When Is a Director Not Liable for Mistakes? A Key Ruling on the Duty of Care

A housing cooperative sued two former members of its board for damages of almost CZK 2.5 million. It argued that the officers had erred in concluding works contracts for the installation of heat pumps and had caused the cooperative loss. The courts at every instance dismissed the action. Why? The answer lies in one of the central concepts of Czech corporate law — the duty of care of a prudent manager (péče řádného hospodáře).

The case reached the Supreme Court, which rejected the cooperative's appeal on a point of law as inadmissible. In its reasoning, however, it gave a valuable restatement of rules that anyone sitting on the governing body of a business corporation or a cooperative ought to know.

You answer for the process, not for the result

The Supreme Court clearly repeated its settled case-law: the managing director of a limited liability company answers for the proper discharge of the office, not for the result of their activity. The same applies to members of a cooperative's board. What does that mean in practice? Even where your business decision ends in a loss, you need not make it good, provided you went about the decision correctly.

What matters is whether you acted on an informed basis and with care. The court asks whether you used the information sources reasonably available, weighed the possible advantages and disadvantages, and identified the recognisable risks of the options open to you. Importantly, the court assesses your conduct ex ante — through the prism of what you knew or could have known at the moment of the decision. Facts that came to light only later cannot be held against you.

In this particular case the courts found that the defendant board members had acted on an informed basis and with care when concluding the works contracts for the heat pumps. They had gone through a proper decision-making process, and liability for loss therefore could not be attributed to them, even if loss had arisen.

Practical consequences for company owners and officers

The ruling matters to everyone holding office in a corporate body. First, document your decision-making. If you ever face a similar claim, you will need to show that you acted on an informed basis. Keep the underlying materials, the quotations, the analyses and the minutes of meetings.

Second, no blanket conclusions are possible. The Supreme Court expressly held that a court must take account of all the circumstances of the case before it. There is no conduct that automatically and invariably breaches the duty of care. Context always decides.

Third, arguments about the facts will not help you on appeal to the Supreme Court. The cooperative tried to challenge the factual findings of the lower courts, but the Supreme Court repeated that its review is reserved exclusively to questions of law. If you lose on the facts before the regional and high courts, an appeal on a point of law will not usually rescue the position.

The argument about ownership of the heat pumps was also instructive. The cooperative disputed the interpretation of the works contract but did not raise any general question about the interpretation of juridical acts. The courts concluded that, under the contract, the client became the owner of the heat pumps at the moment they were made. Without a properly formulated question of law on the methodology of contractual interpretation, the Supreme Court could not review that argument.

The case illustrates something important: disputes over the liability of corporate officers are often decided at the procedural level. The claimant must first prove a breach of the duty of care; only then do causation and the amount of the loss come into play. If the first condition is not met, the court never reaches the rest.

For housing cooperatives and other corporations the lesson is plain. Before you sue former officers, consider carefully whether you can genuinely prove that their decision-making process was defective. The mere fact that an investment did not work out, or that a contract cost more than expected, is not enough. You must show that, at the moment of deciding, the officer lacked the necessary knowledge, failed to inform themselves sufficiently, or did not weigh the available alternatives.

The Supreme Court's decision thus confirms that Czech law protects business judgment from being reassessed with hindsight by reference to the outcome. That is an important safeguard, allowing managers to take even riskier decisions where they do so responsibly and on an informed basis.

Source: Supreme Court of the Czech Republic, No. 27 Cdo 1141/2025