In the second part of our article 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.
Changes to the Terms and Conditions
A common practical concern is how to simplify the procedure for amending general terms of business (or T&C). The discussion usually revolves around two methods. The first operates with the notion that the respective other party, by not responding to the proposed amendment, tacitly accepts the proposal. If one wants to change the T&C, then, one sends the proposed new wording to the other party, which may then respond by either accepting or rejecting the new T&C within a set time period. If this time period lapses with no reaction from the party, the amendment is deemed accepted. Here, silence means consent. Of course, this works only if the parties agreed on this at an earlier point: the proposing party cannot make the tacit acceptance of proposals a part of the very proposal for changes (because the other party has yet to consent to a mechanism under which silence or inaction triggers legal consequences).
The second method is known as ultimate proposal for change. One party proposes to change the T&C, and the other party may either accept the proposal – or walk away from the contract. The proposing party is thus being protected from being bound by the contract on terms which are no longer advantageous or acceptable to it. In this respect, the method resembles the right to termination for convenience.
However, the ultimate proposal for change need not lead to the termination of the contract. It may also result in the continued existence of (and performance under) the contract, on mutually acceptable terms. The parties must agree beforehand on the option to make such ultimate proposals for change, and on the manner in which are they are to be made. Of course, here, too, it is not possible to propose this arrangement in the form of an ultimatum itself.
The (new) Civil Code addresses the ultimate proposal for changing T&C in Sec. 1752. The provision only applies to certain types of contracts, namely, contracts which are made with a large number of persons and which concern the sustained and recurring provision of the same kind of services. The law ties the possibility to change the T&C in this manner to a number of conditions, among them the urgency and scope of the proposed changes, the mandatory content of the contractual clause which gives rise to the right to such ultimatums, and the prescribed time period for terminating the contract in the event that the proposed changes were not accepted.
Quite logically, the specific rules on the ultimate amendment of T&C in Sec. 1752 of the Civil Code have made practitioners ask whether they might not apply also other types of contract, and if so, on what terms. As early as in 2013, the commission for the application of the new civil law at the justice ministry took position. Its explanatory memorandum No. 6 makes clear that the ultimate proposal for an amendment to the T&C may indeed be agreed also for other types of contract, provided, however, that the clause in question complies with the legal requirement that the weaker party (and in particular consumers) be protected.
Also in 2013, the Supreme Court had to resolve (pursuant to the Commercial Code at the time) an amendment to general terms of business which the complainant had drafted and sent to the other party without signing it. The other party countersigned the proposal and sent it back to the complainant. The written form had been agreed for changes to the contract, which would among other things have necessitated that the amendment be signed by both parties. Consequently, the court found that the T&C had not been validly modified. On a more general note, the court stated that terms and conditions needed to be amended in the same manner as the contract itself. It left open the possibility that the parties agree beforehand on a special modus operandi for amending the T&C by which they are bound.
This was the first time ever that the Supreme Court conceded the non-mandatory character of the statutory rules of contracting and confirmed the parties’ freedom to agree on their own rules.1 Within the context of the decision-making practice of the time, this was a revolutionary approach. Today, this principle is explicitly enshrined in the new Civil Code.
As a possible approach to the implementation of changes, the court mentioned, in the ratio decidendi of its judgment, the acceptance of proposed changes by mere delivery to the other party. However, this is certainly something which the parties could never validly agree upon in this naked form. In this respect, the wording of the judgment is clumsy and imprecise. If it were possible to agree to amend terms of business such that, upon delivery of the amendment proposed by one party to the other party, the amendment is automatically deemed accepted, then this would undermine the principle that the receiving party’s declaration of its will to contract must always be given. Rather, such an arrangement presupposes that the parties previously defined exactly what contents of the T&C may be changed to what extent – ex.: the right to adjust the amount of a contractual penalty within a certain range. In such a case, the necessary declaration of will (i.e., the acceptance of the change) really is made as a part of the original understanding between the parties.
In 2018, the Supreme Court dealt with the possibility of amending T&C by way of an ultimate proposal. The case concerned a contract between businesses governed by the Commercial Code. Under the rules of today’s Civil Code, the contract would presumably be governed by Sec. 1752.
