When Walking Away From a Deal Can Cost Money

Negotiations are meant to leave room for a “no deal” outcome, and Czech law respects that freedom. At the same time, the law protects justified expectations created late in negotiations: if talks reach a stage where signing appears highly likely and one side then ends negotiations without a fair reason, compensation for wasted costs may follow.

The basic principle

Pre‑contractual liability is best understood as a late‑stage fairness rule rather than a penalty for changing one’s mind. Where a reasonable expectation of signing has been created, an abrupt and unjustified exit can trigger a duty to reimburse the other side’s proven reliance costs (often professional fees such as legal, financial, or advisory expenses).

Decision of Supreme Court

A Supreme Court decision[1] addressed a common transaction pattern: negotiations were conducted for a share transfer where an investor was intended to be the formal buyer, while another participant expected to receive part of the shares afterwards.
When the seller ended late‑stage negotiations without a fair reason, the non‑buyer participant sought reimbursement of its advisory costs.

The Supreme Court’s key conclusion was clear: only the intended contracting party (the would‑be signatory) is actively entitled to claim damages under the pre‑contractual liability rule.

Even substantial involvement in negotiations, influence on contract terms, or an expected economic benefit from the deal does not automatically create standing for third parties.

Practical implications for transactions

• Entity alignment matters: in multi‑party structures (SPVs, investors, founders, group entities), the cost‑recovery “seat” generally belongs to the entity expected to sign the final contract.

• Expectation management matters: language and conduct suggesting that signing is virtually certain can increase risk if the process later stops without a defensible reason.

• Exit discipline matters: where withdrawal is necessary, recording objective reasons (e.g., due diligence findings, financing failure, regulatory obstacles) helps demonstrate a “fair reason” for ending talks.

Bottom line

Czech pre‑contractual liability does not make failed negotiations “illegal.”
It targets unfair late‑stage withdrawal—and the Supreme Court has reinforced that claims generally belong to the intended contracting parties, not everyone participating around the transaction.

[1] 25 Cdo 1085/2025

By Mgr. Radek Werich LL.M.

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