Category: Czech Republic

Plea bargain should be possible to arrange in cases of major criminal offences. Further planned novelty is a guilty plea.

The investigation definitively proving that the act has been committed; that it is a criminal offence; and that it had been committed by the offender is required for arranging a plea bargain.

In recent years, the sphere of criminal law has been subject to constant revision. One of the changes that are being prepared will be enacted both in the Criminal Code and the Rules of Criminal Procedure¹, and can extend or create new possible course of action for defendants or defence lawyers in criminal proceedings. The proposition newly considers the institution of defendant’s guilty plea and extension of possibility to declare material fact uncontested. The defendants can be motivated to plead guilty or declare the fact uncontested by the fact that those declarations will present the new point of view in determining the type and terms of punishment; or that pleading guilty should become one of the mitigating factors. As a follow-up to the former revisions, the sphere of plea bargaining will also be subject to changes.

The intended novelty in the Rules of Criminal Procedure is aimed to strengthen the positions of the parties in criminal proceedings. According to the currently effective Rules of Criminal Procedure, the institution of declaring some facts uncontested is applied only marginally; next, it is possible to make a declaration of committing a crime for the purpose of diversion. Still, such procedures are very limited and can only be applied if quite limited conditions restricted by the law are met.

The limits of those procedures derive from basic Rules of Criminal Procedure. It is not possible that the defendant’s pleading guilty could exempt the bodies participating in criminal proceeding from their obligation to investigate all the relevant circumstances of the case. Further it is basically required that the criminal proceeding should aim at due determining of criminal offence and justly punishing the offender.

The bodies participating in the criminal proceeding control that the basic regulations are fulfilled, or particularly the court, being an independent and impartial body, which during the process at law court takes into account all the facts that emerged during the criminal proceeding and the means by which they were found. With respect to the basic principles regulating the criminal proceeding it still appears appropriate to extend the defendant’s possibility of measures to implement in the course of criminal proceeding; it is also improbable that this would lead to violating the basic regulations.

Giving the defendant a chance to contribute more to the proceeding and its result can help him psychologically accept the judgement more easily and come along with the result of the criminal proceeding.

Declaring the fact uncontested

Only some facts can currently be declared uncontested in a hearing before a single judge in the cases with preliminary procedure and at the trial in summary procedure. The first possibility for that arises at committing the suspect to trial along with the criminal charge. The judge will question the defendant about the facts that are considered uncontested; at the trial, then, proving the facts stated as uncontested might be omitted, if the defendant agrees to. The second consequent possibility can be applied at the trial during the summary procedure following the simplified pre-trial proceeding.

Still, the law should newly allow the defendant to declare certain facts uncontested during the standard proceeding. The court can also refrain from proving the material facts that were agreed on by the defendant and the prosecuting attorney. Some of the material facts then would not have to be proved at the trial, and the whole case could be heard faster. The trial, though, will not be bound by the declaration in case if, in regard to other facts, some considerable arguments for doubting the content of the declaration appear. In this case, all the facts will be heard in its entirety, regardless of the issued declarations.

The change will also be reflected in the Criminal Code that would newly require the judge to consider, apart from other matters, whether the offender declared material facts uncontested while determining the type and terms of punishment. The defendant must be informed of the possibility of that process already in the served indictment.

Plea bargaining

Further institution that allows the defendant to undertake greater initiative in the criminal proceeding is plea bargaining. It was added to the Rules of Criminal Procedure in the year 2012. The investigation definitively proving that the act has been committed; that it is a criminal offence; and that it had been committed by the offender is required for reaching a plea bargain.

Should such declaration be made, i.e. that the defendant committed a crime for which he is prosecuted, and at the same time the truthfulness of the declaration should not be doubted, the defendant and the prosecuting attorney can subsequently reach a plea bargain that in the final stage must be approved by the court. The court in that case functions as an insurance against occasional excesses during the plea bargaining and determining the rates of punishment between the parties.

In practice, though, plea bargaining comes across many obstacles, therefore the institution is not used so widely. One of the obstacles is a prohibition of plea bargaining at the trial for extremely grave offence. Nevertheless, that obstacle should be removed with the novelty and it should newly be possible to reach a plea bargain even in the cases of wilful offence, for which the Criminal Code provides for a custodial sentence of up to 10 years.

