CZECH REPUBLIC Law and Practice Contributed by: Petr Janů, Vladislav Klimeš and Leoš Vavřík, BADOKH
a dispute and related costs are still low in comparison to the value at stake. However, the overall number of M&A-related court proceedings concerning complex or high-value M&A deals is on the decline. This is due to the fact that the parties are increasingly using more sophisticated provisions in the transaction documents which help to resolve issues between the parties in advance or without the interference of courts. Moreover, the expertise of the Czech courts in resolving complicated M&A transactions may not always be reliable and the prospects of such proceedings may be rather unpre - dictable. Standard court litigation may easily take two or three years to reach an enforceable decision, with complicated cases lasting well over five years. Czech courts require high standards of proof for litiga - tion concerning damages, and the courts are generally reluctant to award high damages claims or conse - quential damages. Therefore, the contracting parties usually rely on contractual penalties and tend to avoid litigation involving claims for damages based on statu - tory provisions or general terms of the contract. If the parties have concluded an arbitration clause in the transaction documents or agreed that the dispute shall be resolved by an arbitration court, the dispute may be brought before a Czech arbitration court (eg, the Arbitration Court attached to the Economic Cham - ber of the Czech Republic and Agricultural Chamber of the Czech Republic). Although the reputation of the arbitration court has been tarnished in recent years, it is not unusual for parties to choose arbitration, as the costs of proceed - ings are very similar to those of court proceedings, but arbitration is usually much quicker. 10.2 Stage of Deal There is no consistent pattern as to the exact stage at which litigation is brought. Litigation may be brought at any stage of the deal. The period that is most likely to give rise to a dispute is the period of six to 12 months from the settlement of the deal. This is the time when the purchaser has already gained detailed information about the target company on the one hand, but one
is still reasonably close to the settlement of the deal on the other hand. Czech statutory law recognises the concept of pre- contractual liability (culpa in contrahendo) and general duty of good faith and fair pre-contractual negotiation. However, litigation concerning pre-contractual liability is not common, unless the parties agreed on specific contractual penalties in a binding term sheet, letter of intent or similar pre-contractual instrument. 10.3 “Broken-Deal” Disputes In the context of the COVID-19 pandemic, a certain type of buyer’s behaviour could be observed, namely the use or sometimes even abuse of MAC (mate - rial adverse change) clauses in connection with the occurrence of the pandemic. These provisions were used by buyers in order to: • terminate the deal; • delay the deal for at least a certain period of time; or • re-enter into additional negotiations on the terms of the transaction (usually wishing to modify the purchase price). Despite this, “broken-deal” disputes are not common in the Czech Republic. Shareholder activism is present in the Czech Republic and its role has been increasing over the past years, but not dramatically. Most commonly, activist share - holders make use of their minority rights under the Business Corporations Act. For example, they use their rights to: • request that extraordinary general meetings be called; • request information from the company; • challenge resolutions of the general meeting at court; or • request additions to the agenda of general meet - ings. 11. Activism 11.1 Shareholder Activism
408 CHAMBERS.COM
Powered by FlippingBook