The new republic
16 April 2012 | By Lucy Burton
28 May 2013
3 December 2013
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1 July 2013
The changing nature of the Czech Republic’s infrastructure is presenting domestic law firms with opportunities never before seen in their lifetimes
The Czech Republic has a murky record in public procurement. According to an independent study by zIndex, €13.7bn (£11.4bn) worth of public tenders went unaccounted for in Czech government records between 2006 and 2010. However, the government turned a new page in March by amending the law on public procurement, a shift that could open doors to local law firms.
“Reducing corruption in public tenders by making them more transparent will bring healthy competition and quality service into the Czech legal market,” insists Salans Prague managing partner Ladislav Storek. “Previously some firms were reluctant to participate in public procurement, but by bringing greater transparency and perceived fairness into the tender process more law firms are likely to be encouraged to bid for public tenders.”
It is a move in the right direction, but cleaning up public procurement is not the only resolution the Czech government has promised to keep this year. At the start of 2012 a new regulation, the Act on Criminal Liability of Companies, was introduced. The legislation makes legal entities liable for specific crimes.
According to local firms, the change will pull in more instructions relating to property crime, economic crime and various types of work in bribery and corruption - but they should not expect the cash to starting flowing in just yet.
“The first cases of prosecution will create markers within six to nine months,” predicts Jan Hladky, partner in charge atPricewaterhouseCoopers (PwC)’s Brno branch. “There are lots of services preparing companies [for] the changes. The types of work we expect to see range from drafting internal policies to active support in defence against criminal prosecutions.”
The moves suggest change is in vogue for the Czech Republic - a suggestion that was confirmed late last year when the country’s parliament gave the stamp of approval to the biggest legal change of all, the new Czech Civil Code.
“The new code’s like pushing the button on a nuclear bomb and starting again,” says PRK Partners managing partner Martin Kriz.
“Communist concepts will finally be abolished and doing business in this country will become easier, faster and more [like in] neighbouring Western countries. It’s a fundamental change that will affect everyone in the Czech Republic: the introduction of trusts, for example, will finally enable people to organise their assets the way they want to.”
The new code, which will come into force from 2014 following a decade of preparation, is being flagged as a thunderous change by law firms across the country. Many believe the revamp is well overdue, as it has not been reworded since the Communist-ruled 1960s.
“The new code will have a huge effect both on the legal practice and businesses,” according to Lukas Sevcik, managing partner at Kinstellar’s Prague office. “It will introduce concepts formerly unknown in Czech law, significantly strengthening the principle of contractual freedom and reducing the number of cases where agreements are deemed invalid.
“Even though the practical changes won’t kick in until 2014, it’s already affecting everyone in the legal arena.’”
Changes to the code are far-reaching. As Helen Rodwell, regional head of corporate and Prague managing partner-elect at CMS Cameron McKenna, outlines, consumers will gain more rights in a number of areas, including full compensation for loss of baggage or an unsatisfactory
hotel, protection from entrepreneurs claiming invalidity of a contract because it was not in written form and ownership of any construction on privately owned land.
Rodwell explains that there will be less emphasis on formal requirements as prescribed by the law and more weight placed on the intention of parties to contract.
“You have to think about the business opportunities this change will bring,” stresses Hladky. “How agreements in general are drafted and concluded - everything will be more liberal. We’re slowly drifting from the formalist approach.”
Cheap as Czechs
The changes point to exciting times ahead with a modernisation of the Czech legal market, but there are also more subtle shifts rumbling around the region.
One trend that has rolled around the Czech legal market for some time is pressure on legal fees, and this seems to be getting stronger.
“There are two competitive strategies in any business - you either differentiate yourself and charge more or you’re cheaper,” says Kriz. “The former doesn’t work well here. In the eyes of most clients, all first-tier to third-tier firms are sufficiently competent and relatively indistinct.
“There’s no sentimentality towards choosing a big name. It’s a trend we saw in the first wave of the financial crisis and it’s no surprise that those lowered fees haven’t gone back up.”
The indication is not that clients in the Czech Republic are fee-focused, rather that there is an unusually strong choice in the market.
“Most small firms were started by senior associates or partners who came from major international firms,” explains Hladky. “They offer high-standard, even market-leading, services for a much lower price, leaving the international firms [having] to lower their fees or terminate their presence.”
As broad as they’re strong
Competition and fee pressures are nothing new. More interestingly, the Czech legal sector is becoming more sophisticated, with clients demanding tailored, wide-ranging legal services that look beyond low fees.
“Clients in the Czech Republic are looking at law firm services in a more broad way than they used to,” says Rodwell. “They want non-billable meetings, tailored in-house training, regular legal updates and advice on business opportunities - common in Western Europe and the UK. Three or four years ago our training sessions weren’t valued the way they are now.”
It seems the competitive crunch comes down to reasonable fees and services that look beyond billable hours. Luckily, these are achievable goals in a market described by many as stable, competitive and expanding.
“The Czech legal market’s stable,” confirms Ivo Barta, managing partner at White & Case’s Prague office. “The firms that were best 10 or 15 years ago are still the best.
“It’s like buying a new camera and choosing a brand you know - it’s called reputation, and it works. You can’t just lead by reputation, but if you have it and you work at it, it’s a precious thing.”
Going with the flow
New legislation on public procurement and corporate crime are just two government-led changes keeping Czech lawyers busy right now. But increased sophistication of business is also having an impact, with firms finding that they must become more flexible in what they offer their clients.
Top M&A deals involving a Czech target 2009-12
Clifford Chance represented Prague-based electric utility company International Power Opatovice on one of Eastern Europe’s largest transactions in 2009, the CZK22.5bn (£770m) sale of the Czech electricity provider to Slovakian financial services company J&T Finance.
White & Case and CMS Cameron McKenna advised Ceske Radiokomunikace, a Prague-based provider of mobile telecommunications services, on Macquarie Group’s acquisition of the entire share capital of the Czech company from Falcon Group, a majority-owned unit
of Mid Europa Partners, for an estimated CZK14.3bn in 2010.
CEZ acquired a 48.7 per cent stake in Prazska Plynarenska, a Czech-based provider of gas distribution services, from J&T AssetManagement Group for CZK12.9bn in 2010.
Brzobohat Bro advised Skoda Power, a Plzen-based manufacturer of machinery and equipment, after South Korean company Doosan Heavy Industries & Construction acquired the entire share capital of Skoda Power from Skoda Holding, a unit of Appa Group, for CZK11.5bn in 2009.
Where to eat and stay in the Czech Republic
The best restaurants in Prague, Alcron and Le Degustation, have had a recent stamp of approval with Michelin stars. The latter is part of the Ambiente chain, which also has a good mix of establishments focused on Italian cuisine (Pizza Nuova, Pasta Caffe) and traditional Czech food/beer culture (Cestr and Lokal).
In Brno the best restaurants are the Japanese Koishi and the wine bar Petit Cru.
As for hotels, nobody makes a mistake when checking in to the Radisson, Marriot, Hilton, Carlo IV Boscolo, Kings Court, Mandarin Oriental, Kempinsky or Barcelo Old Town, while outside Prague the best hotels are considered to be the Chateau Mcely (in the countryside) and Barcelo (in Brno).
Jan Hdlaky, PricewaterhouseCoopers
Annual inflation (2011)
Life expectancy at birth
Source: World Bank, Czech Statistical Office