Category: Czech Republic

As early as 25 June 2023, legislation should come into force in the Czech Republic that could give consumers another powerful weapon in the battle against unfair business practices. This legislation introduces the so-called class action lawsuit, which will allow multiple victims, each typically holding small claims, to join together for united representation in court proceedings.

The draft law on class actions is now pending in the Chamber of Deputies, but its current wording raises a number of questions. In particular, it is expected that discussion will center around issues relating to the range of possible claimants, the appropriateness of the exclusive introduction of the ‘opt-in principle’ and whether the regulation will also apply to existing claims.

Class actions are a civil law instrument which has its roots in the USA; they can also be found in some form in some EU member states.

One of the main arguments for the introduction of class actions is the fact that for many consumers harmed by the actions of businessmen it does not make financial or rational sense to litigate for a claim in the hundreds of thousands of crowns or even less. However, the total claim of a group of consumers so injured can be several orders of magnitude higher, and failure to recover such claim would result in unjust enrichment of the businessmen who (whatever their motives) committed the breach of law. The European Directive on representative actions for the protection of consumers’ collective interests was drafted with this idea in mind. All EU member states must transpose this directive into their legal systems by 25 June 2023, and the Czech Republic is of course obliged to do so as well.

Only through consumer organizations

There is no consensus across the political spectrum or among legal experts on the current form of the class action bill. Heated debate is expected in the coming weeks and months, particularly regarding the part of the law that grants the right to bring a class action only to selected consumer organizations, not, for example, to aggrieved individuals. If the range of claimants is broadened, adequate safeguards against potential abuse would need to be set up and adopted, as this could also increase the likelihood of putative actions being brought.

Consequently, the law would need to be amended and refined, which would ultimately delay its adoption again.

These consumer organizations – of which there are currently 12 registered in the Czech Republic, the most important being dTest, the Association of Czech Consumers, and the Association of Citizens’ Advice Centres – are non-profit entities whose main purpose is to promote the legitimate interests of consumers. They offer advice in disputes with businesses and should therefore act on consumers’ behalf in collective proceedings without further delay.

The question arises as to how the law will work in practice if only consumer organizations are allowed to bring class actions. It is important to note in this case that there will not be an infinite number of consumer organizations entitled to bring class actions. In view of this, it is likely not every consumer would find representation, as the conduct of the proceedings will be complicated by the need for sufficient staff capacity and financial resources. Unsuccessful claimants will also have to pay the costs of the legal proceedings, which could be a major drain on the budget. From this perspective, it is possible that the actual number of class actions filed will not be high, at least initially.
We believe that effort to introduce the institution of collective actions should not only aim to comply with the Directive – in some respects it should go beyond it, as is quite common in other member states. A good example in this respect is the substantive scope of the bill, which now covers a wider range of relationships than the Directive and therefore provides consumers with a wider range of options for pursuing their claims.
It is also worth pointing out that only a businessman can be a defendant. The draft law does not empower citizens to bring collective actions against the State or municipalities, whereas in some other countries this is possible. Going forward, the question is whether such an approach, which in some ways discriminates against the private sector, is justified or deprives citizens of other legitimate avenues for bringing class actions.

So, when will we see the law?

It is quite certain that the draft law will continue to be subject to some debate among experts and politicians. The road to the final form of the law is still a thorny one. This can be illustrated by the discussions on the possible form of the so-called transitional provisions – whether the new law and the procedure under it will also apply to claims arising before or after its entry into force.

The current draft law does not contain any transitional provisions and, as a procedural rule, would therefore presumably apply to claims arising from breaches that occurred before its adoption. At the same time, the proposal introduces into the Czech legal system an institute of a different legal culture which may significantly affect already established consumer-business relations. It is therefore worth considering whether the proposed law should apply only to claims arising after its entry into force, or whether it should limit its retroactive effect in time, as for example in Slovakia. The latter principle was previously proposed by both the Czech Bar Association and representatives of the judiciary.

