As we have already written in our previous article Pre-contractual liability – New rules for contractual negotiations in the Czech civil law, the institute of so called pre-contractual liability is one of the new institutes of the contract law and execution of contracts under the new Czech civil law as introduced by the New Civil Code (Act No. 89/2012 Coll., the “NCC”), which is effective as of 1st January 2014.

The NCC defines four different merits for pre-contractual liability. The aim of this article is to introduce you briefly the first one.

First merit – Initiation of, or proceedings with, contractual negotiation without the will to finalize the contract – is referred to also as negotiating the contract in bad faith and is specified in Section 1728 (1) of the NCC. It relates to cases when a party initiates contract negotiations from its own initiative (or continues in such negotiations) without its intention to actually conclude the contract.

This merit is very closely tied with a generally imposed obligation to act in legal relations in good faith. The key fact establishing liability for non-conclusion of contract is the acting in bad-faith,  where party which loses its interest in the finalization of the contract during the contractual negotiations, does not immediately inform the counter party and does not terminate the contract negotiations or even initiates the contractual negotiations without its will to conclude the deal itself. This party is only pretending its interest to conclude the contract, from the beginning of the process or later on.

Such a party incurs legal liability. The counter party, which is acting in good faith, may therefore demand compensation of damages. Nevertheless, the burden of prove lies with the harmed party. She has to prove the amount of suffered damage, casual relation between the breach of contractual liability and the occurrence of damage.

It is good to rephrase that as the principle of autonomous will of contracting parties is prevailing according to the new Czech civil law, the fact that a party does not conclude a contract cannot be sanctioned, it is only the above described bad faith legal action that is establishing legal liability for the relevant party.

By Jiří Spousta & Magda Stárková