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TOP 10 commercial law cases of 2021

  • Czech Republic

    21-03-2022

    1. The right of explanation is linked to the shareholder's participation in the general meeting

    The Supreme Court has again held that the shareholder's right to an explanation is linked to their participation in the general meeting.

    The primary purpose of this right is to ensure that the shareholder is informed and to enable them to make an informed assessment of the matter before the general meeting at which they exercise their rights. If they do not attend, this right loses its true meaning. Thus, if a shareholder does not attend the general meeting, they cannot receive any explanation, since the purpose of the right to an explanation is not fulfilled.

    (According to the decision of the Supreme Court of the Czech Republic, Case No. 27 Cdo 3812/2019 of 25 May 2021)

    2. Giving instructions to the board of directors on business management

    The Supreme Court addressed the question of when and under what conditions it is possible to give binding instructions to the board of directors.

    According to the Supreme Court, they key issue is to determine whether the instructions to the board of directors are being given for the commercial management or the strategic management of the company. Strategic management refers to situations that go beyond the scope of normal business management, such as the financing of significant new projects. Generally, these strategic (conceptual) decisions are the responsibility of the board of directors, but the general meeting may give instructions to the board of directors in this respect.

    In contrast, commercial management, which is understood as the organisation and management of day-to-day business, is the exclusive responsibility of the board of directors and no one may give instructions to the board of directors in this context. Anyone who does and who requires the board of directors or its members to comply with them (unless an exception is provided for by law) is acting unlawfully.

    (According to the decision of the Supreme Court of the Czech Republic Case No. 27 Cdo 1873/2019 of 16 March 2021)

    3. Liability of the parent company for infringements of competition by a subsidiary

    The CJEU has concluded that in the event of a breach of the prohibition of agreements which exclude or distort competition under EU law, the victim of such anti-competitive conduct of a parent company may also bring a claim against a subsidiary, provided the parent and subsidiary form an economic unit.

    Thus, where there is at least one entity within a group that has infringed the prohibition referred to above, as confirmed by a decision of the Commission or of a national court, and where the parent company carries on an activity related to that of the subsidiary, liability may be attributed to any entity within the group and not, as has been the case to date, only to the parent company for the activities of its subsidiary.

    4. Set-off of a bank's claim under another legal title against a claim under a bank guarantee

    The Supreme Court has ruled that a bank that has issued a bank guarantee cannot set off a counterclaim that it has against the creditor under another legal title against a creditor's claim vis-à-vis the bank under the bank guarantee unless the content of the bank guarantee indicates otherwise.

    In order to set off the mutual claims of the bank and the creditor, such a possibility would have to arise from the contents of the guarantee document.

    (According to the decision of the Supreme Court of the Czech Republic Case No. 29 Cdo 3267/2019 of 27 October 2021)

    5. Executive service agreement may "survive" the termination of the office

    The Supreme Court reaffirmed that an executive service agreement may be made subject to the Labour Code even by mere reference to it, unless the parties exclude individual provisions of the Labour Code, in this case the provision on the dismissal of a senior employee.

    In practice, this means that the office of a member of an elected body would then cease at the time of their dismissal, but their relationship with the legal entity would not necessarily end. Indeed, the company would be obliged to offer the member a change of employment upon termination of their office. Only if the legal entity does not have such a job for the dismissed member, or if the member refuses it, can the parties terminate their contractual relationship by giving notice. Unless the parties agree otherwise, in the event of termination, the member will be entitled to remuneration in the same form and at the same rate as they were entitled to for the performance of their duties during the two-month notice period.

    (According to the decision of the Supreme Court of the Czech Republic, Case No. 27 Cdo 2837/2020 of 22 September 2021)

    6. A legal person is not entitled to compensation for non-pecuniary damage to its reputation

    Compensation for non-pecuniary damage is only available if the parties have expressly agreed on it or if the law so provides. The Civil Code provides for the obligation to compensate a legal entity for non-pecuniary damage in several cases (e.g. infringement of the right to a trade name, restriction of competition, infringement of industrial property rights), but this does not apply in cases of unjustified interference with its good reputation.

    Thus, legal persons do not find any support in the current legislation for successfully claiming compensation for non-pecuniary damage caused by unjustified interference with their reputation.

    (According to the decision of the Supreme Court of the Czech Republic, Case No. 23 Cdo 327/2021-II of 30 November 2021)

    7. Exclusion of the pre-emptive subscription rights of other shareholders for the purpose of squeezing them out

    Although the Supreme Court held that a majority shareholder's effort to achieve the necessary shareholding to squeeze out other shareholders is legitimate, it also confirmed that a majority shareholder cannot do so in ways that contravene the law.

    Thus, a majority shareholder cannot exclude the pre-emptive rights of the other shareholders to subscribe for shares on the grounds of an important interest of the company and to subscribe for new shares themselves, thereby increasing their shareholding in the company. Although pursuant to Section 488 of the Business Corporations Act the general meeting may limit the shareholders' pre-emptive rights if it is in the important interests of the company, such a limitation must be the same for all shareholders.

    (According to the decision of the Supreme Court of the Czech Republic Case No. 27 Cdo 1453/2019 of 3 February 2021)

    8. A business may be granted protection as a weaker party in certain circumstances

    The Supreme Court has ruled that even in relations between businesses, it is not excluded that one party may be granted the protection of a weaker party under Section 433 of the Civil Code.

    If the business succeeds in proving that the other party has abused its economic position to create the dependence of the weaker party and to achieve an obvious and unjustified imbalance in mutual rights and obligations, it will be protected as the weaker party.

    This means, among other things, that the business will also be able to plead that the contract is void for undue hardship or void for usury if it is the weaker party within the meaning of the above.

    (According to the decision of the Supreme Court of the Czech Republic Case No. 23 ICdo 56/2019 of 16 March 2021)

    9. Registration in the Commercial Register is decisive for limiting the transferability of shares

    The Supreme Court confirmed that the restriction on the transferability of registered shares is effective only upon their entry in the Commercial Register.

    The Business Corporations Act provides that if the general meeting decides to limit the transferability of registered shares, such an amendment to the articles of association will not take effect until the date of entry of the amendment in the Commercial Register.

    The purpose of this provision is to provide increased protection for purchasers of shares. Thus, as long as the restriction on the transferability of shares is not entered in the Commercial Register, anyone may legitimately assume that the shares are transferable without restriction, and it is not decisive that the restriction on transferability is contained in the company's articles of association, regardless of whether it has been in the company's articles of association since its incorporation or whether the restriction was only subsequently inserted in the articles of association by an amendment.

    (According to the decision of the Supreme Court of the Czech Republic Case No. 27 Cdo 2927/2019 of 9 December 2020)

    10. Interruption of the time test due to a change in the nominal value of the shares

    According to the Supreme Administrative Court, when shares are exchanged for shares with a higher nominal value, the time test (for personal income tax exemption purposes) is interrupted and the three-year period for tax exemption starts running again.

    The time test is also interrupted in the case of "passing through", where the higher nominal value is merely marked on the shares already owned, without any actual exchange of shares.

    The time test is not interrupted only if the shares are exchanged for shares with the same total nominal value.

    (According to the decision of the Supreme Administrative Court of the Czech Republic Case No. 8 Afs 246/2019 of 31 August 2021)

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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