The traditional institution of European legal orders

Although the Czech legal system is unfamiliar with the institution of class actions, it is a relatively common phenomenon in other member states of the European Union. Such actions are used in Poland, France, Denmark, Portugal, Sweden, Spain and Italy. In our neighbor Poland, for example, related legislation has been in force since 2010, with 265 class actions filed by 2018. Most of them concerned civil disputes. The largest class action in Poland so far was the Millennium Bank S.A. case, involving approximately 5,000 plaintiffs.
Some proceedings in Poland were also brought against the state, which will not be possible here. These include, for example, the class proceedings in response to the tragic accident that took place on 28 February 2006 in Katowice, where 65 people died when a hall collapsed. The class action in this case was brought by the survivors of the victims, 82 of whom joined together for this purpose. The trial was decided in favor of the class plaintiffs, who succeeded in their claim for compensation, reached a settlement with the defendant and received the financial compensation they sought.

The UK, the Netherlands and Portugal are considered the European countries with the strongest tradition of class actions. Statistical data shows that in 2021, a total of 110 class actions were brought in selected countries (UK, Netherlands, Poland, Romania, Northern Macedonia, Portugal, France, Germany, Austria) – but most of them in the UK and the Netherlands.

By Lukas Duffek, Partner, Rowan Legal

The Corporate Sustainability Reporting Directive (CSRD) took effect on 5 January 2023. This directive amends the Non-Financial Reporting Directive of 2014 (NFRD) and introduces more detailed requirements for non-financial reporting in the area of ESG.

Companies subject to the CSRD will be required to report in accordance with the European Sustainability Reporting Standards (ESRS). The first set of these draft standards has been produced by EFRAG (formerly known as the European Advisory Group) as an independent body acting as a technical advisor to the European Commission. In November 2022, the drafts were submitted to the European Commission, which is expected to accept a final version in the first half of 2023.

Although the ESRS regulate all three main ESG areas (Environmental, Social, and Governance), this article will mostly focus on the governance standards.

The governance standards are often rather on the sidelines of the imaginary spectrum of interests in ESG. Their interpretation and application raise a number of practical issues that many companies will need to address in the near future.

Non-compliance with governance standards is often the cause (or one of the causes) of many recent economic scandals, including but not limited to the FTX cryptocurrency exchange crash. The CSRD and related non-financial reporting standards should be one of the tools helping to prevent similar situations.

Therefore, we believe that governance is absolutely crucial for the CSRD and ESG, overarching these issues.

What do the ESRS bring in the area of governance?
The draft governance non-financial reporting standards were part of the above-mentioned package submitted to the European Commission by EFRAG. The core of the regulation is the ESRS G1 Business Conduct standard (and its related annexes). This standard distinguishes six main categories specific to governance within which it lays down the specific requirements for non-financial reporting:

G1-1: Corporate Culture and Principles of Business Conduct

Companies will be required to report on how their executive, management, and supervisory bodies participate in creating, monitoring, promoting, and evaluating corporate culture. The information to be disclosed includes information on the strategy of developing corporate culture, how the strategy is implemented, and how outcomes are evaluated.

The companies concerned will mainly be required to describe procedures for identifying, detecting, and investigating concerns with respect to unlawful conduct or conduct in conflict with the company’s ethical code or other similar internal regulations, including information on whether the company allows for the submission of reports by internal and/or external stakeholders.

In addition, information disclosed will regard:

• Anti-corruption and anti-bribery policies;
• Mechanisms for the protection of company employees who blow the whistle on risky or problematic behavior (whether they are whistleblowers (including whistleblower protection), or employees who refuse to act unethically even at the cost of losing a contract/contracts);
• Animal welfare policies (if relevant to the respective company, given the specifics of the company’s business); and
• Training strategies within the company in these areas.

G1-2: Supplier Relationship Management

Companies will also report information concerning supplier relationship management and its impact on their supply chain, including:

Information on the company’s supplier relationship management strategy in the context of supply chain risks (both generally and specifically in terms of sustainability);
Information on whether / to what extent the company considers social and environmental criteria when selecting its suppliers; and
A description of the procedures the company has put in place to support so-called vulnerable suppliers.
Companies will also disclose a list of their policies/procedures aimed at preventing late payments to their SME suppliers.

