Late Payment or Failure to Pay

Unfortunately, late payments are common nowadays. If a payment is not made within the agreed time limit, it is advisable to remind the other party of the debt first, for instance by sending an informal letter and later even a formal reminder. If the debtor does not respond to the letter or reminder within a reasonable time, recovering the debt in court should be considered. However, an unwritten rule says that debts up to approximately CZK 20,000 (i.e. about EUR 740) are mostly not worth enforcing in court because of the costs and length of such court proceedings. This is especially true in cross-border matters (debts).

If the date of payment is set firmly in the contract, which is the common case, the other party gets into default by the very lapse of such date, so no reminder or request is necessary. If a reminder is made in such case, it is merely a manifestation of good will toward the other party.

If you decide to recover your debt in court, you can initiate legal proceedings by taking a legal action (ideally along with filing an application for a payment order) directly against debtor. Such procedure can be applied not only against a debtor with a registered office or residence in the Czech Republic but also against a debtor based in another country, i.e. at the international level.

Example

A dance company from Portugal is staying in the Czech Republic for several months, implementing a dance project for a private Czech theatre, among other things. Even after the expiry of the due date and several reminders and requests for payment, the private Czech theatre is still unable to pay.

The dance company can initiate legal proceedings and take an action for payment (ideally along with filing an application for a payment order). If it has not been agreed that a court in another country will be the court having competence/jurisdiction, the proceedings will be commenced in the Czech Republic, before the court having territorial jurisdiction at the place of the registered office of the sued theatre.

Example

A theatre company based in the Czech Republic has staged several guest performances at an open-air festival in Sweden. Even after the expiry of several months and after several informal reminders, the agreed royalty has not been paid.  What should the theatre company do?

The theatre company can seek the payment of its royalty by taking a legal action. In the above-described case, the organiser has its registered office abroad. It will most likely not be possible to initiate court proceedings before a Czech court, unless the competence/jurisdiction of a particular Czech court has been agreed upon by the parties in their contract or unless the place of the contract performance was in the Czech Republic. The theatre company’s representative will have to proceed via the Swedish judicial system, for which he will need local legal and linguistic assistance. European Regulation Brussels I nevertheless provides certain legal tools enabling to take a legal action successfully even in the Czech Republic under certain conditions.

If the court proceedings are successful and the court recognises the amount owed, the defendant will be obliged to pay the costs related to the court proceedings, but in order for the defendant to pay the actual amount owed, including the court costs, he must be solvent. Otherwise, enforcement proceedings will have to be launched against the defendant in order to have the debt recovered by an enforcement officer. Even that, however, may not lead to the desired outcome. The creditor (plaintiff) may eventually obtain neither the amount due nor the costs related to the court proceedings incurred on his part and will have to cover them himself.

Apart from the standard court proceedings described above, it is also possible to use the European Payment Order Procedure, the form-based European Small Claims Procedure or the relatively new European Account Preservation Order.

Example

An artist based in Prague agrees to sell his artwork at the price of X. A buyer living in Rome wants to buy the work and promises to pay by wire transfer. The artist subsequently sends the work to the buyer to Rome. However, the buyer never makes the payment, as he has become insolvent.  In addition, the artist finds out that the buyer has sold the work to another person in the meantime.

Although the legal system recognises the artist’s unambiguous and unquestionable right to be paid the agreed purchase price X, it is not of practical use for the artist, since the buyer has no money to make the payment. In most cases it is uneconomical to continue the court proceedings if the debtor is obviously insolvent.

As a general rule, the buyer becomes the owner of a work at the moment of its takeover (unless the contracting parties agree in their purchase contract that the right of ownership will be transferred at the moment the purchase price is paid in full). Since the buyer has already sold the work to another person, the seller (the artist) cannot demand that the new owner return the work (just because he thinks that the original buyer will not pay for the work).

At this point, it is worth pointing to the significance of the “goods for money” principle, which, unfortunately, is not always feasible in practice. As indicated above, the parties to a purchase contract can agree on a transfer of ownership at the moment of the full payment of the purchase price. This would mean that the buyer will not become the owner of the object on the date of its delivery, but only after he makes the full payment of the purchase price. This solution protects the seller (the artist) to a certain extent. Another potential buyer may buy the object from the “unauthorised” original buyer (non-owner) in good faith, but the original buyer (non-owner) could be prosecuted for fraud, for instance, if he acted intentionally, which would prevent a resale.