smitka – Page 25 – HAVEL & PARTNERS

Types of security interest

In your jurisdiction what is the usual type of security interest taken against art, antiques and collectibles?

The typical security interest would be a pledge over the movable asset that may be established either by registration in the Pledges Registry administered by the Czech Chamber of Notaries based on a written agreement made by the notary public in the form of a notary deed or by delivery of the movable asset to the pledgee or to the custodian.

Consumer loans

If the borrower borrowing against art assets in your jurisdiction qualifies as a consumer, does the loan automatically qualify as a consumer loan, and are there any exemptions allowing the lender to make a non-consumer loan to a private borrower?

If the borrower qualifies as a consumer and does not demand the loan as an entrepreneur for the purposes of his or her business activities, the Act on Consumer Loans applies. The case law specifies that, even if the parties agree in the loan documentation that the loan is a commercial loan, but it is evident that the financial means shall not be used for the borrower’s business activities, the loan shall be deemed a consumer loan and all relevant consumer protection provisions shall apply.

Register of security interests

Is there a public register where security interests over art, antiques or collectibles can be registered? What is the effect of registration? Is the security interest registered against the borrower or the art?

Yes, the Pledges Registry. A pledge is registered against the artwork and is perfected by registration based on the pledge agreement in the form of a notary deed. After registration, the collateral may remain in the borrower’s possession. An advantage of registration is that, if there are more pledges over the artwork, a registered pledge has priority over a pledge that is not registered. For the rank of the registered pledge, the moment of registration is relevant.

Non-possessory security interests

Can the lender against art collateral perfect its security interest without taking physical possession of the art?

Yes, the security interest can be perfected without handover of the artwork to the lender by means of: (i) registration of the pledge in the Pledges Registry – the pledge is perfected by registration; (ii) the handover of the collateral to the custodian; or (iii) by marking the collateral as subject of the pledge – however, only if so stipulated in the pledge agreement.

Sale of collateral on default

If the borrower defaults on the loan, may the lender sell the collateral under the loan agreement, or must the lender seek permission from the courts?

In principle, the parties may agree on the means of enforcing the security interest including the direct sale of the collateral in writing in the loan documentation. The lender (the pledgee) must proceed with due care and sell the collateral at the price for which comparable collateral can usually be sold at that time under comparable circumstances; the collateral may never be sold within a grace period of 30 days after the notification of the sale to the borrower and the registration in the Pledges Register (if applicable). If the borrower does not qualify as a consumer or a small or medium-sized enterprise the parties may also agree that the lender may acquire the ownership over the collateral for an arbitrary or predetermined price. If the written agreement on a private sale was not concluded then the lender may sell the collateral only by judicial sale or public auction, which requires an enforceable court judgment unless the borrower agreed in advance, in the form of a notary deed, that his or her obligations arising from the loan will be directly enforceable.

Ranking of creditors

Does the lender with a valid and perfected first-priority security interest over the art collateral take precedence over all other creditors?

The law establishes the priority of the subsequent security interest over a pledge already established (by a pledge agreement) but not yet registered in favour of the liens over movables established by an administrative decision of the state authorities (such as tax authorities to secure payment of due taxes) or the statutory liens over movables. In addition, the retention right of the commission agent on stored items to secure the outstanding payments from the consignment agreement take precedence over the pledge irrespective of whether the pledge has already been perfected.

Authors: Tereza Ditrychová, Daniela Kozáková

Published on: Lexology

Authors: Robert Neruda, Juraj Steinecker, Tomáš Varšo

On 25 September 2018, the European Commission (“Commission”) published a press release that it sent a statement of objections to Slovak rail company ZSSK for obstruction during an inspection. After precisely 10 months, the Commission has stated that it is closing the proceedings against ZSSK without any sanction for ZSSK. HAVEL & PARTNERS acted as an external counsel of ZSSK in the proceedings. In this release of Competition Flash, we would like to address this rare case and its circumstances.

In its statement of objections, the Commission presented its preliminary view that ZSSK obstructed the Commission’s inspection. The Commission had concerns that ZSSK may have provided incorrect information on the location of the laptop of one of its employees. Following the Commission’s concerns, ZSSK may also have failed to provide the requested data from the mentioned laptop by allowing its re-installation, leading to an irrecoverable loss of stored data. In this regard, Margrethe Vestager (commissioner in charge of competition policy) said: “Companies have the obligation to provide correct information when we investigate. Also during inspections. They should not tamper with the requested data in any way. Such behaviour would threaten the integrity and effectiveness of our investigations. We want to make sure that companies comply with our rules.”[1] ZSSK therefore faced potential fines of up to 1 percent of its annual revenue.

Following the public announcement of the Commission’s preliminary view, ZSSK stated it was surprised by the preliminary view of the Commission. In its opinion, it fully cooperated with the Commission during the whole inspection. As ZSSK stated, it did not own the mentioned laptop at the time of the inspection, as a former member of the board of directors had ended his activities in ZSSK and bought the laptop before the inspection began.[2]

This was a key argument used in ZSSK’s reply to the statement of objections. In addition, the company claimed that its procedural rights had been breached, and it had not been properly instructed by the inspectors. On 29 January 2019, ZSSK presented its view on the case in Brussels at an oral hearing.

On 25 July 2019, the Commission announced a change in its preliminary view and closed the proceedings, not imposing any fine on ZSSK.[3] The Commission stated that it carefully assessed all the evidence, ZSSK’s reply to the Statement of Objections and the oral hearing and decided not to further pursue the case. ZSSK welcomed the decision of the Commission and declared that it always has respected and will continue to respect its obligations related to competition law including procedural provisions.[4]

HAVEL & PARTNERS, as a representative of ZSSK in the proceedings, also welcomes this decision of the Commission. From the practitioner’s point of view, the Commission’s step back is proof that it accepts reasonable explanations of behaviour that may initially seem problematic. A duly prepared reply to a statement of objections and a presentation at an oral hearing are therefore not simply formalities, but important tools to protect the rights of any undertaking facing an investigation in a competition matter.

According to publicly available information, this is only the fifth case out of more than 60 antitrust cases since 2008 which the Commission fully closed without imposing any fine or commitments after it issued a statement of objections. Therefore, it could be considered a rare occasion. Despite the ultimate success in the case at hand, it is however necessary to remember the words of Commissioner Vestager and minimise the scope for potential errors during dawn raids by competition authorities. It is highly recommended to have external legal counsel with experience in competition law be present during a dawn raid. Also, adequate preparation of employees for a dawn raid is a key element to prevent any issues and ensure that the rights of a company can be duly protected. Our competition law experts are at your disposal for any competition law issue.

[1] Press release of the Commission available at: http://europa.eu/rapid/press-release_IP-18-5905_en.htm

[2] Referred reaction of ZSSK available at (only in Slovak language): http://195.46.72.16/free/jsp/search/view/ViewerPure.jsp?Document=..%2F..%2FInput_text%2Fonline%2F18%2F09%2Ftbtbds9p1uh.dat_173700.1%40Fondy&QueryText=

[3] Press release of the Commission available at: http://europa.eu/rapid/press-release_IP-19-4671_en.htm

[4] Press release of ZSSK available at (only in Slovak language): https://www.slovakrail.sk/sk/aktuality/zssk-vita-rozhodnutie-europskej-komisie-uzavriet-pripad-suvisiaci-s-inspekciou.html

Authors: Robert Neruda, Ivo Šimeček, Martin Rott

The Directive on unfair trading practices in business-to-business relationships in the agricultural and food supply chain has been adopted recently. For a long time, this sector has been on the radar of EU bodies, as sufficient reasons for the regulation and its methods have been sought. Meanwhile, many countries adopted their own national legislation – all of the countries of the Visegrad Group among them. The Czech legislation is considered one of the most stringent, and Czechia can even boast a very strict application practice by the supervisory authority. Thus, what does the directive bring about and what to expect from its implementation in the domestic environment? We would like to briefly address it in this release of Competition Focus.

History

The European Commission (“Commission”) started to analyse the functioning of the food supply chain in late 2008 in response to price increases in agricultural production. One of the key elements found was the existence of asymmetry in bargaining power among undertakings at different levels of the chain. Although divergences in market power in business relationships are common, in the case of food supply, the imbalance is likely to result in unfair trading practices, the Commission says. Market players with more economic strength are simply more capable of enforcing arrangements to their benefit.

To remedy the situation, the Commission first opted for the recommendations. The Commission issued the Green Paper on unfair trading practices[1] and requested the Member States to take appropriate measures to address the issue. To date, only 8 Member States have not adopted any legislation. However, the fashioning of these measures highly varies among the Member States – most of them have chosen to regulate while others have opted for self-regulatory, voluntary initiatives among market participants.

Based on the request of the European Parliament[2] and the Commission’s subsequent findings that the Member States had not complied with most of its recommendations,[3] the Commission presented a proposal for a directive in April 2018. On 17 April 2019, the proposal was adopted and then published under No. 2019/633 (“Directive”).