The objective of these requirements is to facilitate a better understanding of how the company manages the selection of suppliers, including fair dealing with them.

G1-3: Prevention and Detection of Corruption and Bribery

Companies will also be required to disclose information concerning their system for the prevention, detection, investigation, and response to allegations or incidents related to corruption and/or bribery.

This information will include, without limitation:

• An overview of the procedures in place to prevent, detect, and resolve allegations or suspicions;
• Information on whether the investigating persons (or the investigating committee) are functionally separate/independent from the persons in management associated with the issue under investigation;
• The procedure for reporting the results of internal investigations to the executive, management, and supervisory bodies of the company;
• Information about anti-corruption and anti-bribery training.

G1-4: Confirmed Cases of Bribery and Corruption

Companies will provide information on confirmed cases of corruption and/or bribery. The number of such cases will be accessible to the public. However, information about the identity of the individuals involved in the individual proceedings probably does not have to be disclosed.

In particular, companies will be required to disclose:

• The number and character of the confirmed bribery and/or corruption cases;
• The number of people convicted of these delicts;
• Information on public lawsuits brought against the company as a whole or against its employees and the results of these lawsuits, if any. It will be also necessary to disclose the results of previously instigated litigation concluded in the current reporting period with the respective results;
• The number of cases where employees were dismissed or disciplined or where contracts with business partners were terminated or not renewed due to violation of anti-bribery or anti-corruption regulations.

G1-5: Political Involvement and Lobbying

In this area, companies will be mainly required to disclose information about activities and engagements concerning their political involvement and influence, including their significant lobbying activities.

The following information will chiefly be disclosed:

• About the persons in the executive, management, and supervisory bodies of the company responsible for overseeing these activities;
• About the financial and material contributions to politically active entities;
• The main areas/topics covered by the company’s lobbying activities and the company’s main positions on these issues.
• Information on whether the company is registered in the EU Transparency Register or another equivalent transparency register in a member state must also be disclosed.

Last but not least, companies will be required to report whether members of their executive, management, or supervisory bodies held similar positions in public administration (including regulatory bodies) in the past (in the two years before having been appointed to the respective position).

G1-6: Payment Procedures

Here, companies will be required to report information about their payment procedures, focusing on any late payments to their SME business partners.

This information will mainly include the following:

• The average period of time (in days) it takes the company to pay an invoice from the date when the statutory or contractual maturity period commences;
• A description of standard payment periods in days (broken down according to the main categories of suppliers and the proportion of payments made within the respective periods);
• The number of legal proceedings (currently pending) concerning late payments during the reporting period;
• Any additional information required to provide sufficient context.

Conclusion

In conclusion, it is important to note that all the governance standards must be interpreted in the context of the remaining ESRS and other legislation, not just in the area of ESG. Issues addressed by these standards often have a broader scope and overlap into other related areas.

It is also important to remember that companies will generally be required to only report information that is essential in terms of sustainability. An open question for the moment is which particular information must (or cannot) be considered relevant in this context and how to interpret the requirements of the ESRS correctly in specific situations in the context of other legislation (such as in the area of protection of personal data of company employees, etc.).

In the article above, we rely on the versions of the (draft) standards submitted by EFRAG to the European Commission in November 2022. The final versions and wording of these standards may still be subject to changes and modifications in the approval process. We will closely monitor any further developments.

By Marek Prochazka, Partner and Milan Sivy, Attorney, PRK Parnters

Dunovska & Partners has advised the Aricoma Group on its acquisition of parts of a subsidiary from Sabris CZ. GT Legal and AK Zizlavsky advised Sabris.

According to Dunovska & Partners, Sabris CZ is an IT company that provides system integration and long-term services through a multilingual support center and shared services center.

The Aricoma Group is an information technology holding offering services such as IT consulting, software development, infrastructure administration software, cyber security, management software, and compliance. The group operates in the Czech Republic, Slovakia, Switzerland, Scandinavia, Benelux, North Macedonia, and the US.

