Czech Republic: A new legal framework fundamentally changes the way in which the claim for the price for work comes into existence in commercial relations.
The new rules governing contracts for work in the Civil Code have brought about a fundamental change regarding the occurrence of the contractor’s claim for remuneration in commercial relationships in those cases in which the work has defects.
In the past, such relationships were governed by the (since abolished) Commercial Code. The case law that developed based on its provisions held that a defective work (no matter how serious the defects) cannot be properly considered a ‚performed‘ work within the meaning of Sec. 548 (1) of the Commercial Code, even if the client has accepted the work from the contractor. The courts based this opinion primarily on the wording of Sec. 554 (1) of the Commercial Code, which stipulated that a work is performed upon its proper (i.e., faultless) completion and handover. Further, the Commercial Code stipulated that (subject to a different arrangement agreed upon by the parties) the claim for payment of the price for work only comes into existence upon the performance of the work. In practice, this led to situations in which contractors never became entitled to the remuneration, merely on grounds of a single defect (whose value was often in gross disproportion to the overall value of the work, and may not even have prevented the use and enjoyment of the work). Consequently, contractors were often not paid by the client at all unless and until the last defect had been remedied.
Within the new legal framework, the moment of occurrence of the claim for the price of work is addressed by Sec. 2610 (1) of the Civil Code, which applies not only to relationships between businesses but more generally to all private-law relationships. This particular provision stipulates – as did the corresponding provision of the Commercial Code – that the right to payment originates upon the ‚performance‘ (provedení) of the work, but with an important change in perspective regarding the moment in which the work is deemed to be performed: Sec. 2604 of the (new) Civil Code expressly states that the work is deemed performed upon its completion and handover. Aside from the use of the more appropriate term „completion“ (instead of ukončení – ‚completion‘ but with undertones of termination), we find that the term „proper“ has newly been omitted. Pursuant to Sec. 2608 (1) of the Civil Code, the work is considered complete if and when its suitability for serving the agreed purpose has been demonstrated to the client. With the above in mind, a work is newly considered performed as of the moment of its completion and handover to the client, even if it is suffering from certain defects (which however must not interfere with its suitability for the contracted purpose). It is as of this moment that the contractor becomes entitled to payment of the price for work.
The new legal rules thus reframe the position taken by previous case law, in a way that should in future prevent absurd situations in which a contractor is being denied the claim for remuneration merely because of some entirely inconsequential defect.
Source: Commercial Code (Act No. 513/1991 Coll.; abolished) Civil Code (Act No. 89/2012 Coll.)