Most people read the subject matter, the price and the deadline in a contract. They skip the rest as "legal boilerplate". Yet it is precisely those skipped passages that decide what your dispute will look like when something goes wrong.
In our practice, the same five clauses keep coming up: they matter most in a conflict, and contracting parties hardly ever read them properly.
¶ 1. Arbitration or jurisdiction clause
Before anyone asks who is right, it has to be clear where the matter will be decided. That is what an arbitration or jurisdiction clause determines.
An arbitration clause refers the dispute to an arbitral tribunal. In its favour: speed (months rather than years), confidentiality and the chance to choose arbitrators who understand the field. Against it: higher costs of starting proceedings and limited grounds for appeal.
A jurisdiction clause designates which state court will have jurisdiction. In cross-border contracts this matters a great deal, because without one jurisdiction is decided by EU rules that may not suit you.
What happens when it is missing: jurisdiction follows the general rules. Within the EU, that means the Brussels I bis Regulation, under which you can sue in the state where the defendant has its seat or domicile and, in contractual disputes, also in the place of performance: for a sale of goods, where the goods were to be delivered under the contract; for services, where they were provided. So where you litigate often depends on a delivery term nobody noticed at signing. If your business partner is based in Ireland and you delivered the goods to Ireland, you will most likely be litigating in Ireland. With a partner in China, things get more complicated still.
A case from practice: a Czech supplier signed a contract with a German buyer without agreeing either an arbitration or a jurisdiction clause. When the buyer stopped paying, the supplier ended up filing a claim in Germany, which meant proceedings in German, with a German lawyer and under German procedural law. The cost of the dispute exceeded the amount owed.
¶ 2. Limitation of liability
The limitation of liability clause is probably the most important provision that nobody reads. It sets the most one party can claim from the other as compensation for damage.
Without a limitation of liability, the Czech Civil Code makes you liable in full for both the actual loss and lost profit (Section 2952). The law does not limit compensation to damage you could have foreseen. You are released from the duty to compensate only in exceptional cases, where an extraordinary, unforeseeable and insurmountable obstacle prevented you from performing (Section 2913(2)). For international sales of goods governed by the Vienna Convention (CISG), by contrast, only damage you foresaw or ought to have foreseen when the contract was concluded is recoverable (Article 74).
A standard formulation such as "liability is limited to the amount of fees for services provided in the preceding 12 months" can mean that instead of CZK 50 million (roughly EUR 2 million) you pay no more than CZK 500,000. The cap does not always hold, though. Under Section 2898 of the Civil Code, a limitation is disregarded for damage caused intentionally or through gross negligence, harm to a person's natural rights, and harm suffered by the weaker party.
What happens when it is missing: you are liable in full. In one of our cases, an IT system supplier caused a client an outage that lasted three days. The direct damage, the cost of repair, came to CZK 200,000; the client's lost profit over those three days was CZK 8 million. Because the contract did not cap liability, the supplier paid the full CZK 8 million.
¶ 3. Change of control clause
A change of control occurs when the ownership structure of one of the contracting parties changes, typically through an acquisition, merger or the entry of a new investor.
A change-of-control clause gives the other party a way to respond to such a change. Usually it may terminate the contract, renegotiate terms or require consent to the change.
What happens when it is missing: your contract runs on unchanged even if your contractual partner is bought by your direct competitor. You then provide services to a company owned by someone you would never have supplied voluntarily, and you have no legal means of getting out.
A case from practice: a distributor had an exclusive agreement with a manufacturer, which was later bought by a competing distributor. The contract had no change-of-control clause, so the exclusivity remained in force. Now, however, it benefited the competitor, who gained access to the distributor's pricing, terms and customer base.
¶ 4. Force majeure
Before 2020, the force majeure clause was treated as an academic matter. The pandemic showed how wrong that was.
A force majeure clause sets out what happens when performance of the contract is prevented by circumstances beyond the parties' control, such as a natural disaster, war, an epidemic or a government order.
The key questions are these. What exactly counts as force majeure? Must performance be entirely impossible, or is it enough that it is substantially impeded? Whom must the affected party notify, and how? And how long may force majeure last before a right to withdraw from the contract arises?