In its judgment, the Supreme Court stated that it was admissible in contracts among businesses to agree on a procedure for amending the T&C such that one party proposes the amendment to the other, and the other party then either accepts the proposal or terminates the contract. According to the court, the scope of such amendment need not be agreed upon in advance, and if the parties indeed did not agree on a maximum scope, then this method could principally be used to change any and all provisions of the T&C. However, the Supreme Court cautioned that in the individual case, ultimate proposals for change could be considered an abuse of law.2
This decision remains pertinent under the new Civil Code and does not apply to contracts pursuant to Sec. 1752 of the Civil Code. Of course, the ultimate proposal for change is and remains contentious in the case of consumer contracts.
Inclusion of T&C in the contract by reference
A recent decision by the Supreme Court addresses the issue of inclusion of T&C in the contract by reference. In the case at hand, an agreement among non-consumers had referred to T&C that were posted on the internet. The agreement had been made in paper form, but the T&C were not available as hardcopy. The court of appeals had ruled that, if terms of business are posted on a website, the durability requirement within the meaning of European case law must be satisfied.3
The Supreme Court, however, did not share this legal assessment. According to the Supreme Court, the European decisions had concerned relations from consumer contracts as opposed to contracts between businesses, and therefore could not easily be applied to the latter. Even so, in the case of a dispute, that party which invokes general terms of business must be able to evidence the wording of these terms at the time of contracting.4
In this decision, as in others5, the Supreme Court accepted that if a party declared to have received and familiarized itself with the T&C, this is sufficient proof that the T&C were known to both parties. This is more generally in line with Supreme Court case law on the value of declarations of fact in contracts, according to which such declarations are considered proof of the declared fact unless and until the opposite is proven. However, the burden of proof in such a case rests on the party which made the declaration (and which must now show that its declaration was at odds with the truth). If the contract includes a declaration to the effect that the party making such declaration familiarized itself with the terms and conditions, then this improves the evidentiary situation for the party which invoked the terms and conditions. However, under the new Civil Code, the relevance of such declarations is limited by the rules on surprising contractual clauses and by the rules on the inclusion in adhesion contracts of clauses by reference.
The Supreme Court also had to deal with the issue of a chained inclusion of terms, i.e., cases in which the T&C in turn refer to another document which also contains contractual clauses (such as a price list). The court’s logical ruling was that such tiered inclusions are inadmissible, i.e., one must not refer in a contract to general terms of business which then refer to other documents. Proper procedure requires that all references to terms, conditions, and clauses are made directly in the contract. If the provisions of various sets of terms and conditions are to be applied in a certain order, then this order (ranking) of the individual documents must be clearly laid out in the contract.6
Specific case law on the issue of the acknowledgement (i.e., the other party’s awareness) of T&C is available for insurance contracts and the corresponding general terms of insurance. The Insurance Contract Act at the time required that policyholders be provably acquainted with the general terms of insurance prior to entering into the contract. The rules on insurance contracts are a part of the Civil Code today, and their wording has not changed, except for the omission of the term “provably“.
The court ruled7 that the said condition could be fulfilled in various ways, but that presenting the terms of insurance to the policyholder before entering into the contract (as per the policyholder’s own declaration in the insurance contract) probably has the greatest evidentiary power and is also the most straightforward method. If the policyholder was made familiar with the general terms of insurance in another way, then the party invoking such terms would have to prove that this took place. A reference in the contract to the general terms of insurance, coupled with the physical availability of these terms for inspection on the premises of the insurer’s various offices (of which the policyholder had indeed been aware), was not sufficient proof of compliance with the legal requirement for the Supreme Court.
For the time being, the Supreme Court decisions discussed above won’t contribute in any major way to commercial practice and to agreements concluded pursuant to the new Civil Code. One positive aspect is that one may reasonably rely, in contracts between non-consumers, that changes to the T&C in the form of a (pre-agreed) ultimate proposal for change or in the form of tacit acceptance are possible and lawful. However, we still lack decisions on how to interpret the new rules of the Civil Code.
Case law of the Czech Supreme Court and of the Constitutional Court, Civil Code
1) Supreme Court judgment 23 Cdo 1098/2012
2) Supreme Court judgment 23 Cdo 1580/2018
3) Cf. the CJEU judgments in C-49/11 of 5 July 2012 and in E-4/09 of 27 October 2010
4) Supreme Court judgment 23 Cdo 240/2015
5) Supreme Court judgment 23 Cdo 3731/2014
6) As e.g. in Supreme Court judgment 23 Cdo 2865/2016
7) For instance, in Supreme Court judgment 31 Cdo 1566/2017