The Dunovska & Partners team was led by Partner David Urbanec and Junior Partner Ales Hradil and included Junior Associate Marketa Kolarikova.

The GT Legal team included Founding Partner Lukas Zahradka and Attorney-at-Law David Fabian.

The AK Zizlavsky team included Managing Partner Michal Zizlavsky and Senior Associate Roman Machacek.

In accordance with a contemplated change of the existing EU Temporary Crisis Framework rules stipulating for state aid limits applicable to the whole European Economic Area, the amended Czech Government Regulation sets forth Czech national limits applicable to delivery points in the Czech Republic.

The purpose is to simplify for Member States to monitor exceedances of the state aid limits.

The lowest limit was set by the Czech Government at € 2 million. However, in the case of high eligible energy supply costs, it can be several times higher. Importantly, a need for further changes may arise as a result of the pending state aid notification to the European Commission.

Large enterprises with delivery points in the Czech Republic are now required to report to the Czech Ministry of Industry and Trade, on a quarterly basis, the amount of its financial benefit from the applicable energy price caps.

Exceeding the Czech national limits during a quarter is not a breach. However, the company is obliged to pay any excessive benefit back to the Czech Republic state budget. The deadlines vary slightly for each category of benefit.

By Michal Hrabovsky, Counsel and David Nemecek, Associate, Eversheds Sutherland

If you need statistical data maintained by the National Health Information System for your work or scientific research, whether demographic data on births or deaths, statistics on cancer patients, information on assisted reproduction or other information, you will be interested in a landmark decision of the Constitutional Court.

This week, the Constitutional Court ruled “in favour” of a citizen requesting information, establishing a certain corrective to the common practice of the Institute of Health Information and Statistics (the “Institute”) denying citizens’ requests for information.

In this case, the Institute had rejected the citizen’s request for information on the number of deaths and their causes between 2014 and 2019 in the Czech Republic, claiming that applicants could only receive information on the structure of the data, not the data itself. The Constitutional Court opposed this purely grammatical interpretation of the law, stating that “the right to information may be restricted only in cases where such a procedure has a legal basis and is necessary in a democratic society to protect rights or values such as public interest, public security or the rights and freedoms of others.”

As of this week, the Institute will no longer be able to flatly refuse citizens’ requests for information. On the contrary, it must assess each request individually and, if it does refuse a request, it must give clear and convincing reasons for doing so. It is difficult to imagine that information on the number of deaths and their causes over a given period of time could endanger a particular interest or any right or freedom. Moreover, in the present case the Institute referred the applicant to another way of obtaining the information, which it probably would not have done had the information in question been extremely sensitive. Contrary to the Institute’s decision, there is an undeniable public interest in the disclosure of statistical data like these, as such information may help improve subsequent health care, the prevention of various health problems or the operation of new clinical research.

By Vladena Svobodova, Associate, JSK, PONTES

 

Do you sell goods to consumers through ane-shop? Do you feel like you already know everything there is to know about the great consumer amendment from all the different articles? While it’s true that plenty has been written about the end of fake reviews and discounts, the legal guarantee or the specific labelling of the “order with obligation to pay” button, this is much more than a “button amendment”. What affect will it have, for example, on personalising the price for a particular consumer?

Do you automatically customise prices? Inform the consumer!

The seller can customise the price of the goods based on the consumer’s purchasing behaviour, such as their order history or page views. We are not discussing right now how the seller can legally obtain and use this information – let’s leave that for later (but you’ve correctly guessed that this is related to the GDPR).

If the seller has already obtained this information in the way they were supposed to, they must do one more essential thing before the contract is concluded, and that is to clearly inform the consumer about the automated price customisation. After all, price information is key for consumers, so we highly recommend including this information not only in the terms and conditions, but also visibly in the e-shop, preferably directly next to the price. If this obligation is not fulfilled according to Section1820(1)(f) of the Civil Code, the seller may face fines of millions of crowns (Section 24(17)(a), Section 24(19) and (20) of the Consumer Protection Act).

By Michaela Švejnohová, Junior Lawyer, JSK, PONTES

 

In recent months, we have seen several regulatory initiatives impacting the Czech online business environment. There is a lot to unpack, which is why we have prepared a series of Legal Insights to help you understand what will change in 2023.

