Introduction

Recent years have brought forth multiple transformative legal developments in the Czech litigation environment, the overall trend of which reflects a general push towards the harmonisation of litigation legal instruments and the digitisation of public authorities. 

This article aims to highlight some of the more significant changes, with a particular emphasis on the most recent attempts to introduce class action suits into the Czech legal system. However, efforts have also been made in the commitment to transparency, characterised by legislative measures mandating a broader disclosure of court decisions, which aim to strengthen trust and ensure accountability in the Czech judicial system. 

The article also addresses a pair of recent decisions made by the Czech Supreme Court, both of which provide much needed clarity in pending legal issues. One concerns the "place of performance" under the United Nations Convention on Contracts for the International Sale of Goods (CISG), and the other addresses the commencement of limitation periods in specific situations.

Reflecting on the Czech draft law on class action suits

The legal regulation of class action lawsuits has been a long time coming in the Czech Republic. In fact, two unsuccessful attempts to provide such means have already been made in the past six years. Now, after an unusually long period of preparation, it finally seems to be appearing on the horizon. The present legislative effort is the result of a transposition EU Representative Action Directive 2020/1828. 

On 16 August 2023, the Czech government approved a draft law on class action lawsuits, which was subject to the legislative process. Since the EU transposition period expired in December 2020, the regulation is significantly overdue. From its first release in April of 2023, the draft underwent a variety of changes reflecting many objections raised by the Czech Constitutional Court, the Supreme Court, and the Czech Bar Association alike.

The regulation provides for a limited scope of application of class action lawsuits. It only applies to consumer disputes and only non-profit organisations that are registered on the European Commission list are entitled to file class lawsuits on behalf of the aggrieved consumers. Only well-established and pre-screened non-profit organisations fulfilling distinct requirements comprise the list. These requirements, among others, include at least five years of experience in consumer protection in a conscious effort to prevent instances of the expedient creation of legal entities. Such requirements are aimed at limiting organisation of class claims for commercial profit, an aspect of the new law that many claim makes its application very limited.

In the law’s current iteration, consumers can join such proceedings on the basis of an opt-in system in which they have no obligations and are not liable for the costs of the proceedings. Only class lawsuits with at least 20 registered consumers will be eligible for litigation. Therefore the effectiveness of the new system depends heavily on the consumers’ legal awareness and their active interest in pursuing ongoing class action suits. 

The non-profit organisations that take part in these proceedings bear the costs and risks, but are entitled to remuneration of 5% of the amount awarded. This provision aims to counterbalance the risks and workload involved on its part. 

With the new legislation, the Ministry of Justice aims to decrease the expenses incurred in collective incidents for both the litigants and the state. Under the current system, which lacks the effective legal means by which to pursue collective justice, the courts are unnecessarily burdened with the same issues such that cases are too often treated inconsistently. The new legislation also tackles the problem of claims concerning negligent sums that are often not worth pursuing - a reality dishonest businesses are incentivised to abuse.

The final form of the legal draft, although much improved, is still subject to widespread criticism. Some argue that the opt-in system will hinder the whole system as consumers are generally expected to remain passive. Class action suits depend on the active involvement of aggrieved consumers and will not have the operate as a desired deterrent for potential wrongdoers. On the other hand, any class action suit will likely be accompanied by a media campaign to spread awareness which, in turn, might publicly damage the respondent’s reputation even before the proceedings begin. The majority view, however, defends the opt-in system by arguing that the state is in no position to take away the customers’ agency and that a minimal level of activity is to be expected in pursuing any claim.

Some have also criticised the limited nature of the new legal framework arguing that reducing the scope of class action lawsuits to only consumer law disputes could be a missed opportunity to implement it in other areas of law in which collective grievances are common. For example, the current draft does not allow for class action suits against employers or state and local authorities or for class action environmental litigation. 

The Ministry of Justice anticipates that no more than ten class action lawsuits will be filed before regional courts annually. Similarly, European countries that have long had existing legal frameworks for class action suits tend to only address a handful of cases each year.

Legislative mandate for the publication of a wider range of court decisions

A legislative novelty effective from 1 January 2023 significantly broadens the publication of court decisions in the Czech Republic. Before this, only decisions of the highest courts had been routinely made available to the public. The new legislation aims to necessitate the publication of district, regional and high court decisions, which had not been mandatory until now. The additional transparency of these courts, which decide the majority of ordinary disputes, should ensure greater clarity in the courts' decision-making practice and thus create greater legal certainty in day-to-day legal matters.

The regulation does, however, provide for many exceptions. The legislation does not extend to simplified procedures, such as payment orders or decisions that are not based on a substantive assessment of the case (default judgments, judgments based on admissions of the claim or court settlements). It also does not mandate the publication of decisions concerning any criminal offences (as is compliant with GDPR provisions) except in the rare cases of bribery and corruption. This exception was made based on the OECD’s Recommendation on Public Integrity. Additionally, Court of Appeal decisions will only be published if they dismiss or (even partially) change the first-instance decision. 