Still, the revision concerns not only the suggested novelties. The necessity of having an advocate to reach the plea bargain is planned to be abandoned; it has an aim of making it more accessible from the economic point of view. The necessity of being represented by an advocate in the process of plea bargaining still will be preserved in other cases of compulsory defence according to the Rules of Criminal Procedure.

To encourage the employment of the plea bargain, the bill establishes new conditions for the content of formal charge. Along with aforementioned informing the defendant on a possibility to declare the fact uncontested, the indictment must also newly notify of the right to express one’s opinion on the circumstances of guilt and if one is interested in reaching a plea bargain or in pleading guilty at the trial, as well as if one agrees with the delineation of the fact, its legal qualification, and the proposed sentence or the protective treatment measure. The indictment must newly embody the proposed sentence along with its type and terms.

Strengthening the court’s jurisdiction could also make plea bargains more frequent. If the head of the jury panel decides, with regard to the circumstances of the case, that reaching a plea bargain would be appropriate, he notifies the defendant, the prosecuting attorney, and, if needed, the injured, of that. If the defendant and the prosecuting attorney adopt an affirmative attitude, the trial can then be suspended or adjourned in order to reach a plea bargain. The consent of the injured is not required.

The decision whether plea bargaining is appropriate will not be made only by the defendant and the prosecuting attorney, but the court will also newly be able to intervene in the process. The opportunity to arrange a plea bargain even at the trial can much contribute to reaching it. After the pre-trial proceeding is completed and the indictment is submitted, the defendant in result has an overview of all the facts that he is accused of and all the evidence that were proposed to prove them. At the same time he will know what sentence is proposed by the prosecuting attorney. The defendant at this point should already know all the material facts that might help him in deciding whether it is appropriate to arrange a plea bargain.

If the plea bargain is not arranged or consequently reached, the court will not take into account that the defendant has plead guilty or that the plea bargain has already been arranged. The bodies in charge of the criminal proceeding would again be responsible for proving that the act has been committed; that it is a criminal offence; and that it has been committed by the offender. Despite that, the defendant’s pleading guilty can be taken into consideration, if he requests that his admitting to having committed a crime in order to arrange a plea bargain should be regarded as a guilty plea.

Guilty plea

The guilty plea represents a completely new institution that in effect follows on from plea bargaining. Guilty plea is broader in content that declaring certain facts uncontested, since it concerns the overall qualification of the fact, be it from the legal of factual perspective. Still, the sentence is not being passed, and consequently the plea bargain is not reached. The guilty plea, though, will be taken into account in determining the type and terms of punishment, and it can influence the extraordinary reduction of the term of imprisonment.

If the defendant and the prosecuting attorney agree on being guilty in committing the fact for which the defendant is prosecuted and, alongside agree on the legal qualification of that fact, in the next proceeding the issue of guilt will not be looked into in the same extend to which the defendant declared it; and the proceeding will continue mainly in order to pass a just sentence. Still, it will depend entirely on the court whether it will accept the defendant’s guilty plea or not. If the guilty plea will not be in consent with the material facts, the court will not accept it.

Giving the defendant a chance to contribute more to the proceeding and its result can help him to psychologically accept the judgement more easily and come along with the result of the criminal proceeding. Last but not least, the institutions could contribute to solving the crime more quickly, and thus shorten the proceeding. It can be concluded that the novelty is a step in the right direction.

But we should be mindful that the new institution can also pose some risks for the defendant. It is possible that the bodies in charge of the pre-trial proceeding can bend the new legal regulation to the defendant’s disadvantage. “Profiteering” with the issue of guilt gets in the way, and the bodies in charge of the criminal proceeding attempt to force the defendant to plead guilty or plea bargain with a view to simplifying the further proceeding and facilitating the search for means of evidence needed to unequivocally prove the material facts of the criminal proceeding.