The Directive has been chosen as an appropriate instrument to ensure the required minimum standard for elimination of manifestly unfair trading practices. At the same time, it enables the Member States to choose the method of integration of the respective rules into their national legal orders. The Member States are required to adopt appropriate transposing legislation by 1 May 2021. The legislation in question shall then come into effect no later than 1 November 2021.

For many of the Member States, there will be no major changes to existing legislation, which often goes beyond the requirements of the Directive. That is probably the Czech Republic’s case as well, as the issue of prohibited contractual arrangements and unfair trading practices in the food supply chain is already covered by the Act on Significant Market Power[4] (“SMPA”), and the enforcement of such rules is entrusted to the Office for the Protection of Competition (“Office”).

Let’s do a brief comparison of both pieces of legislation.

Who is Protected and Against Whom?

Regarding the protection of a supplier, the Directive has opted for a so-called relative concept, according to which suppliers are protected only against buyers bigger than them. The turnover of both the supplier and the buyer is a basic criterion. The Directive introduces five turnover thresholds of the supplier, which equal turnover thresholds for a micro enterprise (not exceeding EUR 2 million), small (not exceeding EUR 10 million) and medium-sized enterprises (not exceeding EUR 50 million).[5] In addition, the Directive provides two more thresholds (not exceeding EUR 150 million and EUR 350 million). The Directive does not apply to relationships with suppliers whose turnover exceeds EUR 350 million. Moreover, the supplier is only protected if the buyer’s turnover is higher than the maximum turnover in the category to which the relevant supplier belongs. For instance, a supplier with a turnover of EUR 23 million is protected by the Directive only against practices of buyers with a turnover exceeding EUR 50 million.

On the other hand, the prohibition of abuse of significant market power according to the SMPA applies to buyers – chain stores and their alliances with significant market power, under the presumption that buyers whose turnover exceeds CZK 5 billion (approx. EUR 200 million) have significant market power. The current wording of the act is in fact interpreted as an absolute concept by the Office – in practice, generally all suppliers are protected regardless of their market power or turnover. In comparison to the SMPA, the Directive applies to a wider group of buyers (the threshold could be far lower than CZK 5 billion), but at the same time only in relation to suppliers with a certain (lower) turnover in comparison to the buyer concerned. In addition, the Directive does not only cover practices of chain stores, but also of buyers at different levels of the distribution chain (processors and intermediaries).

What behaviour is unfair?

According to the Directive, unfair trading practices shall in general be “practices that grossly deviate from good commercial conduct, that are contrary to good faith and fair dealing and that are unilaterally imposed by one trading partner to another.” However, contrary to the SMPA, the Directive does not contain a general clause. It only provides a list of fifteen individual prohibited trading practices in relation to the sale of food products.

These practices are divided into two groups. The first concerns nine individual practices prohibited without further consideration. The latter concerns the remaining six individual practices prohibited only if they are not clearly and unambiguously agreed upon when a supply contract is concluded between the buyer and the supplier.

Always prohibited practices

As for several practices that the Directive considers a part of the first group, the SMPA already contains more stringent regulation. Firstly, it concerns the prohibition of payment periods exceeding 30 days for perishable food products, and 60 days for other food products. According to the SMPA, the payment period cannot exceed 30 days from the day of the delivery for all types of food products. Similarly, the Directive prohibits requiring payments from the supplier that are not related to the sale of food products. The more stringent regulation of the SMPA prohibits negotiating and requiring payments or other consideration for which a service or other consideration was not provided, but also which is inadequate or disproportionate to the value of the actually provided consideration. Further, while the Directive stipulates the obligation of the buyer to confirm in writing the terms of the supply upon the request of the supplier, the SMPA requires written form for any contracts between the buyer with significant market power and its suppliers. In addition, Section 3a of the SMPA regulates obligatory content requirements (e.g. a 3% cap for services provided by the buyer to the supplier).

Other practices covered by the Directive are not specifically addressed in the SMPA. They could be, however, considered a part of some of the broader practices of abuse of significant market power under Section 4(2) of the SMPA. These concern unilateral changes of contractual terms on frequency, timing or volume of the supplies, quality standards or price of food products, but also requiring compensation in cases where the damage was not caused by the fault of the supplier. Both of these practices could be qualified as applying contractual terms that create a substantial imbalance in the rights and obligations of the parties according to Section (4)(a) of the SMPA.

Some of the individual practices prohibited by the Directive could be qualified as abuses of significant market power in contrary to the general clause, or Section 4(2)(a) which covers the imbalance between the parties, or Section 4(2)(b) which covers requiring a payment without adequate performance. The Directive prohibits buyers from requiring compensation for the costs of dealing with customers’ complaints relating to the sale of a supplier’s products unless the reason for the complaints was caused by the supplier. A similar practice is covered by Section 4(2)(h) of the SMPA concerning sanctions imposed by an inspection authority. Therefore, the practice concerning the above-mentioned compensation is likely to be qualified as an abuse of significant market power under the current wording of the SMPA. Another two of the prohibited practices are the unlawful acquiring and abusing of trade secrets and acts of commercial retaliation against a supplier if the supplier exercises its contractual or legal rights; the mere threat of retaliation is considered prohibited according to the Directive. Assumingly, the general clause in Section 4(1) of the SMPA could be applied to these three individual practices.

Finally, the group of practices always prohibited by the Directive concerns the prohibition of cancellations of orders of perishable products with such a short notice that the supplier is not objectively capable of finding an alternative for selling or otherwise processing the product. According to the Directive, the notice period cannot be shorter than 30 days. On the contrary, the SMPA does not explicitly regulate cancellation of orders – only arranging the right for the return of purchased food (with the exception of a gross breach of contract) is considered an abuse of significant market power. Therefore, the cancellation of orders could be qualified as an abuse of significant market power only on the basis of the general clause. Nevertheless, it is common in practice that buyers order perishable products less than 30 days before the delivery. According to the strict interpretation of the Directive buyers would be prevented from cancelling the order at all in such a case. Obviously, it is a sensitive issue, and for now it remains unclear how this provision will be applied in the context of the SMPA.

Practices permitted only when negotiated with a sufficient clarity

The second group of the practices prohibited by the Directive consists of six individual practices that are prohibited only if they are not agreed in clear and unanimous terms in the supply contract between the supplier and the buyer.

The first two practices concern returning of unsold food products to the supplier and charging payments for stocking, displaying or listing the food products. The SMPA is more stringent also in this case. While the Directive enables applying these practices in certain conditions mentioned above, the SMPA explicitly prohibits negotiating or applying the return of goods and listing payments as a special type of abuse of significant market power.

In addition, according to the Directive, contractual terms on costs of any discounts on food products that are sold as a part of a promotion organized by the buyer, must be clearly agreed as well. Similarly, it must be clear under which conditions the buyer requires the supplier to pay for the advertising, marketing and staff for fitting-out premises used for the sale of the supplier’s products.

These requirements are not a novelty for the SMPA, since, as indicated above, the SMPA requires all contracts between the buyer and the supplier to be negotiated in writing. The written contract must contain the purchase price, the amount of the discounts (including promotional discounts) and the amount of all the supplier’s payments. Simultaneously, the amount of payments (including marketing payments, according to the Office’s current interpretation) is capped at 3% of the annual sales of the supplier with the buyer concerned (Section 3a(a) of the SMPA). Moreover, the marketing services provided by the buyer must be assessed in terms of their proportionality. The Office will assess whether the buyer provides the supplier with an adequate consideration for its payment (Section 4(2)(a) of the SMPA). Therefore, the SMPA seems to be more stringent to this extent as well since the Directive permits such arrangements as long as the terms are clear and unambiguous.

Requirements for the Enforcement Authority

The Directive also stipulates minimum requirements for the Member States for the sake of effective enforcement of its substantive rules. First, the Member States are required to designate an appropriate authority to enforce the prohibitions laid down in the Directive. In order to increase the efficiency, the Member States are also required to enable complaints to be submitted from both the suppliers and the producer organisations. In addition, the Member States must, on request, protect the anonymity of the complainant and also any other information the disclosure of which the complainant considers as harmful to its interests. The Czech legislation already fulfils such criteria, including the anonymity of the supplier, if requested and duly justified.

Further, the Directive lays down a minimum set of powers of the enforcement authority. In particular, the authority must have the power to conduct an investigation on its own initiative or on the basis of the complaint, to require the buyers and the suppliers to provide all necessary information, to carry out unannounced on-site inspections and to take decisions finding an infringement.

The SMPA fulfils all the aforementioned criteria as these powers are conferred on the Office.

Robert Neruda’s Opinion

Although I have always been rather sceptical towards any regulation of supplier relationships in the food products sector, I welcome the adoption of the Directive. It shows that resolving such a complex issue is possible in a sensitive and targeted manner. I also consider such achievement a consequence of a prior open discussion with all of the relevant stakeholders as a part of it. I believe that the basic principles of the enacted regulation are easily comprehensible and therefore could be generally accepted, i.e. by both parties.

Unfortunately, the same does not apply to the current stringent and very vague wording of the SMPA. Its provisions are barely understood even by legal experts, and the robust contractual limitations neither conform to the buyers nor many suppliers.

