Beware of “surprising provisions” in commercial terms and conditions

17. 12. 2015

We would like to draw your attention to the issue of unexpected and often deliberately hidden provisions in businesses' trade terms which at first glance are advantageous for businesses, but after a second look they carry the risk of being declared void.

The adoption of the new Civil Code brought with it the prohibition of so-called surprising provisions that appear in commercial terms and conditions and that businesses often misused in practice, this coming into effect at the beginning of 2014. These often relied on the fact that the other side would not read the commercial terms and conditions anyway.

If, however, such provisions appear in commercial terms and conditions, they could be declared ineffective should a judicial dispute arise. This would lead to the situation in which such provisions would not be used at all and that general statutory regulation would be used (for example, regarding the length of the statute of limitation) or, if there is no such express regulation in the law, the situation would be the same as if nothing at all had been stipulated.

The exception here is the situation in which the other side explicitly accepts such provisions. Even though it is not yet entirely clear in what way this will be safely done (there are no judicial decisions to provide a guideline), a solution does exist in the case of commercial terms and conditions. The safest solution would naturally be to include potentially surprising provisions individually in the contract itself or to put them in a separate instrument for the other side to sign. It is decidedly not enough, however to simply sign the commercial terms and conditions ipso facto.

What, however, is actually meant by the term "surprising provisions"?

A surprising provision is, in the words of the law, such a provision which the other side could not have reasonably expected. We can fundamentally divide surprising provisions into two groups. The first group comprises provisions which are unexpected in terms of their content. This might involve the following type of provisions:

· those which limit compensation for damage to ridiculously low amounts as disproportionate to the threatening/incurred risk;

· those which limit the rights of the other side to withdraw from a contract;

· the inclusion of a certain provision under a heading which does not correspond to the actual content (for example, provisions regarding withdrawal from a contract placed in a section entitled The Terms and Condition of Payment or the inclusion of minor breach of contract among gross breach of contract);

· those on the preclusion of liability for a defect to delivered performance;

· those regarding unreasonably high contractual penalties or interest on late payment in the case of breach of an obligation;

· those regarding an unreasonably long period of notice (for example, 1 year), even though the standard period is far shorter, etc.

In the second group, we can include surprising provisions based on their manner of expression and form. Such provisions are as follows:

· provisions which are hard to read, either because of the use of small print, intentional vagueness or a different colour of text (yellow or light blue on white paper);

· continual text in commercial terms and conditions without any segmentation or extreme length (for example, 50 pages);

· complicated and incomprehensible formulation of written legal language which the lay person cannot understand;

· an easily-missable footnote which contains important provisions regarding contractual penalties etc.

It is important to point out that the surprising nature of such a provision must always be considered on a case-to-case basis based on a range of other circumstances.

Although the use of commercial terms and conditions has become very popular in recent years because they make it easier for businesses to sign contracts, many are guilty of errors when writing them, errors that have a negative effect. We would therefore recommend conducting a review of the commercial terms and condition in use with regard to the surprising provisions described above and, for example, from the perspective of consumer protection or particularly inappropriate provisions and the whole process of entering into contract, including sufficiently familiarising the other side with the wording of commercial terms and conditions.

Tereza Kotrnochová

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