A Czech Legal Revolution

Artur Ostrý orders pizzas every Friday for an in-house lunch with his colleagues in his small law office in Prague’s posh Anděl business district. Here they sit around the table in a meeting room and prepare for the revolution.

No other word could better characterise the coming change to the Czech legal system from January of 2014, when the new Civil Code, new Act on Commercial Corporations and other associated laws come into force. "The changes to come are so far the greatest in the past fifty years," says Mr. Ostrý, head of the five-lawyer office, "and clients will be affected in every possible way."

Throughout the profession, Czech lawyers and judges are very nervous, complaining that there is a lack of commentary, analysis and other accompanying material, to help them implement what is the biggest change in Czech law since the Communists seized power in 1948. The Czech government was even considering a postponement of the Code’s effective date.

In the end, Parliament has been left scrambling to adopt the remaining set of laws, connected with the new Civil Code, which replaces a communist one dating from 1964. The new Land Registry Act, for example, is only now being passed by the Chamber of Deputies. It will take about 10 years, Ostrý says, for the whole system to adjust to the new Code, and the many implications are now impossible to foresee even for renowned experts.

Bigger law firms see an opportunity. Havel & Holásek, one of the largest, hired one of the new laws’ co-authors, Milan Hulmák, last autumn to help them build internal know-how.

"From the beginning of 2013, we have been offering a specific service to help implement the new Civil Code into a client’s internal operations and external relationships," says Robert Nešpůrek, at the firm that employs more than 140 lawyers.

The biggest changes

While lawyers complain about archaic language, most see the new Code as a step forward, simplifying a very complicated system of Czech private law. It reflects common sense, they say, and will help ordinary people understand the statutes. This approach represents a philosophical revolution in Czech law.

"The greatest change is the unification of contractual law – previously divided between the Civil Code and the Commercial Code," says Ostrý, "It is certainly the brighter side of the new legislation."

Nešpůrek agrees. "The new Civil Code purports to be less formalistic and emphasises instead the ‘substance’ of legal acts such as contracts," he says. "One example is the new legal principle in favorem validitatis, which means that the courts will have to pay more attention to the will of contractual parties. This will involve trying to uphold the validity of contracts and other legal acts and offering a reasonable interpretation before they would be allowed to declare something invalid."

The Code stresses free will and contractual freedom. Most of the stipulations are non-mandatory (subject to the will of the parties to a contract) and at the same time offer protection to the weaker contractual party (e.g. private individuals or consumers, patients, tenants of a flat, etc.). It also emphasises the protection of personal health, life, privacy, freedom, name and honour, with a preference that violations should be compensated financially.

The most revolutionary aspect is that the new Code binds land to the structures built on it. In the current Czech Civil Code, the building and the land are two things in the legal sense and they can have different owners, as in the United Kingdom. The new legal measures launch a transitional period. If the building and the land have a single owner, the two immediately become one under the law, and all disposal of the land concerns the building as well. If there are separate owners, both owners have the option to buy the building or the land, to achieve the status of one owner.

The other area most affected by the socialist ideology is inheritance. Here, there are also profound changes, with choices about the designation of property in case of death and a wider circle of statutory heirs, so property can stay in the family rather than pass to the state while preserving the right to waive an inheritance.

There are also a lot of changes for businesses, connected both with the new Code, and the accompanying Commercial Corporations Act. No serious business can afford the risk of not being prepared, says Nešpůrek, particularly large regulated businesses and multinational companies, most of whom began their preparations early on.

In the financial sector, the new Civil Code will bring important changes to the regulation of credit and security. "In my view, financial institutions as well as borrowers will benefit from these changes because standards for collateral will be easier and more flexible," says Nešpůrek. "For example, banks will be able to take a ‘floating charge’ over the borrower’s assets, a type of security we know mainly from the Anglo-Saxon world."

While judges, lawyers, attorneys and businessmen are already preparing for upcoming legal revolution, the Czech media and general public seem largely oblivious. This should change on 1 January 2014, when the Code goes into effect and the media starts alarming people about the changes.

"For most people," concludes Artur Ostrý, "the biggest change will be the need of having a telephone number of a good attorney stored in the memory of your mobile phone."