Clearly, the current wording of the SMPA is more stringent, which is allowed by the Directive. I am concerned that this will be the principal argument of the proponents of the SMPA’s current wording to maintain the status quo. Indeed, amendments to the SMPA brought about by the transposition of the Directive will be minimal (extending the scope of buyers concerned could be considered the most significant change). Representatives of the Ministry of Agriculture and the Parliament have already expressed their view that the regime of the abuse of significant market power will not be mitigated as a result of the Directive.

However, we would opt for the opposite, i.e. for the transposition of the Directive to be an opportunity for a rational review of the utility of certain concepts and prohibitions in the SMPA. Its application in practice has shown that some of the limitations simply do not make sense for anybody (rule of 3%). We should switch to the relative concept of significant market power also in the Czech Republic, since only this concept makes economic and common sense. If the Office’s advocacy of the absolute concept was motivated by the simplicity of its applicability, the Directive clearly indicates that the relative concept could be applied by means of relatively straightforward rules of reciprocal turnover thresholds without the application of the relevant legislation becoming impossible or too complex. I believe that revoking the general clause, reducing prohibited unfair practices only to those contained in the Directive and opting for the relative concept based on turnover proportions would encourage the spontaneous acceptance of the SMPA by its addressees as well as by experts. And all while not negatively affecting the consumers and the economy as a whole.

[1] Green Paper on Unfair Trading Practices in the Business-to-Business Food and Non-Food Supply Chain in Europe, COM/2013/037 final – 2012.

[2] European Parliament resolution of 7 June 2016 on unfair trading practices in the food supply chain, 2015/2065(INI).

[3] The Commission addressed the recommendations within the Report to the European Parliament and the Council on unfair business-to-business trading practices in the food supply chain of 29 January 2016, COM(2016) 32 final.

[4] Act No. 395/2009 Sb., on significant market power in the sale of agricultural and food products and abuse thereof, as amended.

[5] Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises, 2003/361/EC.

History

Let’s do a brief comparison of both pieces of legislation.

Who is Protected and Against Whom?

What Behaviour is Unfair?

Always prohibited practices

Practices permitted only when negotiated with a sufficient clarity

Requirements for the Enforcement Authority

The SMPA fulfils all the aforementioned criteria as these powers are conferred on the Office.

Robert Neruda’s Opinion

I believe that revoking the general clause, reducing prohibited unfair practices only to those contained in the Directive and opting for the relative concept based on turnover proportions would encourage the spontaneous acceptance of the SMPA by its addressees as well as by experts. And all while not negatively affecting the consumers and the economy as a whole.

To view all formatting for this article (eg, tables, footnotes), please access the original here.

Authors: Robert Neruda, Ivo Šimeček, Martin Rott

Source: Lexology

As of 1 March 2019, the legislation concerning the protection of persons reporting on anti-social activities, so-called whistleblowers, has undergone changes that relate not only to whistleblowers, but especially to employers on whom the legislation has introduced additional obligations and modified the existing ones.

The original Act No. 307/2014 Coll. was repealed in its entirety and replaced with Act No. 54/2019 Coll. on Whistleblower Protection and on Amendments and Supplements to Certain Acts.

Office instead of labour inspectorates, but not immediately

The biggest change is the establishment of the Whistleblower Protection Office that will take over the responsibilities of labour inspectorates in the field of whistleblower protection.

Labour inspectorates will therefore continue to ensure whistleblower protection, including monitoring compliance by employers with their obligations, until the Office starts functioning properly (the end of the sixth calendar month following the appointment of its president).

The deadline for candidates to file applications for the post of the Office’s president expired on 7 May 2019, and their public hearing will follow. The proper functioning of the Office can therefore be expected only at the beginning of 2020.

Restrictions for employers in a nutshell

The new Act restricts and imposes conditions for employers in taking labour actions (e.g. serving termination notices by the employer, taking decisions to reduce the variable component of wages, etc.) in relation to employees who are whistleblowers.

Under the new Act, anti-social activity means crimes, offences and other administrative delicts, but also conduct that has a negative impact on society.

A whistleblower is a natural person who, in good faith, has reported on an anti-social activity to an employer, the Office, a prosecutor or an administrative authority.

The new Act also limits employers in relation to persons close to whistleblowers, but only under certain conditions.

An employer’s request to grant consent to taking an action against a protected whistleblower

The employer is informed of the status of the employee as a protected whistleblower who has been granted protection directly by the prosecutor or an administrative authority which delivers to the employer a written decision on granting the protection.

Upon receipt of the report, the employer cannot take labour actions against such an employee without first requesting the Office, currently a competent labour inspectorate, for the consent to taking such actions. The employer thus has a partially weakened position in relation to this employee.

For example, the consent is not required if the employer grants the employee who is a protected whistleblower a certain entitlement (e.g. wage increases, holiday bonus days).

In addition, the new Act shifts the burden of proof to the employer, as it must show in the request for consent that a labour action has no causal link with the report of anti-social activity.

Suspension of the effectiveness and enforceability of an employer’s action

If the employer has not been informed that an employee is a protected whistleblower, it may take actions against the employee freely.

However, after an action has been taken against the employee (e.g. after the termination notice has been served), the employer may be prevented from continuing with it. The Office may suspend its effectiveness and enforceability.

A precondition for the suspension of the employer’s act is the filing of a report on anti-social activity by an employee, his disagreement with the employer’s act, and also his assumption that the employer has taken the action (e.g. served him notice) against him in connection with the report. Last but not least, another precondition is the filing of a request to the Office (currently, a labour inspectorate) within the statutory period.

In addition, the new Act also burdens the employer when it shifts the burden of proof to the employer. The employer is obliged to prove that there is no causal link between the action already taken and the report.

If the employer proves that there is no link between the report and the labour action, the labour action is effective. Otherwise, a confirmation of the suspension of its effectiveness is issued without delay.

The new Act partially complies with the employer in limiting the period of suspension to 30 days from receipt of the confirmation by the whistleblower. The whistleblower is advised in the confirmation of the possibility of filing a motion to issue an urgent measure against the employer within this period.

By filing the motion to issue an urgent measure against an employer’s labour action in a timely manner, the suspension of the effectiveness of that action is automatically extended until a court’s decision on the motion becomes enforceable.

Employer’s other obligations

Under the newly effective Act, the employer is also obliged to have in place an internal regulation laying down the details of the methods of receiving and verifying the reports, informing whistleblowers about the results of verifying, keeping records of the reports within the specified scope and for the specified period, and also about the processing of personal data specified in the report.

The Act newly imposes slightly increased requirements on employers also in relation to the responsible persons through whom employers perform their tasks and obligations imposed by the Act.

The Act strengthens the independence of the responsible person within the employer’s structure.

Newly introduced are the requirements for qualifications the responsible person must meet in order to perform such function, while the Act does not elaborate on or specify such qualifications in any way.

Assuring internal system compliance

The Act imposes an obligation on employers to harmonize their existing internal complaint handling system, created under the original Act, with the requirements and obligations of the new Act by 30 September 2019 at the latest.

By assuring the compliance of the original system with the requirements and obligations of employers under the effective Act, each employer should minimize the risk of penalties for failing to comply with the statutory obligations. A penalty may be imposed in the form of a fine of up to EUR 20,000.

Consequences of the newly effective Act

The Act imposes increased requirements on employers and does not make performance of their obligations easier due to vague formulations that leave room for different interpretations. This is despite the fact that the aim of the new Act was to eliminate these shortcomings. We assume that these questions and their interpretation will only be addressed in the Office’s further practice, but these will apparently be in the hands of labour inspectorates until the Office starts functioning properly.

Authors: Štepán Štarha, Milan Černaj

Source: Lexology

Use the Lexology Getting the Deal Through tool to compare the answers in this article with those from other jurisdictions.

Buying and selling

Passing of title

When does ownership of art, antiques and collectibles pass from seller to buyer?

Under Czech law, ownership of a movable asset is generally transferred from seller to buyer on the effective date of the purchase agreement (usually the date that all the parties enter into the agreement or a later date specified in the agreement). The parties may agree otherwise (eg, ownership passes on the date the artwork is handed over) or they may conclude an ‘ownership title reservation’ under which ownership passes to the buyer once the purchase price is paid in full to the seller.

Implied warranty of title

Does the law of your jurisdiction provide that the seller gives the buyer an implied warranty of title?

The seller shall enable the buyer to acquire full ownership to the artwork, implying that the title is good and free of any encumbrances that might affect it. The seller must not limit the scope of its liabilities for defects in advance. The buyer is entitled to waive his or her rights resulting from defects in the contract (in writing). The warranty may also be indirectly limited by the seller’s explicit declarations in the contract informing the buyer of all the defects to the title of which the seller is aware. Any defects to the title must be claimed immediately after the buyer realised or could have realised their existence with due care, but no later than within two years from the handover of the asset (as regards hidden defects) unless the seller knew about the defect at the time of the handover.

Registration

Can the ownership of art, antiques or collectibles be registered? Can theft or loss of a work be recorded on a public register or database?

The ownership of art, antiques or collectibles is not registered in a public register; if there is a pledge established over them, they may be entered in the pledge register maintained by the notaries public. Artworks that have been stolen may be recorded with the Czech police, which makes evidence available to the public to a certain extent.

