(Czech Supreme Court Ruling No. 32 Cdo 1861/2012 dated 24 June 2013)

The core of the given dispute was the customer’s claim to a contractual fine for late performance of a contract for work due to the supplier’s delay in securing a building permit. The customer’s claim was based on a contractual arrangement stipulating that the work was to be performed and delivered by an agreed deadline, and that all documentation and necessary permits (building permits included) would be secured by the same deadline.

However, the supplier refused to pay the contractual fine, claiming it could not perform its contractual obligation before receiving the relevant building permits. Otherwise, performance would have been in violation of public law and the supplier would have been liable for a regulatory offence. In return, the supplier sued the customer for payment of the outstanding amount for the work and a contractual fine for payment arrears.

The Supreme Court did not side with the supplier. Indeed, it confirmed that if a party has a dischargeable contractual obligation ensuing from the Commercial Code, then it is bound by such obligation.

Pursuant to the Commercial Code, debtor (supplier) arrears always objectively arise if the debtor fails to perform its obligation in a due and timely manner. Arrears do not arise only where the debtor could not perform its obligation due to a creditor delay. Thus, if performance is prevented by other circumstances, the debtor is in arrears irrespective of whether or not these circumstances arose on the part of the debtor and whether or not they could have been avoided or influenced by the debtor.

According to this ruling, if a contractual obligation to perform exists and the debtor fails to perform such obligation in a due and timely manner, the debtor’s delay may only be excluded by a creditor delay, and no other circumstance.