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13/10/2022
Legal flash

In doubt, validity of contract should be preserved – even if it allows for multiple interpretations!

In a recent decision in StavInz CZ v Dekakom, the Czech Supreme Court took a rather innovative approach to applying the principle of precedence of contract interpretation that preserves the validity of contracts (nowadays codified in Section 574 of the Civil Code). The dispute concerned a contractual penalty clause in a contract for works in which it was unclear whether the CZK 5,000 penalty for each day of delay may be charged only once or multiple times per day depending on how many milestones the supplier has failed to meet. The Supreme Court held that if the lower courts could not remove doubts over the claimed amount, they should have adopted the minimalist interpretation (i.e. that the penalty may only be charged once per day) and awarded the claim at least partially (which they did not). It could be said that the Supreme Court creatively combined the principle of precedence of contract interpretation that preserves the validity of contracts with principles of severability and proportionality. The Supreme Court's view is helpful and fully applicable even to contracts governed by the Civil Code of 2012 (the contract in question was governed by pre-recodification law).

(Supreme CourtJudgment of 27 July 2022, Case No. 23Cdo 79/2021, available here)

Authors: Tomáš Richter, Tomáš Král

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