Good-faith acquisition of stolen art

Does the law of your jurisdiction tend to prefer the victim of theft or the acquirer in good faith of stolen art?

In general, if a buyer unknowingly acquires stolen art (ie, if he or she had a convincing, objective reason to believe that he or she did actually acquire ownership of the artwork in good faith), he or she may become the owner of the artwork by ‘prescription’ after three years of uninterrupted faithful possession of it if there is a legal title favourable for the possessor under which ownership would have otherwise been acquired if the seller were the owner of the artwork. If the legal title does not exist but the buyer is still the good-faith possessor, the period is prolonged to six years. If the artwork was acquired from any other good-faith possessor, its faithful possession is accounted for in this period. The prescription period is interrupted if the possession is not executed for more than one year. The law presumes that there is good-faith possession unless proven otherwise by the victim. Case law provides that the good faith may be lost when the possessor begins to doubt whether he or she is the owner of the relevant object. The criteria must be objective, so the buyer’s inexperience is not relevant. If there is a legally effective judicial decision confirming the ownership right of the victim or the buyer’s possession as illegal or unfaithful, the buyer is considered a bad-faith possessor and, as such, he or she cannot acquire the ownership by prescription.

Acquiring title to stolen art through prescription

If ownership in stolen art, antiques or collectibles does not vest in the acquirer in good faith, is the new acquirer protected from a claim by the victim of theft after a certain period?

As mentioned in question 4, after a certain period of time the acquirer in good faith may become the owner of the artwork. The periods of possession of the artwork by all the previous good-faith possessors count in the period for prescription.

Can ownership in art, antiques or collectibles vest in the acquirer in bad faith after a period?

If the buyer knew (ie, the deceitful intention is proved to it) that the artwork had been stolen, or if the buyer believed without a convincing, objective reason that he or she had acquired ownership to the artwork or had doubts about it, he or she is not a good-faith possessor and cannot acquire the ownership title; therefore, the victim is protected. The bad-faith possessor is obliged to return the artwork to the owner together with any proceeds from it and compensate the owner for all damages incurred. The bad-faith possessor is entitled only to limited necessary costs incurred during the possession. The burdens of proof of bad-faith possession and the rightful ownership of the artwork lie on the victim.

Risk of loss or damage

When does risk of loss or damage pass from seller to buyer if the contract is silent on the issue?

The risk of loss or damage passes from the seller to the buyer by law upon the handover (or, if the buyer refused to take over the artwork, at the moment the seller enabled the buyer to take over the artwork). The parties may agree otherwise, for example on a date after the delivery, after the handover or after the payment of the purchase price in full.

Due diligence

Must the buyer conduct due diligence enquiries? Are there non-compulsory enquiries that the buyer typically carries out?

The buyer is not obliged to conduct due diligence enquiries, but it is highly advisable to do so, typically with respect to the existence of ownership, the right to dispose of (sell) the artwork, the originality and provenance of the artwork, rights of third persons to the artwork (eg, pledges, author rights, the pre-emptive right of the state; see question 42), potential litigation or enforcement proceedings, export conditions, the condition of the artwork itself or review of stolen artwork registers.

Must the seller conduct due diligence enquiries?

The seller is not, in principle, obliged to conduct due diligence; however, when the contract is concluded, the seller must be the owner of the artwork or the contract may be deemed invalid. Therefore, it is advisable that the seller performs due diligence on the provenance of the artwork, its authenticity and all the potential encumbrances on it to avoid liability for defects and, in addition, damages liability. The seller (as entrepreneur) should also perform the anti-money laundering review if the seller is the obliged person in this case and, if so, fulfil the relevant obligations.

Other implied warranties

Does the law provide that the seller gives the buyer implied warranties other than an implied warranty of title?

The law requires that the artwork that is handed to the buyer by the seller must meet the required standards of quality and performance, and be of the dimensions specified. If the standards of quality and performance are not agreed then the standards that fit the particular purpose of the contract apply. The quality of the sold object should fulfil the quality or characteristics specified in the description in the contract; if not, there is a defect in performance. The warranty may be excluded by a specific written waiver of the buyer. In practical terms, the implied warranties may also be limited by a declaration of the seller notifying the buyer of all the defects of the artwork of which the seller was aware at the time the contract was concluded. The warranty does not apply to defects that were evident and noticeable with the appropriate level of attention at the time of conclusion of the contract unless the seller explicitly warranted to the buyer that the sold artwork is free of any defects or, if such defect was concealed by him or her maliciously. The buyer is obliged to examine the sold object promptly after the transfer and shall ascertain its quantity and quality (it is advisable to do it before the transfer).

Voiding purchase of forgeries

If the buyer discovers that the art, antique or collectible is a forgery, what claims and remedies does the buyer have?

If the defective performance is of fundamental importance, which would be true in most cases, the buyer has the following options for a claim:

immediate termination of the contract;
removal of the defect by repair;
delivery of the new movable asset without defects; or
an appropriate discount on the price.

In most cases of forgeries, the only claim available in practice would be the immediate termination of the contract (and to claim the return of the purchase price against the work). The buyer must announce its choice without undue delay after notifying the seller of the defect (it is feasible to do both together). In addition, the buyer may seek damages to the extent not covered by the claims from the seller’s liability for defects. The defects must be claimed immediately after the buyer realised or could have realised their existence with due care; otherwise, the defect rights cease to exist (such cessation, however, will be upheld by the court only upon an objection raised by the seller), but no later than within two years from the handover of the asset (as regards hidden defects) unless the seller knew about the defect at the time of the handover (in such a case the seller is not entitled to raise such objection).

In addition to defects liability claims, under certain circumstances, the buyer might be entitled to claim the disproportionate shortage of fulfilment that equates to the difference between the purchase price actually paid and the real price of the forgery, if the seller knew or should have known with respect to its expertise that he or she was selling a forgery, provided that such a claim is raised in court within one year from the conclusion of the contract. The result of the claim is the nullity of the contract (and the return of the purchase price against the return of the work). The buyer may further consider filing a suggestion for the commencement of criminal proceedings.

Voiding inadvertent sales of works by masters

Can a seller successfully void the sale of an artwork of uncertain attribution subsequently proved to be an autograph work by a famous master by proving mistake or error?

Under certain circumstances, the seller might be entitled to claim the disproportionate shortage of fulfilment provided that such a claim is raised in court within one year from the conclusion of the contract. The result of the claim is the nullity of the contract (and the return of the purchase price against the return of the work) unless the buyer pays the seller the difference between the purchase price actually paid and the real price of the artwork. Nevertheless, this type of claim is quite limited as the burden of proof lies with the seller, which must prove that the buyer knew or ought to have known of the relevant circumstance.

Export and import controls

Export controls

Are there any export controls for cultural property in your jurisdiction? What are the consequences of failing to comply with export controls?

The export of certain categories of art is subject to a permit issued by the relevant art institution or the Ministry of Culture. If the artwork is a cultural treasure, a specific regime applies (see questions 41 to 44). Original artworks by living authors and artworks that were imported temporarily into the Czech Republic are not subject to a permit. The export permit may be issued upon the application of the owner of the artwork (the art dealer or the auction house may file it only upon a power of attorney) for permanent export or temporary export. For permanent export, the artwork must not be, among other things, a declared national treasure (or have the characteristics of such), be protected within the scope of a museum collection or fall within the category of historical books. Artworks that require a permit are divided into categories of age and price, as follows:

any painting other than a sacral object older than 50 years and worth more than 30,000 Czech koruna;
any drawings other than sacral works older than 50 years and worth more than 10,000 Czech koruna;
sacral cultural objects older than 50 years;
collages and assemblages older than 50 years and worth more than 30,000 Czech koruna; and
sculptures older than 50 years and worth more than 30,000 Czech koruna.

The relevant institution must decide within 21 days from receiving the application whether to issue the export permit. If it refuses to issue the permit, it will submit an application together with a proposal to declare the relevant artwork as a cultural treasure to the Ministry of Culture, which in turn has another three months to consider the proposal and either issue the permit or refuse to do so. If the permit is issued, it is valid for three years. If the artwork is exported outside the European Union, an additional permit must be obtained from the Ministry of Culture, the application for which shall be made together with the above permit; the additional permit cannot be issued without the previous general permit.

If the permit is not issued, the owner cannot export the artwork. If he or she, or someone on his or her behalf, attempts to do so, a fine of up to 5 million Czech koruna may be imposed, and customs may seize the work until it can be examined by the relevant art institution. If the attempt to export the artwork is considered a criminal offence and the owner is found guilty, the artwork may be permanently seized from him or her.

Import controls

Other than in relation to endangered species, are there any import controls for cultural property in your jurisdiction? What are the consequences of failing to comply with import controls?

Unlike export, import of cultural property in the Czech Republic is not specifically regulated; however, general conditions for import as well as export conditions of the relevant jurisdiction of the country of origin must be fulfilled. The general rules for the import of goods from countries outside the EU also apply to cultural goods.