Abandoning the defendant’s obligation to have an advocate to arrange the plea bargain can also be pose some risks. The position of the defendant and the prosecuting attorney in the criminal is not equal at least from point of speciality, and it appears exactly the same in the process of plea bargaining. To what extend is the defendant capable of considering all the facts and results of the plea bargain himself when he communicates only with the prosecuting attorney remains questionable. In any case, the participation of an advocate both in considering the appropriateness of the plea bargain and in reaching it is indispensable, even though it will apparently be abandoned in the essence of the novelty.

Although we can acknowledge the attempt to give the defendant more opportunities to intervene in the criminal proceeding, we should not leave out of account how those alternative ways are in fact applied to practice. For instance, more than about a year ago the Attorney’s General office and Czech Bar Association signed the Memorandum of Cooperation.
Its aim is to support the mutual communication between the prosecuting attorney and an advocate, especially in the sphere of diversions of criminal proceedings and further plea bargains. Still, regardless of the Memorandum and definite advantages of diversions and plea bargains, it is not so widely applied to practise. It is to be hoped that extending the portfolio of disputes resolving could break the ice between the prosecuting attorneys and the advocates and that it will indeed enter into everyday legal practise.

¹ Bill of 25.4.2019 which changes Act No. 40/2009 Coll., Criminal Code, as amended, Act No. 141/1961 Coll., on criminal proceeding (Rules of Criminal Procedure), as amended, and Act No. 418/2011 Coll., on criminal liability of legal bodies and proceedings against them, as amended. 

By Lukas Duffek, Managing Associate, and Linda Coufalova, Junior Lawyer, Rowan Legal

In December 2019, the Court of Justice of the European Union ruled on the interpretation of the Solvency II Directive regarding the right to cancel a life insurance contract and the duty of the insurer to inform customers of the right.

The decision states that if an insurance company doesn’t inform its client about their right to cancel a contract or the provided information is severely deficient (the severity would be decided by the court in the case of a dispute), the period to exercise the right to cancel the insurance contract does not run at all – this applies even if the policyholder had learned of the right to cancel from another source, i.e. on TV or the internet. The policyholder would then be entitled to cancel the insurance contract without any time limitation, even if the contract has already been terminated and settled (the client’s surrender had already been paid), unless the governing law of the contract provides otherwise.

(The Judgment of the CJEU in cases C-355/18 to C-357/18 and C-479/18 dated 19 December 2019)

By Michaela Smotkova, Senior Associate, and Martin Vanek, Paralegal, JSK

In a preliminary ruling procedure, the Court of Justice of the European Union confirmed that the law of the Member States must make it possible for compensation for damages caused by a cartel to be granted to persons who are not direct participants in the market in which the cartel operates.

The dispute in the main proceedings was brought by the state of Upper Austria against a cartel of elevator manufacturers. Upper Austria provided soft loans to support the construction of apartment buildings.

As a result of the increased elevator prices caused by the cartel, Upper Austria granted a higher volume of loans and the loss it suffered consisted in the opportunity cost of not investing these funds at a higher interest rate. The CJEU concluded that the cartel could also be liable for such damage.

By Lenka Petrakova, Junior Lawyer, JSK

PwC Legal has advised IBSA Group on the acquisition of its long-term distributor on the Czech market, IBI spol. s r.o. IBI was advised by Solo Practitioners Violeta Jirackova and Rostislav Zak.

IBSA is a multinational pharmaceutical company, headquartered in Lugano, Switzerland, that was founded in 1945 by a group of Swiss biologists. As a result of the transaction, IBSA becomes the sole shareholder of IBI, and the company’s name will be changed to IBSA Pharma.

“The acquisition is part of the IBSA Group’s project to enlarge its commercial operations through its subsidiaries,” stated Arturo Licenziati, President of IBSA. IBI has distributed pharmaceutical products manufactured by IBSA on the Czech market for more than 24 years.

PwC Legal’s team included Attorneys Daniel Pikal, Vendelin Balog, and Andrea Lancovova.

The four-eyes principle is an effective way for companies to control management dealings. It is based on the idea that the company must be represented by two people acting jointly, usually two members of the statutory body.

The application of the four-eyes principle to members of the statutory body is clear and causes no confusion under Czech law. Likewise, the joint representation of two proxyholders. But every now and then a client, usually from the German legal environment, asks us whether the four-eyes principle may be applied to joint representation of an executive director together with a proxyholder.

