termination, write to us at office@arws.cz.
• My Czech partner is acting unfairly but not technically breaching the contract. What can I do?
  This is where the Czech principle of "good faith" (dobrá víra) becomes critical. A Czech court can find that behaviour which is commercially unreasonable or dishonest constitutes a breach of this implied duty, giving you legal recourse. To assess your options, our lawyers are ready to assist you – email us at office@arws.cz.
• Are oral agreements enforceable in the Czech Republic?
  While some simple oral agreements can be valid, many key commercial contracts (such as agency agreements or contracts concerning real estate) require written form to be enforceable. Relying on verbal promises is extremely risky. For certainty, get tailored legal solutions by writing to office@arws.cz.
• Do I need to set up a Czech company to do business there?
  Not necessarily. You can often operate through a branch or trade directly. However, establishing a Czech legal entity (like an s.r.o. – a limited liability company) can offer significant tax and liability advantages. For guidance on the best corporate structure for your business, contact us at office@arws.cz.

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