The Czech Republic is a party to the 1970 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property, based on which it is obliged to control whether there is any illicit import of cultural goods into the Czech Republic. If this happens between the Czech Republic and a member state of the EU, the Act on Restitution of Illicitly Exported Goods applies to the cultural goods that constitute cultural heritage of the Czech Republic or the other member state, respectively. Under the conditions specified by law, cultural goods may be ordered to be deposited in the custody of the state authority if the condition of the work is endangered. Based on the court ruling, if several conditions are fulfilled, the cultural goods may be exported in the requesting country that must, however, provide the owner of the artwork with adequate compensation if the owner acted with due care. The ownership, however, is not affected by such ruling. The period for the exercise of the right for restitution by the member state is subject to prescription; it must be executed within three years from the time the member state became aware of the location of the cultural goods at stake and of who its owner is, at a maximum of 30 years (or 75 years in the case of religious property or public collection) from the illicit export.

Export and import tax

Does any liability to pay tax arise upon exporting or importing art, antiques or collectibles?

Depending on the circumstances, the export (or supply to another EU member state) of art, antiques or collectibles, as well as their import (or acquisition from another EU member state) can be subject to 21 per cent value added tax (VAT), or can be exempt from VAT. Related input VAT recovery may be available again depending on the circumstances.

Direct and indirect taxation

Taxes

Outline the main types of tax liability arising from ownership and transfer of art, antiques and collectibles.

If an artwork is sold by an individual outside his or her business activity, a rate of 15 per cent personal income tax applies on the income unless the exemption outlined in question 17 applies. If an artwork is sold by an individual as a part of the individual’s business activity, the 15 per cent personal income tax on the income applies, as well as a solidarity surcharge of 7 per cent (applicable if the annual total income of this person exceeds 1,569,552 Czech koruna (2019)). Social security and health insurance contributions are also charged on the income.

If an artwork is sold by a legal entity, the 19 per cent corporate income tax rate is applicable.

Unless the special regime described below applies, a general 21 per cent VAT rate shall be applicable to the sales price (but in general only if the seller is a VAT payer, unless there is a reverse charge to a Czech buyer if imported to the Czech Republic from the European Union. In this case, VAT may be due from a Czech buyer who does not normally pay VAT in specific situations (see question 15).

Tax exemptions

Outline any tax exemptions or special conditions applicable to art, antiques and collectibles.

If an artwork is sold by an individual outside the individual’s business activity and the individual is not an art professional, the sale should be exempted from personal income tax .

Under certain circumstances, a special VAT scheme is applicable to art merchants, which is a category that includes art dealers – the general 21 per cent VAT rate does not apply to the full price but only to the margin of the art dealer.

Gifts to certain charitable or public entities for a particular purpose can be exempt from corporate income tax.

Borrowing against art

Types of security interest

In your jurisdiction what is the usual type of security interest taken against art, antiques and collectibles?

Consumer loans

Register of security interests

Non-possessory security interests

Can the lender against art collateral perfect its security interest without taking physical possession of the art?

Sale of collateral on default

If the borrower defaults on the loan, may the lender sell the collateral under the loan agreement, or must the lender seek permission from the courts?

Ranking of creditors

Does the lender with a valid and perfected first-priority security interest over the art collateral take precedence over all other creditors?

Intellectual property rights

Creator copyright

Does copyright vest automatically in the creator, or must the creator register copyright to benefit from protection?

Under Czech law the copyright vests automatically in the creator. However, industrial rights, such as trademarks, patents or industrial designs, have to be registered in the relevant public register for their protection.

Copyright duration

What is the duration of copyright protection?

Generally, the proprietary rights of the creator last for the lifetime of the creator plus 70 years after his or her death, while the moral rights terminate upon the death of the creator. However, there is an exception in the case of anonymous or pseudonymous copyrighted work, where the proprietary rights last 70 years from the time the work has been lawfully made public.

Display without right holder’s consent

Can an artwork protected by copyright be exhibited in public without the copyright owner’s consent?

Generally, the exhibition of protected artwork is not possible without the owner’s consent (because it is one of the proprietary rights to the copyrighted work), but the borrower does not infringe the copyright by lending the original or a reproduction of a copyrighted artwork to a third party who exhibits the work or provides it for exhibition free of charge, unless such use was excluded during the transfer of ownership.

Reproduction of copyright works in catalogues and adverts

Can artworks protected by copyright be reproduced in printed and digital museum catalogues or in advertisements for exhibitions without the copyright owner’s consent?

Yes, according to the Copyright Act, the copyright will not be infringed if a visual image of it and a reference is included in the catalogue of an exhibition, auction or fair to the extent necessary for such an occasion; the owner’s consent is also not needed for using the visual image in the reproduction and dissemination of the catalogue. It is always necessary, however, to indicate the name of the author, unless the work is anonymous, or the name of the person under whom the copyrighted work is being introduced in public, along with the title of the copyrighted work and the source.

Copyright in public artworks

Are public artworks protected by copyright?

Yes, if the public artworks meet the definition of copyrighted work according to the Copyright Act, they are also protected by copyright. However, this copyright is not infringed by anybody who records, renders or expresses that copyrighted public artwork by drawing, painting, graphic art, photography or film, or by anybody who further uses it.

Artist’s resale right

Does the artist’s resale right apply?

Yes, according to the relevant provision of the Copyright Act, where the original work of art (that has been transferred by its author to the ownership of another person) is subsequently sold for a purchase price of €1,500 or more, the author (or his or her heirs for the duration of the proprietary rights of the author) shall be entitled to royalties from any resale of the work as set out in the Annex to the Copyright Act, provided that a gallery operator, auctioneer or any other person who consistently deals in works of art takes part in the sale as a seller, purchaser or intermediary. The royalty ranges from 0.25 per cent to 4 per cent of the relevant part of the purchase price (depending on the amount of the purchase price), but the total amount of the royalty may not exceed €12,500.

The persons liable to pay the royalty shall be the seller and the dealer jointly and severally, who pay it to the relevant collective administrator, the Authors Copyright Protection Organisation – Association of authors of works of art, architecture and visual components of audiovisual works.

The right to royalties shall not apply to the first resale if the seller obtained the original work of art directly from the author less than three years before that resale and if the purchase price of the original work, when resold, does not exceed 250,000 Czech koruna.

Moral rights

What are the moral rights for visual artists? Can they be waived or assigned?

The artist (author) has the following moral rights provided by law, which cannot be waived, transferred or assigned to a third person:

the right to decide about making his or her copyrighted work public;
the right to claim authorship, including the right to decide whether and in what way his or her authorship is to be indicated when his or her copyrighted work is made public and further used;
the right to the inviolability of his or her copyrighted work, in particular, the right to grant consent to any alteration or other intervention in his or her copyrighted work, unless otherwise stipulated in the Copyright Act; and
the right of supervision over another person’s right to use the copyrighted work (ie, the author’s supervision), unless its nature or its use implies otherwise, or unless it is not possible to fairly require the user to enable the author to exercise his or her right to supervision.

All the moral rights last for the lifetime of the author, but after his or her death, no one may arrogate authorship of the copyrighted work. The copyrighted work may only be used in a way that shall not detract from its value, and the name of the author must be indicated (unless the copyrighted work is anonymous).

Agency

Accounting to the principal

Does the law require the agent to account to the principal for any commission or other compensation received by the agent while conducting the principal’s business?

Under an agency agreement, the agent generally acts for the principal to allow the principal to conclude the relevant transaction. In such a case, the agent should not act for the other party to the transaction and should not accept the provision. If the agent does so, then it should be agreed in the agency agreement with the principal or at least not forbidden by the agreement; otherwise, the agent may lose his or her right to commission from the principal. If the agent expects to receive commission from the other party, he or she should explicitly agree this with the principal in the agency agreement.

Disclosed agent commission

Does disclosure to the principal that the agent will receive a commission allow the agent to keep the commission unless the principal objects?

The agent should be entitled to keep the commission received while conducting the principal’s business, if it is not contrary to the agency agreement.

Undisclosed agent commission

If a third party pays a commission to an agent that is not disclosed to the principal, can the principal claim the commission from the third party?

If it is contrary to the agency agreement, the principal may not request a commission paid by a third party, but it may refuse to pay the commission to the agent based on the agency agreement.

Consigning items

Protection of interests in consigned works

How can consignors of artworks to dealers protect their interest in the artwork if the dealer goes into liquidation?

Artwork entrusted to an art dealer based on a consignment agreement remains in the ownership of the consignor until the third person acquires the ownership of the work. If the art dealer goes into liquidation (ie, bankruptcy) in the meantime, the insolvency trustee should not be entitled to include the consigned artwork in the insolvency estate; if the trustee does so, the owner may file a petition to the bankruptcy court claiming that the relevant artwork should be excluded from the bankruptcy assets.

Auctions

Regulation

Are auctions of art, antiques or collectibles subject to specific regulation in your jurisdiction?