What happens when it is missing: Czech law does not define force majeure. Under Section 2913(2) of the Civil Code, an extraordinary, unforeseeable and insurmountable obstacle releases you only from the duty to compensate damage, not from the duty to perform. The obligation is extinguished only if performance becomes genuinely impossible (Section 2006); mere difficulty is not enough. If circumstances change fundamentally, you can ask for the contract to be renegotiated and, failing that, for a court decision (Sections 1765 and 1766). Without a contractual arrangement, you will be arguing over what actually happened and what follows from it, just when you need a swift resolution.
A case from practice: in 2020, we dealt with a contract for the supply of components from Asia. The supplier could not perform because the factories stayed closed. The contract did contain a force majeure clause, but defined it so narrowly that it covered only "natural disasters and armed conflicts". It made no provision for a pandemic. What followed was a year-long dispute over whether a pandemic is a natural disaster.
¶ 5. Severability clause
The shortest clause, and at first sight the least important. It says roughly this: if any provision of the contract turns out to be invalid, the remaining provisions continue to apply.
Czech law itself provides that if only a severable part of a contract is invalid, the rest stands, provided it can be assumed the parties would have concluded the contract without it (Section 576 of the Civil Code). That assumption, however, is exactly what the other side can challenge, for instance when the provision that turns out to be invalid was central to the deal. A severability clause expressly confirms that the parties wanted to keep the rest of the contract, and so takes arguments away from the other side.
A well-drafted severability clause goes further still and provides that the invalid provision is replaced by one that comes closest in purpose and economic effect to what the parties originally intended.
What happens when it is missing: the other side gets room to challenge the entire contract. In practice this happens rarely. When it does, the consequences are serious, because what is then at stake is the validity of the whole contract rather than a single provision.
¶ Practical recommendations
When reviewing any commercial contract, I recommend starting from the end, with the clauses that deal with what happens when something goes wrong. The subject matter and the price are important while the contract works. Once it stops working, these clauses decide the outcome.
Check five things: where you will litigate, the most you can be made to pay, what happens when ownership changes, how you deal with unforeseeable events and whether one defective clause can bring down the whole contract.
It takes an hour and can save millions. For more typical contract mistakes, see Contract mistakes: five errors we see most often, and for the economics of prevention versus dispute, see A twenty-thousand contract or a two-hundred-thousand dispute. If you are setting up a company or changing its arrangements, also read Articles of association are not a formality.
Drafting or revising a commercial contract you would rather not meet again in court? In our risk prevention practice we set these clauses up to work in your favour. Get in touch.
¶ Frequently asked questions
Is an arbitration clause better than a jurisdiction clause?
It depends on your priorities. Arbitration is faster (months rather than years), confidential and lets you choose arbitrators who know the field, but it costs more to initiate and grounds for appeal are limited. A jurisdiction clause designates the competent state court, which can be critical in cross-border contracts.
What am I liable for if the contract has no limitation of liability?
Under the Czech Civil Code, in full: for the actual loss and for lost profit, and the law does not limit compensation to damage you could have foreseen. For international sales of goods governed by the Vienna Convention (CISG), by contrast, only damage foreseeable when the contract was concluded is recoverable. A standard contractual cap limits liability, for example, to the fees for services provided in the preceding 12 months; a cap on damage caused intentionally or through gross negligence, however, is disregarded.
What does a change-of-control clause do?
It gives the other party a way to respond when a contracting party's ownership changes, for instance through an acquisition, merger or the entry of a new investor. Typically that means a right to terminate, renegotiate terms or require consent to the change.
What happens if a contract has no force majeure clause?
Czech law does not define force majeure. Under Section 2913(2) of the Civil Code, an extraordinary, unforeseeable and insurmountable obstacle releases you only from the duty to compensate damage, not from the duty to perform; the obligation is extinguished only if performance becomes impossible (Section 2006). The parties then argue over what actually happened and what follows from it, precisely when they need a swift resolution.
What is a severability clause for?
It strengthens the argument that the invalidity of one provision does not invalidate the whole contract. Section 576 of the Czech Civil Code already provides for severing an invalid part, but the clause expressly confirms that the parties wanted the rest of the contract to stand. A well-drafted clause also replaces the invalid provision with one that comes closest to the parties' original purpose and economic intent.