(Supreme Court Judgment of 10 December 2025, File No. 28 Cdo 1551/2025)
The District Court in Ostrava awarded the plaintiff contractual penalties and damages totaling CZK 25,961,229.40 plus interest. The subject of the dispute was the plaintiff’s claims, as the client ordering the demolition of industrial buildings and the seller of the resulting waste, against the defendant, as the contractor and buyer, who breached its obligations under two interdependent contracts (a contract for work for demolition and relocation of networks in connection with a purchase contract for waste). In both contracts the parties agreed that the payment of contractual penalties would not affect the right to full compensation for damage. At the same time, they agreed on a limitation of compensation by stipulating that “the total amount of compensation which the contracting parties are obliged to provide as a result of a possible breach of obligation under this contract or in connection with it shall not exceed, for all damage incurred by the respective contracting party on the basis of or in connection with this contract taken together, 10% of the purchase price agreed in the contract. This provision shall not apply to compensation for damage caused intentionally.”
The defendant failed to fulfill several contractual obligations, even though contractual penalties for delay and a provision stating that payment of contractual penalties did not affect the right to full compensation for damage had been agreed in the contracts. The plaintiff subsequently validly withdrew from the purchase agreement due to the defendant’s delay, thereby also terminating the contract for work. In causal connection with the defendant’s breach of its contractual obligations (leading to the termination of the contracts), the plaintiff suffered damage when it later concluded a contract for work with a new entity at a higher price and sold the waste produced by the demolition to it at a lower price. The total damage thus amounted to over CZK 51,000,000.
The Regional Court in Ostrava upheld the first-instance judgment. The key factor for it was that the agreement on limitation of damages in the purchase agreement also applied to damage resulting from a breach of the dependent contract for work and that this agreement remained in force even after withdrawal, as it is an agreement which, by its nature, is binding even after the termination of the contract (Section 2005(2) of the Civil Code). For this reason, it awarded damages only up to 10% of the purchase price of the scrap metal and dismissed the claim in the remaining part.
Both parties appealed to the Supreme Court. The plaintiff raised the question of whether it could be inferred from interpretation that the agreement on the limitation of damages to an amount corresponding to 10% of the purchase price also applies to damage arising from a breach of contractual obligations under the mutually dependent contract for work. She also raised the question of whether, as a result of the withdrawal from the purchase agreement, the agreement on the limitation of damages resulting from a breach of contractual obligations had also expired pursuant to Section 2005 of the Civil Code.
The Supreme Court interpreted Section 2005(2) of the Civil Code as meaning that, unless the contracting parties agree otherwise, withdrawal from the contract (in accordance with the express wording of the provision) does not affect the right to compensation for damage arising from a breach of contractual obligations prior to withdrawal from the contract. Respecting the autonomy of the contracting parties, where the right to compensation for damage arising from a breach of contractual obligations prior to withdrawal from the contract has been contractually limited, the limitation agreement – in the absence of any different contractual arrangement and unless the purpose of the contractual provision is to be frustrated – should be assessed as an agreement which, by its nature, is binding on the parties even after withdrawal from the contract.
The interpretation of Section 2898 of the Civil Code is crucial – the Supreme Court relied on the explanatory memorandum and prevailing doctrine and concluded that this provision is absolutely mandatory in nature. An agreement that excludes or limits in advance the obligation to compensate for damage caused intentionally or through gross negligence is therefore putative (Section 554 of the Civil Code), i.e. it is disregarded ex officio.
The Supreme Court therefore annulled the decision of the appellate court to the extent that it applied the limitation across the board to damages without examining whether they were caused by gross negligence and instructed the lower courts to address this issue explicitly. It rejected the defendant’s appeal, found the plaintiff’s appeal to be well‑founded, quashed the judgments of the aforementioned courts, and returned the case to the court of first instance for further proceedings.
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