Today, our series continues with the amendments to the Consumer Protection Act and the Civil Code focusing on measures against fake consumer reviews.

Fake reviews
The fight against fake reviews is behind the changes introduced in the amendment to Act No. 634/1992 Coll., on Consumer Protection, and Act No. 89/2012 Coll., Civil Code (the “Amendment“). Until now, biased reviews were often created by employees of the e-shop itself or persons hired by them.

The Amendment explicitly states that a seller publishing fake consumer reviews and recommendations (or arranging for other people to do so) or misrepresenting consumer reviews and recommendations on social media in order to promote a product or service is expressly considered a prohibited commercial practice. Until now, this practice was unlawful only if additional general elements of unfair competition were present. In contrast, after the adoption of the Amendment, this activity is now explicitly mentioned as an unlawful commercial practice.

The Amendment also included the practice of systematically deleting negative reviews while keeping only the positive ones among unfair prohibited practices. Therefore, the seller must newly state on its website exactly how the posted consumer reviews are verified in order to ensure that they are written by consumers who purchased or used the reviewed products. The seller must also put these measures into practice.

Businesses must now state for each review on their e-shop whether it is verified or not and explain how they verify the review. Review verification means that the e-shop can link a specific review to a specific customer who has bought or used the product. In practice, businesses will need to update or implement rules for so-called “moderation” (editing) of consumer reviews, in which the e-shop will have to indicate basic conditions for the use of reviews and their deletion. The rules will have to explicitly state the process for verifying reviews, such as entry of an order number when publishing a review, the insertion of a review via an e-mail prompt after a purchase has been made, the insertion of reviews under an e-shop user account, etc.

Aims and enforcement
The aim of the relevant EU legislation (implemented by the Amendment) is to force operators of relevant websites to take real steps to ensure that consumer reviews are indeed published by the actual consumers and that the reviews are not distorted, either by fictional reviewers or by users reviewing the product before actually using it (and awarding only one star just because they did not use the product yet).

Not every review must be checked, but then the e-shop must not mark the relevant review as verified.

Merchants must definitely comply with the new rules on their own websites (such as e-shops, online marketplaces, online comparison sites or second-hand portals), in their profiles and posts on social networks or other places where they themselves provide access to reviews. If you operate one of these, you should take steps to comply now. However, you are not obliged to monitor discussion forums or other platforms operated by third parties and determine where the product reviews came from.

The Czech Trade Inspection Authority (CTIA) may punish violations of the above-mentioned rules with a fine of up to CZK 5m. However, it rarely imposes such high penalties. Fines of tens of thousands of crowns, or at most hundreds of thousands, are much more common. The largest fine for unfair commercial practices in connection with fake reviews was levied last year. It was a fine of CZK 750,000 on an e-shop that deleted negative reviews while leaving positive ones. Higher penalties are especially likely if the violation is repeated. The CTIA update the list of risky e-shops at www.rizikove.cz.

Conclusion
The Amendment brings several changes that will affect businesses and consumers. It will be important for businesses to familiarise themselves with the changes applicable to the publishing of consumer reviews and to set up internal processes for their verification. Businesses also will need to adjust their processes, terms and conditions and privacy policy.

By Libuse Docekalova and Stanislav Bednar, Attorneys at Law, Natalie Dubska, Associate,  Schoenherr

The Czech legislature has been recently working on several new laws and amendments, including adopting whistleblowing and energy price cap-related regulations, according to Kocian Solc Balastik Partner Sylvie Sobolova.

“From my perspective, the most important legislative update is a draft law on whistleblowing, implementing the EU directive, which has been approved by the Czech government and is now being debated in parliament,” Sobolova begins. “This is a brand new law in the Czech legal order and requires companies to introduce new processes. It applies to companies with at least 50 employees, consequently, even rather small companies might fall under these new regulations.” According to her, it will likely require substantial assistance from legal practitioners and the close attention of the business community, especially considering that the law stipulates very high penalties for non-compliance.