Public auctions of art conducted in an auction house are subject to the Act on Public Auctions; the persons involved must be physically present, or use audiovisual means to attend the auction. Ownership is acquired by the fall of the hammer. Online auctions usually allow an unspecified number of people who are not present to bid and for the price to increase within a certain time limit; the auctioneer is replaced by electronic means, and the Act on Public Auctions is not applicable. Ownership to the work is acquired by offering the highest price that is accepted by the seller, and the contract is concluded, which may take the form of a consumer contract.

May auctioneers in your country sell art, antiques or collectibles privately; offer advances or loans against art, antiques or collectibles; and offer auction guarantees?

Auction houses usually also operate as galleries (ie, they sell privately those artworks not sold in an auction or even independently of the auction upon a consignment agreement with the owner). In order to operate these services, auction houses require a specific licence, usually for the sale and purchase of cultural goods, and for holding the auction. However, the auction houses do not usually offer loans against the art or auction guarantees because they would need to obtain the relevant financial services licences.

Spoliation during the Nazi era

Claims to Nazi-looted art

In what circumstances would the heirs of the party wrongly dispossessed typically prevail over the current possessor, if a court in your country accepted jurisdiction and applied its own law to a claim to art lost during the Nazi era?

The Czech Republic enacted the Act on the Alleviation of Certain Property Injustices caused by the Holocaust. This Act allows for the restitution of work of art that was dispossessed between 29 September 1938 and 4 May 1945, and the transfer was declared invalid by presidential decree No. 5/1945 Sb., or Act No. 128/1946 Sb. and is in the ownership of the Czech Republic. The original owners (natural persons), the surviving spouse or their offspring should address their requests for the return of property to the organisation administering the particular work of art on behalf of the Czech Republic (typically the relevant state authorities or museums).

Is there an ad hoc body set up to hear claims to Nazi-looted art?

The claims for restitution are resolved by Czech courts.

Lending to museums

Responsibility for insurance

Who is responsible for insuring art, antiques or collectibles loaned to a public museum in your jurisdiction?

Generally, public museums borrowing art are responsible for concluding insurance agreements for the object on loan – they are entitled to insure the relevant artwork only based on the loan agreement concluded with the owner of the artwork that must contain, among other things, the insured value, the duration of the loan and security, and logistical and other conditions for the protection of the relevant object. However, it may be agreed with the owner that the object is insured by the owner’s insurance during the loan (the public museum may compensate the owner with a proportionate part of the insurance fee). The state indemnity may be provided instead of insurance subject to specific conditions imposed by law if a written agreement on provision of the indemnity is concluded between the state and the public museum.

Immunity from seizure

Are artworks, antiques or collectibles loaned to a public museum in your country immune from seizure?

The Czech Republic ratified the United Nations Convention on Jurisdictional Immunities of States and Their Property on the basis that the relevant implementing national legislation was enacted in 2011. Under this legislation, an object that has the character of a cultural treasure (eg, all artworks of artistic value) that was loaned to the Czech Republic by a foreign state that declared that such an object is under its ownership is immune from seizure (including enforcement or preliminary ruling).

Cultural patrimony

National treasures

Is there a list of national treasures?

Yes, there is a state record called the ‘Central list of cultural treasures’, which includes cultural and national treasures. The specification that cultural treasures can be declared national treasures is rather vague: they shall exemplify the most important part of the national cultural heritage without stating any particular characteristics. The owner of the national treasure is obliged to keep it in good condition, protect it against damage or theft at its own costs, and notify the Ministry of Culture of any intended or realised change in its ownership, its replacement or management, or its use (and must inform the acquirer of its character as a national treasure). Further, the state has a pre-emption right to national treasures as well as movable cultural treasures.

Right of pre-emption

If the state is interested in buying an artwork for the public collections, does it have a right of pre-emption?

The state has a pre-emption right to movable cultural treasures and national treasures (for payment) unless the sale is made between relatives or co-owners. The owner is obliged to notify the Ministry of Culture of the sale in advance, and the Ministry may decide within three months whether it wishes to acquire the work. After this period, the pre-emption right ceases to exist towards the owner (but applies again in the subsequent sale). If the transfer is not notified to the Ministry in advance, the transfer may be declared invalid by the Ministry within the next three years. In addition to this right, in enforcement proceedings, cultural treasures and extraordinary artworks must first be offered to state institutions, which have 30 days to accept the proposal and pay the relevant price.

Automatic vesting in the state

In what circumstances does ownership in cultural property automatically vest in the state?

Archaeological discoveries are put under the ownership of the relevant region and must be transferred to the state upon the request of the Ministry of Culture. This may also be the case when the deceased owner has no heirs or testament.

Illegally exported property claimed by foreign states

How can a foreign state reclaim in your jurisdiction cultural property illegally exported from its territory?

The Czech Republic ratified the 1970 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property. To transpose the EU legislation, the Act on the Return of Cultural Goods was enacted. This Act covers the situations concerning an illegal export or import from another EU member state after 31 December 1992. The member state must file an application to the Ministry of Culture that notifies the owner or the possessor of the concerned asset of such request. The courts will entertain the claim that must be raised with them within three years from the date the requesting state gained knowledge of where the asset is and who the owner is, but no later than within 30 years from the illegal export of the asset. If the claim is successful, the current owner, or the possessor if the owner is unknown, is entitled to compensation adequate to the circumstances if the owner proves that it executed due care when acquiring the asset.

Anti-money laundering

Compliance

What are the anti-money laundering compliance obligations placed on the art trade?

In the art trade (ie, sale of art, acting as an intermediary in the sale of art, assets without evidence on the acquisition of ownership and the acceptance of these goods), the entrepreneur must, before concluding the relevant contract, identify the parties and the subject matter in accordance with the Anti-Money Laundering Act, and screen the client (including, among others, the ultimate beneficial owner) in cases specified by the Anti-Money Laundering Act – namely if a politically exposed person is involved, the involved person is from a country considered by the EU as a high-risk country or the value of the transaction exceeds €15,000. Under certain circumstances, the entrepreneur, as the obliged person under the Anti-Money Laundering Act, must refuse the deal and notify the relevant financial authorities. The obliged person shall keep evidence of this data for 10 years, including the date on which the agreement was concluded.

Endangered species

CITES

Is your jurisdiction a party to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES)?

The CITES Convention came into force for the Czech Republic on 1 January 1993 (adopted for the Czech and Slovak Federative Republic on 28 May 1992). To implement the CITES Convention and the corresponding EU legislation (namely Council Regulation (EC) No. 338/97), the Act on Trade in Endangered Species (No. 100/2004) and its supplemental Decree were enacted. The Ministry of the Environment is responsible for issuing the relevant CITES permits and enforcing the EU Wildlife Trade Regulations.

Is the sale, import or export of pre-CITES endangered species subject to a licence?

No licence is needed for the sale, export or import of pre-1947 worked items, which means ‘specimens significantly altered from their natural raw state for jewellery, adornment, art, utility, or musical instruments, more than 50 years before the entry into force of EU Regulation (3 March 1947) and acquired in such conditions.’ These items may not undergo any further carving, crafting or manufacture within the European Union. It is also necessary to prove the date of acquisition. If the item is sent outside the European Union, an export or import permit is still needed.

Is the sale, import or export of post-CITES worked or antique endangered species authorised? On what conditions?

This depends on whether the relevant species is listed in Annex A, B, C or D of Council Regulation (EC) No. 338/97. The conditions specified in Council Regulations (EC) Nos. 338/97 and 865/2006 for export, import, sale and exemptions with respect to the European Union or trade outside the European Union apply to the full extent in the Czech Republic.

Specific endangered animal products

Are there any special rules for works of art made of elephant ivory, rhino horn or other specific endangered animal products?

As stated in question 48, the conditions specified in Council Regulations (EC) Nos. 338/97 and 865/2006 apply in this respect. The Czech Republic further follows the Commission Guidance governing intra-EU trade and re-export of ivory. In addition, the Ministry of the Environment decided to suspend the issuance of the CITES permit for re-export of elephant ivory from the Czech Republic and the import and re-export of rhino horn from South Africa.

Consumer protection

Cancelling purchases

In what circumstances may consumers cancel the sale of art, antiques or collectibles?

The consumer has the right to withdraw from the contract within 14 days without giving a reason. However, this right only applies for contracts concluded away from business premises or at a distance (ie, sales on the telephone, by email, text or social media, or online). The consumer does not have this right in the event of face-to-face sales.

If a consumer has not been advised by the seller of his or her right to withdraw from a contract (as stated above), the consumer may withdraw from the contract within one year and 14 days from the beginning of the time limit for withdrawal. If the consumer has been advised of his or her right of withdrawal within this time limit, the 14-day time limit for withdrawal commences on the date on which the consumer received the advice.

Duties of businesses selling to consumers

Are there any other obligations for art businesses selling to consumers?

There are no specific conditions for art businesses selling to consumers. Generally, the seller is obliged to provide the consumer with a wider range of information in the event of sales on the telephone, by email, by text or social media, or online, such as the right of the consumer to withdraw from the contract.

