The good reputation of legal entities as an asset worthy of protection: the Constitutional Court clears the way for non-material claims for damages.
Until now, in the Czech legal system, legal entities did not have recourse to claiming compensation for non-material damage caused by unjustified interference with their reputation. However, this has changed with the recent ruling of the Constitutional Court Pl. ÚS 26/24. The present article focuses on the contents of this decision, and its consequences.
Background of the case
Previous case law, in particular decisions of the Supreme Court, strictly rejected the award of compensation for non-material (non-pecuniary) damage to legal entities. This was due to the previous interpretation of Section 135 and Section 2894(2) of the Civil Code, which applied only to property damage and only allowed compensation for non-pecuniary damage where the law expressly provided for it. Interference with the reputation of a legal person was not among those.
The impetus for the Constitutional Court’s intervention was a constitutional complaint brought by the Milion Chvilek civic association, which sought compensation for non-material damage to its reputation. Here, too, the Supreme Court initially concluded that legal entities were not entitled to such a claim. However, the Constitutional Court has rejected this conclusion.
Key conclusions of the Constitutional Court’s ruling
The Constitutional Court concluded that the effective protection of the reputation of legal entities, enshrined in Article 10(1) of the Charter of Fundamental Rights and Freedoms, requires the possibility of seeking adequate amends similar to those in cases of unfair competition under Section 2988 of the Civil Code. In other words, legal entities must be able to be compensated for non-pecuniary damage caused by unjustified interference with their reputation, just as is the case for entities affected by unfair competition.
At the same time, the Constitutional Court emphasized that the reputation of a legal entity is not merely an economic value (goodwill), as previously claimed. It is a legal asset protected by the constitutional order, and this fact justifies that its protection be afforded also through compensation for non-pecuniary damage.
Effects of the decision
1) New possibilities for bringing claims
Businesses, companies, foundations and associations may now seek not only an injunction against unlawful conduct and the removal of the consequences of the interference with their reputation, but also appropriate amends, which may take the form of monetary compensation.
2) Change in the case law of the general courts
The Supreme Court and the lower courts will have to reinterpret the legislation in a manner analogous to the protection against unfair competition, which represents a major reversal of the current practice. Legal entities will be able to claim compensation for non-pecuniary damage caused, for example, by a defamatory campaign, the dissemination of false information or disparaging statements in the media.
3) Legislative changes?
Although the Constitutional Court imposes no obligation on the lawmaker to amend the Civil Code, discussions may be expected on whether the legislation should be supplemented by an explicit provision granting legal entities the right to compensation for non-pecuniary damage to a certain extent.
SLAPP actions – risk of abuse?
One important aspect that may influence the new decision is the issue of so-called SLAPP actions (Strategic Lawsuits Against Public Participation), i.e. strategic actions against freedom of expression. These lawsuits are often used by large entities to intimidate journalists, activists or critics who point out unfair practices by companies or public institutions.
The Constitutional Court’s decision may strengthen the protection of legal persons, but it also raises concerns about whether the new possibilities for compensation for non-pecuniary damage will be misused specifically for SLAPP suits against the media or civil society. The European Union and the Council of Europe have long warned of the dangers of such actions and have supported legislative measures against them.
A key factor will be how the courts balance in practice the protection of corporate reputation against the protection of freedom of expression. Both unfair-competition legislation and the case law of the European Court of Human Rights suggest that the courts will have to assess very carefully whether a claim for non-pecuniary damage is actually legitimate or whether it is an attempt to silence criticism.
What to say in conclusion?
The finding of the Constitutional Court Pl. ÚS 26/24 fundamentally changes the legal position of legal entities in the area of protection of their reputation. It opens the way for them to claim compensation for non-pecuniary damage, which may have an impact not only on entrepreneurs but also on a wide range of non-profit organizations and public institutions.
In the light of these changes, it is advisable for legal entities to be aware of the new protection options and to consider possible action in situations where their reputation is falsely or wrongfully damaged.
At the same time, however, it is important that these new options not become a tool for intimidating the public or the media through SLAPP. How the courts will deal with this new legal framework will be determined by their decision-making practice in the coming years.
Source:
Constitutional Court, Pl. ÚS 26/24