“There have been some notable developments in the field of business corporations as well,” Sobolova continues. “Several amendments of the Act on Business Corporations, the Act on Public Registers, and the Trade Licensing Act will enter into force, introducing major updates in two areas. First of all, there are new grounds preventing and/or disqualifying a person from exercising the functions of a member of the elected corporate bodies – e.g., the statutory body or supervisory body. The recent amendments also address the newly established Register of Disqualified Persons.” Secondly, she notes “the incorporation of business corporations has been simplified due to the fact that the companies will not be required to obtain a trade license or concession before their registration in the Commercial Register. Furthermore, the Ministry of Justice has published model articles of association for a limited liability company, the use of which will reduce the court and notary fees for the establishment and incorporation of a company.”

Another field in which there have been major changes, according to Sobolova, is the area of crypto-assets, where a new EU regulation is about to come into force soon. “The new regulation brings the operation of platforms for trading investment instruments based on the so-called shared registry technology under control,” she says. “Such business activity will newly require a license.”

“The parliament has also finally adopted a long-awaited amendment to the Copyright Act, which implements the EU Directive on copyright in the digital single market,” Sobolova adds. “This introduces, among others, new rights of press publication publishers if their press publications are used online by information society service providers and provide new rules on the use of protected content by online content-sharing service providers.”

Finally, Sobolova highlights several amendments to labor law as well. “The government will lodge with the parliament a labor act amendment that shall address, among others, the rules applying to remote working,” she notes, adding that “the law will regulate the legal prerequisites for the use of the home office as well as, for example, the reimbursement of the costs of working from home.”

Allen & Overy has advised Raiffeisenbank on its EUR 500 million issuance of senior non-preferred sustainable notes under its international debt issuance program. White & Case reportedly advised the managers.

“A sum equivalent to the net proceeds will be used to finance or re-finance loans to projects and activities that promote climate-friendly and other environmental or sustainable purposes,” Allen & Overy informed.

According to the firm, “the notes were issued under German law, but their status as senior non-preferred and MREL-eligible instruments is also governed by the applicable Czech rules. The notes were accepted for trading on the Luxembourg Stock Exchange. Raiffeisenbank is also one of the first Czech issuers to implement the noteholders’ certification procedures as approved by the International Capital Market Services Association and implemented by both Euroclear and Clearstream.”

Allen & Overy previously advised Raiffeisenbank on the opt-in of its outstanding English-law-governed mortgage-covered bonds into the new regulatory framework in the Czech Republic and the consequent EUR 500 million issuance of mortgage-covered bonds (as reported by CEE Legal Matters on January 21, 2022). 

The Allen & Overy team was led by Prague-based Partner Petr Vybiral and included Senior Associate Tomas Kafka and Junior Lawyer Jan Mourek as well as a team from the firm’s German office.

Editor’s Note: After this article was published, White & Case confirmed it had advised the lead managers. The firm’s team included Partner Petr Hudec and Associates Petr Smerkl and Jan Vacula, as well as a team from the firm’s Frankfurt office.

BPV Braun Partners, working with Watson Farley & Williams, has advised the Creditas Group on the acquisition of British energy group InterGen. Herbert Smith Freehills reportedly advised the sellers.

Financial details were not disclosed.

The Creditas Group, based in Prague, active in the energy sector since 2013, and owned by Pavel Hubacek, primarily targets ownership interests in companies engaged in the production, distribution, and trading of electricity, gas, and heat. According to BPV Braun Partners, “its energy division, UCED, is the fourth largest energy distributor in the Czech Republic. In addition to energy distribution, it focuses on electricity and heat generation and is also a major provider of power balance services.”

InterGen is a developer, owner, and operator of power generation facilities with over 25 years of experience. According to BPV Braun Partners, “InterGen is one of the largest independent power producers in the UK with around 2,800 megawatts in operation between three combined-cycle gas turbine plants and one open-cycle gas turbine plant.”

The BPV Braun Partners team included Partners David Vosol and Marc Mueller, Senior Associates David Plevka and Michal Fogel, and Associate Pavel Brezina.