Back when Czech civil law was being comprehensively overhauled, terms of business were a frequently recurring topic of discussions. (Almost) six years have passed since the new Civil Code came into force – time to revisit the case law of the highest court of the land in this matter.
Expectations were high as to whether the new rules enshrined in the all-new Civil Code would cast light on the definition of the T&C (as a term of art), the issue of their incorporation in contracts, and whether the law would allow for a unilateral change of the terms of business without having to obtain the other party’s formal approval. The new Civil Code rather failed these expectations. As to the definition of the term, and the rules for incorporation terms of business in the contract, the lawmaker „plagiarized“ the Commercial Code. Consequently, the Civil Code defines terms of business rather simplistically by saying that they form a part of the contents of a given contract and are being referred to by the contract (i.e., they are not part of the provisions contained directly in the contract, but are found outside the wording of the contract proper – outside the „body“ of the contract). The statutory definition of the terms of business does not address whether they are strictly a contractual arrangement prepared by one of the parties for (repeated) use in conjunction with various contracts, or whether any document outside the body of a contract which includes contractual arrangements and which has been prepared by the parties for a specific transaction qualifies as terms of business. In other words, the statutory definition does not clearly differentiate between terms of business and a „plain old“ schedule to the contract.
It is still the case that the incorporation of terms of business in a contract requires that the latter make a reference to the former and that the terms of business be attached to the contract proper or that they be known to the parties. Whether and in what situations it suffices to put the terms of business on display at the retail outlet, or to refer to their publication on the web on the receipt for the bought product, and how to „attach“ terms of business in the case of electronic contracting – the law is silent on all these questions.
This group of traditional questions surrounding the terms of business which arise in the day-to-day practice of businesses has only been „enhanced“ by the new Civil Code, by adding additional question marks. For instance, the Civil Code provides protection against surprising clauses in the T&C, rules for resolving conflicts between diverging T&C on each side of the contract, and rules for „contracts which were not negotiated“ (contracts of adhesion). The latter set out a more stringent standard for clauses which are being incorporated in contracts of adhesion outside the body of the contract (i.e., terms of business). What is more, the rules governing contracts of adhesion in general are being activated if „forms or other other, similar tools“ are being used in concluding the contract. These tools will typically include terms of business which have been recycled by one of the parties for all its contractual relationships of the same type (standardized wording – „boilerplate“).
In other words, even though this tool is an absolutely basic part of business practice, it is associated with a number of thorny legal questions. Let’s recap whether and how the Czech Supreme Court has approached these topics after the new Civil Code came into force.
Contents of terms and conditions in B2C relations
In recent judgments, the Supreme Court addressed the issue of what constitutes the permissible content of T&C in contracts between a business and a consumer (B2C contracts).
The question of what kind of content is permitted in T&C was first addressed in 2014 by the Constitutional Court, which was asked to rule whether a contractual penalty may be agreed with consumers also within the terms of business. The justices answered in the negative. Rather surprisingly, they ventured beyond this question and considered what does belong and what does not belong to terms of business in a contract with consumers. They found that „consumer“ T&C must not serve“ as a place for the supplier to hide, behind what is often an impenetrable thicket of complex formulations, printed in a very small font size, arrangements which are disadvantageous for the customer, in the expectation that they will thus escape the attention of consumers“. To the contrary, terms of business are supposed to serve „primarily the purpose of avoiding the verbatim repetition of technical and explanatory provisions in each and every contract“. These generalizing claims by the Constitutional Court met with criticism by legal scholars and caused headaches to legal practitioners (ruling I. ÚS 3512/11d). Unfortunately, in 2007, the Supreme Court essentially adopted the Constitutional Court’s view without any changes, adjudicating again that penalties which were agreed in „consumer“ T&C were invalid and also referring to the furthergoing musings of the Constitutional Court as to what should be contained (or should not be contained) in terms of business. (Supreme Court judgment 32 ICdo 86/2015).
In another judgment of May this year, the Supreme Court ruled on the possibility to agree, in the terms of business between a telecommunications provider and its customer (as a consumer), a „penalty“ for the early termination of the contract in the case of flat-rate plans (which are contracted for a fixed period of time). In the past, the operators did not allow for such early termination or else demanded that the customer pay up the flat-rate fee up until the end of the agreed time period. The Act on Electronic Communications put a cap on the penalty and imposed a requirement that the amount of the penalty must be expressly agreed in the contract. In its decision, the Supreme Court again cited the Constitutional Court ruling, but this time concluded that the fee for early termination could not be considered a contractual penalty (in that the early termination is not a breach of contract but the exercise of a right), and therefore did not come within the purview of the said Constitutional Court ruling. The ratio decidendi of the judgment again refers to the observations made by the Constitutional Court, but this time the Supreme Court put the stress on the qualifier primarily with respect to the „permitted“ contents (Supreme Court judgment 32 ICdo 86/2015), thus making room for the argument that „consumer“ terms of business need not necessarily always be of a technical or explanatory character and that not every provision contained in terms of business which is to the disadvantage of the consumer is automatically prohibited.
To be continued… (when we’ll talk about Supreme Court case law on the issue of incorporating terms of business in a contract and unilateral amendments to the terms of business).
Case law of the Czech Supreme Court and of the Constitutional Court, Civil Code