New indemnity rules

Czech Republic: The New Civil Code has brought a number of changes

The indemnity rules contained in the new Czech Civil Code differ from the previous regime in a profound way. In the following article, we would like to present you with the most important changes.

The definition of damage itself has been overhauled. The new law speaks of „harm“, a concept which comprises both material harm (i.e., damage) and immaterial harm (i.e., „moral damage“ – e.g. in the form of reputational damage due to defamation). Immaterial harm must only be compensated if the parties have an express agreement to such effect, and in those individual cases in which the law says so. As for material harm (damage), its definition has also become broader, and is now conceived of as „pecuniary damage“ (actual/economic loss), i.e., not just a reduction in assets as previously, but newly also an increase in liabilities. In this manner, the Civil Code allows injured parties to seek redress from the tortfeasor in the form of incurred debt.

It continues to be the case that „unlawful conduct“ (a concept roughly comparable to tortfeasance in common law) is a necessary prerequisite for the obligation to render compensation to occur. Newly, however, legal practitioners will first have to analyze what kind of obligation exactly was violated by the tortfeasor, as the new Civil Code abandons the notion of a uniform civil offense and instead differentiates between offenses against good customs (immoral acts), breaches ex delicto (i.e., violations of statutory law – tort), and breaches ex contractu (i.e., violations of contractual duties).

These has varied consequences: to invoke a violation of statutory law, one must demonstrate culpability on the part of the tortfeasor (whereas the default assumption is that the tortfeasor has been culpably negligent); by contrast, the violation of contractual duties is built on the principle of objective liability (i.e., liability that is not dependent on the outcome of the culpability test). The Civil Code presumes that a contract is a particularly close relationship between parties which arises from their own volition, and has therefore profound consequences for the parties. In this respect, the rules on breach of contract take their inspiration from the rules that were formerly contained in the Commercial Code; they are in the last consequence more stringent than before.

The Civil Code also introduces broader options to limit or waive the right to damages in the contract.

The Civil Code sets forth that damage must primarily be compensated by restoring the original state of affairs. Only where this is not feasible (or if the injured party so wishes) shall damage be compensated in money. Whether or not restoration is „feasible“ will have to be assessed individually, based on the circumstances of each individual case.

In contrast to the previous regime, an express rule has been introduced according to which the scope of damage shall be based on the customary price (market price/value) at the time at which the damage occurred, whereas the overall expenses which the injured party had to make towards their restoration must be taken into account.

Lukáš Havel, Associate

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