Authors: Tereza Ditrychová, Daniela Kozáková

Source: Lexology

With effect from 1 November 2018, an amendment to Act No. 297/2008 Coll., on the Prevention of Legalization of Proceeds of Criminal Activity and Terrorist Financing (AML Act), has introduced a new obligation on Slovak legal entities to register their beneficial owners (“BOs”) in the individual registers in which such legal entities are registered. Existing legal entities must comply with this obligation by no later than 31 December 2019. Thus, the obligation to register BOs does not only apply to companies registered in the Commercial Register, but also to legal entities active in the non-profit sector, i.e. foundations, non-profit organizations and non-investment funds (special-purpose property associations). At the same time, those exempt from this obligation are public administration entities or issuers of securities admitted to trading on a regulated market, as well as entities registered in the Public Sector Partner Register.

Who is a beneficial owner?

A beneficial owner[1] means any natural person who ultimately owns or controls a legal entity, as well as any natural person for the benefit of whom the legal entity carries out its business activity or transaction, in particular a natural person who (i) has a direct or indirect shareholding of at least 25% in the legal entity, (ii) has a right to an economic benefit of at least 25% of the legal entity’s business or activities, or (iii) directly or indirectly controls the legal entity (e.g. has the right to appoint or recall corporate statutory bodies).

If no natural person meets the BO definition criteria mentioned above, the members of the top management of the company being registered (i.e. the so-called statutory body, a statutory body member, the proxy holder, or an officer directly reporting to the statutory body) are considered to be BOs.

A natural person who alone does not meet the criteria set out above, but who together with another person, acting with such a natural person in accord or jointly, meets at least some of such criteria is also considered to be a BO.

By when must BOs be registered in a respective register?

Newly registered legal entities have been obliged to register their BOs already as of 1 November 2018. These data are part of the relevant forms for registration of legal entities in a register; therefore, it will not be possible to register a new company, foundation, non-profit organization or fund without providing such information. Existing legal entities registered in the relevant registers before 1 November 2018 are obliged to register their BOs by 31 December 2019.

Fees, fines, and mandatory attachments

As for existing legal entities registered in the relevant registers before 1 November 2018, the data on a BO must be indicated on a special form. The application to register a BO or a change in the data on the BO is exempt from administrative and court fees. No attachments need to be enclosed with the application.

A fine may be imposed on a person acting on behalf of a legal entity for failure to comply with the obligation to register a BO in a relevant register, or for providing false data; in the event of failure to comply with this obligation in the Commercial Register, a fine of up to EUR 3,310 may be imposed.

At the same time, a legal entity is obliged to enter in the relevant register any change related to the data on a BO and to continuously update these data.

What data on a BO must be registered and who will have access to such data?

The relevant registers will include data on one or more identified BOs in the following extent: name, surname, personal identification number (or date of birth if birth number not assigned), permanent address or other residence address, nationality, and identity document type and number.

Data on BOs are not publicly available, and they will not therefore be part of the common extracts from the Commercial Register or other register. Data on BOs will be provided only to selected public administration entities for the purpose of performing tasks under special regulations, or to a person who proves a legitimate interest.

Duplicated registration in the PSPR

The obligation to register BOs in the relevant Commercial Register or other register applies in parallel with the specific modification of the Public Sector Partner Register (“PSPR”) effective from 1 February 2017.

The obligation to register BOs in the relevant register applies to all Slovak legal entities (with the above exceptions). On the contrary, the obligation to identify and register BOs in the PSPR arises for both Slovak and foreign legal entities, but only in certain cases, especially in the case of trading with the state or receiving public funds in Slovakia. Data on BOs published in the PSPR are public.

An important warning, therefore, is that the registration of a BO in the Commercial Register or other register does not replace the obligation to register a BO in the PSPR.

However, these changes to the legislation in this area are not final. At the European level, a so-called fifth AML Directive was adopted and must be effectively transposed by the Member States into their legal systems by 10 January 2020. In relation to BO registrations, this should entail the introduction of a public list of BOs and better interconnection of individual national registers, but in particular the introduction of stricter sanctions for breaches of individual obligations.

Our corporate team is ready to assist you not only with the identification of BOs, but also with their registration in the relevant Commercial Register or other register, or in the PSPR.

[1] The BO definition is laid down in Section 6a of Act No. 297/2008 Coll., on the Prevention of Legalization of Proceeds of Criminal Activity and Terrorist Financing.

On 26 March 2019, the European Parliament passed a new directive on copyright and related rights in the Digital Single Market, which is to fundamentally transform the Internet in Europe. The Directive also includes controversial Articles 15 (previously 11) and 17 (previously 13), which have been highly criticised by both the public and experts.

Digital Single Market

The directive on copyright and related rights in the Digital Single Market (the “Directive”) is supposed to be one of the further steps that the EU has taken to strengthen the Single Market and to harmonise conditions in all Member States.

Following the European Parliament’s vote on the Directive in September last year and related dramatic public discussion, the legislative process entered the stage of a “trialogue” between the Commission, the European Parliament and the Council. The resulting wording was passed by the Parliament on 26 March 2019 and can essentially be considered final.

Even though the Parliament voted on the option to table amendment motions, the vote was lost by a margin of a few votes, to a significant extent due to MEPs from the United Kingdom, which might not (or may – who knows?) be affected by the new legislation at all.

While the Directive regulates numerous areas (e.g. text and data mining for scientific research purposes, using works and other protected subject-matter in distance learning and cross-border education activities, appropriate and proportionate remuneration of authors), most of the public attention was focused on Articles 11 and 13 (now Articles 15 and 17). It is these Articles in particular that are affected by the complexity of the topic and the difficult discussions preceding the adoption of the Directive.

The two articles fundamentally strengthen the liability of providers of online services such as aggregation of article content from other websites and content sharing platforms (e.g. Google, YouTube, Seznam.cz, Facebook, ulož.to and many more Czech, Slovak and other European providers). In general, we can expect the Directive to transform the Internet in Europe.

Article 15 – Print Publications Online

Article 15 regulates press publishers’ rights when their publications are used online by information society service providers, in particular the right to enable or prohibit reproduction of such content.

This protection is not supposed to apply to private or non-commercial use by individuals or to insertion of hypertext links.

Publishers’ rights do not apply to the use of individual words or very short extracts of press publications.

Article 17 – Hosting Platforms

Article 17 focuses on a major current phenomenon – hosting platforms. While a hosting platform can be broadly understood as almost every online service from blogs, discussion forums, webhosting to file storage sites enabling further sharing, the Directive particularly regulates such platforms that give public access to large amounts of content uploaded by their users.

To this end, the Directive introduces a new definition of online content sharing service providers. These are information society service providers the main purpose of which or one of the main purposes of which is to store copyright-protected content uploaded by users and give public access to it, and who sort and promote these works or other protected subject-matter to make a profit.

The definition of the Directive excludes non-profit online encyclopaedias, non-profit educational and scientific repositories, open source software developing and sharing platforms, electronic communication service providers, online marketplaces, business-to-business cloud services and cloud services enabling their users to upload content for their individual use. Article 17 will not apply to these entities.

Safe Harbour II?

As opposed to the current mode of shielding providers from liability (Safe Harbour) under Article 14 of the e-Commerce Directive (2000/31/EC), the new Directive provides that it is the provider that performs the communication to the public or the publication (and is hence fully liable for content stored by third parties – users) if the provider gives the public access to works protected by copyright or another right, for instance by the means of publication on a website.

The provider may exempt its liability if it meets the following conditions set forth by Article 17(4) (a provision we can call Safe Harbour II), i.e. it has:

made every effort to obtain the rightholders’ authorisation,
made, in accordance with high industry standards of professional diligence, every effort to ensure the unavailability of specific works and other subject-matter for which the rightholders have provided the service providers with the relevant and necessary information; and in any event
acted expeditiously, upon receiving a sufficiently substantiated notice from the rightholders, to disable access to, or to remove from, their websites the notified works or other subject-matter, and made every effort to prevent their future uploads in accordance with point (ii).

In any case, in determining whether the service provider has complied with the aforesaid obligations, the following elements should be taken into account: the type and scope of the service, the target audience and the type of works (or other protected subject-matter) made accessible as well as the availability of suitable and effective means and their cost for service providers.

Although the Directive states not to impose general monitoring obligations in paragraph 8 of the same Article, this statement actually appears to be considerably weakened by the aforementioned obligations.

Exception for Minor Providers

In respect of service providers the services of which have been available for less than three years and which have an annual turnover below EUR 10 million, the conditions under Article 17 only apply in limited scope. Such service providers must make every effort to obtain the rightholders’ authorisation, and upon receiving a sufficiently substantiated notice, they must disable access to the notified works or other subject-matter (or to remove them).

Once the number of unique users exceeds 5 million per calendar year, such providers must demonstrate that they have made every effort to prevent further uploads of the notified works and other protected subject-matter on which they have received relevant and necessary information

Exceptions for Users

In paragraph 7, the legislation makes sure that the cooperation between rightholders and providers of affected services must not result in the prevention of the availability of works or other protected subject-matter uploaded by users which do not infringe copyright and related rights, including where such works or other subject-matter are covered by an exception or limitation. Exceptions guaranteed to users apply to quotations, criticisms, reviews, or use for the purpose of caricature, parody or pastiche.