Situation before 1 January 2014

Prior to the recodification of the Czech civil law (i.e. before 1 January 2014) the case law unequivocally concluded that the joint representation of an executive director with a proxyholder is not possible under Czech law. The main arguments were (i) the different level of liability of an executive director and a proxyholder, where only the former had the duty of due managerial care, and (ii) the varying nature of the representation of the company by the executive director and a proxyholder, where the former acted in the name of the company and the latter only as its representative.

Situation after 1 January 2014

As of 1 January 2014, the new Civil Code and the new Business Corporations Act resuscitated the question of joint representation of an executive director and a proxyholder. An executive director is now considered a mere representative of the company (i.e. he no longer acts in the name of the company) and the proxyholder is subject to the duty of due managerial care just like the executive director. As the main arguments under the previous case law no longer apply, some legal jurisprudence experts have stated that the four-eyes principle may be applicable to the joint representation of an executive director and a proxyholder. It must be stressed that the recodification did not include an express regulation of joint representation of an executive director and a proxyholder in the Czech legislation.

Consequently, the practice of the commercial courts (which maintain the Commercial Register in the Czech Republic) became erratic. Some courts were willing to register the joint representation of an executive director together with a proxyholder while others were not.

The first signals that the case law would side with the previous case law appeared with two decisions of the High Court in Prague (4 Cmo 184/2014 and 4 Cmo 576/2014). The Supreme Court of the Czech Republic published the first of these in its regular Collection of Decisions and Statements, anticipating the standpoint of the Supreme Court on this issue.

The Supreme Court itself had the chance to articulate its opinion in its decision no. 29 Cdo 387/2016 dated 31 October 2017. According to the Supreme Court, the joint representation of an executive director together with a proxyholder is (still) not allowed under Czech law and a provision of a memorandum of association allowing such a representation would be considered invalid. The Supreme Court argued that the representation of a company by executive directors is a status question of a legal person, which according to Section 1 (2) of the Civil Code belongs among issues that cannot be arranged differently from the law. The Supreme Court further pointed out that the Civil Code only allows the company to be represented either by a member of a statutory body alone or to modify this principle, but always within the statutory body. Finally, the Supreme Court also stated that a joint representation of executive directors and proxyholders would broaden the limited representation powers of proxyholders, which has no support in the law.

Internal limitation by a second signature

The above conclusions do not prevent companies from implementing the four-eyes principle internally, but only where such a limitation would be of no effect towards third parties. Thus, should the second signature be missing in violation of the internal regulations, the validity of the signed document would not be affected (even if the contract partner is aware of the internal regulation). Needless to say, the internal four-eyes principle will not be registered in the Commercial Register.

Conclusion

In light of the above, it can be concluded that the joint representation of an executive together with a proxyholder is not possible under Czech law. The commercial courts would find such provisions of the memorandums of association invalid and applications to register such a manner of representation in the Commercial Register would be rejected.

By Otakar Fiala, and Monika Voldanova, Attorneys at Law, Schoenherr

Allen & Overy has advised sole lead manager JP Morgan on Moneta Money Bank’s approximately CZK 2.6 billion domestic subordinated Tier 2 capital bond issuance.

According to Allen & Overy, “the bonds have been issued under the one and only debt issuance program of a Czech bank that allows for issuance of a wide range of debt instruments, including mortgage covered bonds (in strict compliance with the new Czech covered bond legal framework), senior preferred notes, senior non-preferred notes (which may be issued as MREL eligible instruments), subordinated preferred notes, and subordinated Tier 2 notes (issued as Tier 2 capital accountable instruments).”

Allen & Overy’s team included London-based Partner Peter Crossan and Prague-based Counsel Petr Vybiral and Associate Tomas Kafka.

Ladislav Peterka has been promoted to Partner at Randa Havel Legal in Prague, the Czech member of the Act Legal alliance.

Peterka, who joined Randa Havel in 2008, focuses on litigation and debt collection. According to the firm, “he regularly represents domestic and foreign clients in court and administrative proceedings, in arbitration proceedings, including in international and alternative forms of dispute resolution. He also provides legal services in the field of insolvency law and represents clients – both debtors and creditors – in insolvency proceedings. He advises contracting authorities on procurement and opposition procedures.” Finally, the firm reports, “Ladislav also has significant experience in public contract law, PPP projects and state aid, real estate law and intellectual property law. He is fluent in English.”