Court decisions intended for publication will be required to undergo a process of pseudonymisation before their release, which will make it impossible to identify specific natural persons, legal entities or public authorities from the text of the decision. The process is carried out through an automatic computer program that replaces sensitive information contained in decisions with randomly generated alternatives.

It is important to note that the legal framework of the mandatory publication of court decisions does not in any way impede the procedure for providing information on the courts' decision-making activities under the Freedom of Information Act, which has been in effect Czech Republic since 2000. All final decisions are thus available to the public upon request.

These legislative efforts indicate a commitment to shedding light on the functioning of state authorities. Further extensions of the list of mandatorily published court decisions will come into effect at the beginning of 2024. 

The "place of performance" according to the CISG (23 Cdo 1062/2021)

The Czech Supreme Court recently ruled that the place of performance in the event of a withdrawal from a CISG contract shall be the buyer’s place of business. Since this issue is not expressly provided for in the CISG, appropriate gap-filling principles in accordance with Article 7 must be implemented. The court argued that the question constitutes an internal gap that is implicitly addressed in the Convention as attested by the prevailing doctrine. It further leaned on the necessity of legal analogy taking precedent over an appeal to the general principles of the CISG. 

With that established, the court appealed to an analogous application of Article 31(c) of the CISG, according to which the designated place of the delivery of goods is the seller’s place of business unless stipulated otherwise. It argued that the roles of the parties in settlements resulting from a withdrawal from a contact appear as “reverted” from those in the contractual relationship. Since the performance of both parties no longer has any legal basis, it needs to be undone in a way that mirrors the original contractual obligation of the parties. Thus, in that instance, the buyer shall be considered the seller for the purposes of determining the place of performance.

Simultaneously, the court warned against taking such an approach to an undue extent. The post-contractual relationship is not a consensual one and reverting certain aspects of the contact may not reflect the inherent interests of the parties - eg, withdrawal from the contract by the buyer as a result of a breach of a contractual obligation by the seller could result in additional damage being incurred by the buyer as it would be generally obligated to redeliver the goods back to the seller’s place of business. This would not only be unjustly detrimental to the buyer, but would also naturally interfere with the general principle of avoiding economic loss. 

To further support its decision, the court referenced foreign rulings formulating Article 57 CISG as a general principle, according to which any pecuniary transaction should be affected at the creditor's place of establishment. This notion is also reinforced by Article 6.1.6(b) of the UNIDROIT principles. 

The commencement of limitation periods (31 Cdo 3125/2022)

The Grand Chamber of the Czech Supreme Court recently addressed the determination of the commencement of the limitation period in the situation in which a creditor calls for payment for performance. In doing so, the Grand Chamber has unified the previously inconsistent decision-making practice with regard to the decisive moment for the commencement of such limitation period.

The Grand Chamber held that “if the period in which the debtor has to fulfil their debt is only stipulated in the contract only in such a way that the basis for the payment is an invoice issued by the creditor, the due date of which is agreed to be 14 days from delivery (as is customary), then the parties have not agreed on the time of the debt fulfilment.” In such instance, the debt fulfilment is solely determined at the creditor’s will. The creditor is therefore free to request its fulfilment immediately after they become entitled to demand payment of the agreed price (which they do via issuance of the invoice). The debtor is, in turn, obligated to fulfil the debt "without undue delay" starting from this request. Upon the expiry of this “without undue delay” period, the debt becomes due.

The Chamber argued that since “the [subjective] limitation period commences from the date on which the right could be asserted for the first time” (Section 619, paragraph 1 of the Civil Code), then the circumstances decisive for the commencement of the limitation period in this specific instance are those from which the creditor knew (or could and should have known) that they had the right to determine the time of the debt fulfilment. 

In practical terms, the decisive moment for determining the commencement of a limitation period should be the day the creditor becomes entitled to demand payment for the agreed performance rather than the moment that the invoice for such a performance is delivered to the debtor or becomes due. 

To avoid any confusion, the Chamber has also defined the term “without undue delay” as being a very short period of time during which immediate steps aimed at fulfilling the obligation are to be taken, the exact period of which is dependent on the circumstances of each particular case. The Chamber added that the period should not exceed 14 days, as that is the timeframe parties usually agree on in contracts for the payment of the charged amount from moment of the delivery of the invoice. 

The subjective limitation period thus generally runs from 14 days after the performance, instead of from the maturity of the invoice. 

Additionally, the Chamber held that the fact that a subjective limitation period might, under such interpretation, commence earlier than an objective limitation period, the commencement of which is linked to the date on which the property right had matured (Section 629, paragraph 2 of the Civil Code), does not interfere with its decision in any way. 

Conclusion

In the past couple of years, we have witnessed several improvements to the Czech litigation environment. Advancements were made in opening new avenues for reaching collective justice, clarifying non-unified court practice and providing transparency in public governance. 

While these are undeniably important steps in the right direction, opinions differ on the effectiveness and potential longevity of the changes. Many have criticised the limited nature of the legislative efforts as a missed opportunity with some even questioning whether they will have the desired substantial impact. Others maintain that a more moderate approach will ensure a smoother transition into established legal practice and more prominent amendments can be made once people become accustomed to the new reality.