What You Can Expect

The Directive must now be discussed by the European Council and published in the Official Journal of the European Union. Members States must incorporate it in their national legislation within 24 months of its entry into force (applicability).

Member States must now process the relatively dense and complex text. Furthermore, there are many vague terms that need clarifying, for instance what amounts of content must be shared online by service providers to be considered “large”, what the unavailability of “specific works and other subject-matter” means in case of the Safe Harbour II mode and which extracts are short enough to allow for Article 15 exceptions. After all, the text has been criticised, among other things, for being ambiguous.

Even though the Directive is supposed to enhance the (Digital) Single Market, the prospects of the Czech or any other national implementation of such a difficult text meeting this goal are anything but sure; a certain degree of fragmentation can be expected. Similarly, when Act No. 480/2004 Sb., on some information society services, incorporated the e-Commerce Directive into Czech legislation in a way that was too creative and considerably diverged from the wording of Article 14 of the e-Commerce Directive, the Czech law has given the impression that it creates and not excludes service providers’ liability. That is why it will be interesting to follow the implementation process not only in the Czech Republic but also in other Member States, particularly in Germany.

Our law firm has been following the regulation in detail envisaged by the new Directive since its first proposal was presented. We are ready to assist you in addressing the new piece of legislation, especially analysing the specific impacts of the Directive (and the national law implementing it) on your business, assessing and adjusting your terms and conditions for the use of your services, introducing internal procedures in compliance with the new rules as well as to provide you with legal assistance in individual cases.

HAVEL & PARTNERS contributed to the prestigious International Comparative Legal Guide to: Mergers & Acquisitions 2019 which focuses on mergers and acquisitions and is compiled with the participation of major international and local law firms.

The guide offers summary information from 53 countries/jurisdictions covering region-specific rules for mergers and acquisitions and related legal regulations, as well as regulatory rules and relevant institutions. The chapter dealing with the specific features of the Czech Republic has been prepared by the managing partner Jaroslav Havel and our firm’s equity partner Jan Koval.

M&A consulting services provided by our transaction team of over 70 lawyers including 16 partners (the largest team of this kind in Central Europe) in general involve preparation of a detailed transaction structure based on our expertise in the field; due diligence of the target aimed at establishing its current legal, tax, accounting and operational situation; and drafting and discussing transaction documentation and transaction closing in compliance with the relevant legal regulations.

In the last ten years, we have helped successfully complete over 600 Czech and cross-border M&A transactions worth over CZK 600 billion (EUR 23 billion). According to the prestigious global rating agencies Mergermarket, Thomson Reuters and EMIS DealWatch, these results contribute on a long-term basis to our top position as regards the number of completed transactions on the Czech, Slovak and Central European legal markets.

HAVEL & PARTNERS, the largest Czech and Slovak law firm, is continuing its success in 2014 and 2016 by becoming the only Czech law firm in the Czech Republic to receive the prestigious Czech Business Superbrands award for 2019. The prize is given to brands that have an excellent reputation, carry important values for customers and have built a personal relationship with them. It is awarded based on unified criteria and methods of the Superbrands organisation in nearly 90 countries on five continents. The organisation has been identifying the best brands in the Czech Republic since 2013.

“This is the fourth time in total we have received the prestigious Czech Business Superbrands award; nevertheless, this is the first time we have been awarded the prize after the change of our name to HAVEL & PARTNERS. We are pleased that after the clear victory in last year’s Law Firm of the Year awards, we managed to succeed in a purely business competition where brands are benchmarked against criteria such as popularity, brand building, innovations and prestige. Our success may have been facilitated by the fact that the year 2018 was a financial success for us,” says Jaroslav Havel, HAVEL & PARTNERS’ managing partner.

Relevant brands are nominated for the awards using the database of all registered trademarks disclosed for this purpose by the Czech Intellectual Property Office. The nominations are also based on business results generated by the Superbrands organisation working closely with Bisnode, an expert in business information. The final decision on the Superbrands award holders is then up to a committee of experts comprising renowned professionals in business, communication, marketing, media and marketing research.

Other non-legal awards

HAVEL & PARTNERS has also received numerous other awards recognising brand excellence or financial stability. For the fifth time in a row, we became the most sought-after employer among law firms in the Czech Republic in the TOP Employers competition (2015 – 2019). Since 2011, we have achieved the AAA – Excellent rating in the ČEKIA Stability Award rating compiled as part of the CZECH TOP 100 survey, which ranks us among the 2% financially most stable firms in the Czech Republic. In addition, as the winner of the Office of the Year awards in 2016, we were also named as the best working environment in the Czech Republic among law firms.

The largest Czech-Slovak law firm HAVEL & PARTNERS had the best economic results in 2018 for the past 5 years. The overall turnover of HAVEL & PARTNERS increased by 17.4% year-on-year in 2018, while mainly the third quarter was the most successful with turnover growth of 23.1%. All of the three HAVEL & PARTNERS offices in Prague, Brno and Bratislava grew at double-digit rates, and profitability increased accordingly. The total turnover for pure legal services amounted to CZK 646.9 million (EUR 25.2 million), which represents a year-on-year increase by more than 17% in the Czech offices of HAVEL & PARTNERS, and even by more than 20% in the case of the Slovak office. Revenues of the entire group, including the collection agency Cash Collectors, will exceed CZK 800 million (EUR 31.2 million).

“2018 was one of the most successful years for economic results in our eighteen-year history and the first year under the new name HAVEL & PARTNERS. We consider as crucial particularly the fact that we have managed, without any difficulties, to follow up on previous achievements and to shift to a new stage in the best economic condition, in which we are even more focused on the most comprehensive legal cases, including the settlement of complex disputes. We are especially pleased with the results of our Bratislava office, where we have stabilized the staff and strengthened the management with two partners and other senior colleagues,” stated Jaroslav Havel, managing partner of HAVEL & PARTNERS, commenting on last year’s results.

The revenues of HAVEL & PARTNERS have grown continuously since its founding in 2001. This is mainly thanks to the provision of legal services to major Czech, Slovak and international companies, as well as Czech and Slovak entrepreneurs, including about a third of the richest Czechs and Slovaks. Mergers and acquisitions, legal and tax structuring of personal assets, and real estate projects remain our key practice areas. Our advisory groups specialising in competition law and competition economics, restructuring and insolvency, and litigation and arbitrations are also significantly growing.

“Our broad specialisation, long-term expertise and personnel know-how combined with an individual approach to clients and building a strategic partnership with them, when the legal services market is practically saturated, now seem to be our major competitive advantage. We appreciate that not only successful companies and individuals but also foreign law firms trust us. The latter have been involving us more and more often in various international projects and cross-border transactions,”stated Jaroslav Havel, summarizing the position advantages in the market.

HAVEL & PARTNERS, the largest Czech-Slovak law firm, has been included in the most recent release of the reputable international ranking World Trademark Review 1000 which, on an annual basis, maps the leading IP and trademark practices and practitioners in more than 80 jurisdictions around the globe. The ranking is based on an extensive market research and on feedback from those who make use of the relevant advisory services in the market segment concerned. Besides HAVEL & PARTNERS, the publication also names the firm’s three IP law practitioners – Ivan Rámeš and Robert Nešpůrek (partners), and Tereza Hrabáková (associate).

“We are delighted that our Intellectual Property practice group is commended as one of the best practices in the Czech Republic in 2019. We are thus following up on our success in late 2018 when we were named the Law Firm of the Year in the Intellectual Property category. We highly esteem the WTR 1000 award because it reflects the work we have done and, more importantly, assessments provided by our clients as well as other major law firms and patent practitioners who operate in the market and have recommended us. I am glad that our clients, including local companies expanding abroad, as well as major global corporations and entrepreneurs who are combating counterfeits, have chosen us to advise them because they realise that legal protection is important for successfully building a brand and protecting innovative ideas,” says Ivan Rámeš, one of the three HAVEL & PARTNERS lawyers recommended by World Trademark Review 1000 for 2019.

Intellectual property law is one of HAVEL & PARTNERS’ crucial practice areas. The practice group, comprising 15 legal practitioners under the management of Robert Nešpůrek (partner and co-founder of the firm) and Ivan Rámeš (partner), is one of the largest of its kind in the Czech Republic and Slovakia. It has been picked as a local trademark adviser by the strongest global brands, as well as by major Czech and Slovak companies and promising start-ups.

The firm’s IP practice group advises clients on local as well as international protection of their industrial property, including trade and service marks, designs, patents and copyright, and represents them before national and international authorities in respect of licensing, transfers and assignments.

The IP practice group engages in international corporate transactions where IP rights associated with the protection of a specific company’s brand and products or services constitute a critical component of such transactions. The team also specialises in combating counterfeits, focuses on related customs and judicial proceedings, and also has unique know-how in relation to film rights, protection of personality rights, unfair competition practices, and domain-related disputes.

Advice on IP law is always provided in close interaction with other lawyers – specialists in competition, corporate, international, marketing and consumer law, and also tax and accounting experts.

Types of security interest

Consumer loans

Register of security interests

Non-possessory security interests

Sale of collateral on default

Ranking of creditors

BE UP TO DATE

Contact Us