Peterka graduated from the Charles University in 2006.

“I am very glad that Ladislav has decided to continue his professional career with our office. He is a top lawyer and thanks to his experience and work commitment he is a great asset for the office and its clients,” commented Managing Partner Martin Randa.

“Politics in Czech Republic is currently stable, even though we have several ongoing issues,” says Jiri Cerny, Partner at Peterka Partners in the Czech Republic. “The biggest controversy involves President Milos Zeman’s close relations with China. They promised a large amount of investment, but this has never been fulfilled, and that has led to some scrutiny. Apart from that, we hadn’t had any major political issues recently.”

“The government has recently proposed a Digital Tax which would apply to companies such as Google or Facebook,” Cerny reports. “The proposed tax is 7% of the income these companies generate in the Czech Republic. Although the Digital Tax could work, this percentage is much higher than expected and it might be difficult to implement.”

The Czech Republic, of course, is hardly the only country considering how – and whether – to tax the industry. “Currently, there is discussion across Europe about this issue,” Cerny says, “which is a very delicate question. Small changes might make a big difference. This proposal is yet to be challenged and I am sure that the final result will be different.”

“Other than that, the new law regulating construction is also generating some controversy,” Cerny says. “The law is supposed to make it easier to obtain building and zoning permits. Currently, getting those permits is incredibly hard. This leads to fewer construction projects, the effects of which are already visible in the country, especially in Prague, where we are lacking accommodation. The prices of apartments are high and there is an insufficient number of them, which is disastrous. The housing market is very cold. We need amendments to the existing laws, which would allow easier access to permits, seemingly the only way to fix the problem.”

That’s not the only legislative issue generating a lot of public attention, Cerny says. “Further discussion is based around legislation regarding class action, which, up until this point, has been almost untouched.” In Cerny’s opinion, new legislation is long overdue. “These discussions have been going on for more than three years and we would love to see some results.”

“The Czech economy is relatively stable,” says Cerny, turning to a new subject, “and we have had a low rate of unemployment, resulting in factories having no workers to employ.” Contributing to the competition for workers (and the real estate shortage) is the number of companies seeking entry. “ The market is quite attractive for investors,” Cerny says, “and we have recently witnessed multiple large deals, such as South Korean firms buying office buildings in Prague for almost EUR 250 million.”

The good times shouldn’t end any time soon, he believes. “Investors feel there are no specific concerns or obstacles, meaning that we don’t expect a decline of investment in the near future.” In conclusion, Cerny says that: “I just hope that the systems carries on functioning like it has and that our economic growth remains the same in the foreseeable future, as that is important for both lawyers and non-lawyers alike.”

The EU Council approved an amended version of the draft EU Directive on Class Actions at the end of November.

The process will most likely be completed in the course of 2020. Although the directive may undergo further amendments, it is already evident that more discretion will be handed over to the Member States than previously anticipated.

In that respect, the ongoing Czech legislative process on the Class Action Act, an amended version of which was submitted to the government on 28 November, will be of more significance. The directive provides for both opt-in and opt-out mechanisms in individual Member States. While the Czech bill in its current form also anticipates both these approaches, the stricter opt-out should be available only in cases of small claims, usually under CZK 3,000.

By Lenka Petrakova, Junior Lawyer, JSK

BPV Braun Partners has advised Unicapital Energy Group on the acquisition of PSP Technicke Sluzby, a.s. Eversheds Sutherland advised the sellers on the transaction, and financial terms were not disclosed.

Unicapital is an investment group focusing on strategic acquisitions in real estate and development, energy, agriculture, and health care.

PSP Technicke Sluzby distributes and trades electricity and natural gas as part of the Prerovske Strojirny industrial complex

The BPV Braun Partners team was led by Partner David Vosol and included Managing Attorney Pavel Vintr and Senior Associate Marketa Nesetrilova.

Editor’s note: After this article was published CEE Legal Matters learned that Eversheds Sutherland’s team had been led by Principal Associate Radek Vana.