Final demand template 2020

What is a pre-action letter and why is it crucial for your business?

From a procedural standpoint, however, its significance is even more fundamental. Sending a pre-action letter is a statutory condition under Section 142a of the Code of Civil Procedure for the court to award you reimbursement of the costs of proceedings if you succeed in the dispute. These costs include not only the court fee paid but also your lawyer's fees. Without a correctly sent letter, you lose this claim, even if you win the case outright.

There is also a strong psychological effect. While a reminder from your accounting department might be seen by the debtor as an operational matter that can be postponed, a formal letter on the letterhead of a reputable law firm carries a completely different weight. It signals that the reminder phase is over and the phase of legal consequences is beginning. The debtor is forced to reassess the risks, as the costs can increase from the original amount by tens of thousands of crowns.

The lawyers at ARROWS prepare such letters daily and understand how to formulate them for maximum effect. For an immediate solution to your situation, write to us at consultation@arws.cz.

The essential elements that make or break your claim for the costs of proceedings

For a pre-action letter to serve its purpose, it must contain several necessary elements, which are based not only on the law but also on established court practice. The courts examine compliance with these conditions on their own initiative, so any mistake can have fatal consequences for your claim for cost reimbursement.

Here is an overview of the key points your letter must include:

• Precise identification of the parties: Provide the full and correct details of both the creditor and the debtor – name and surname or company name, residential or registered address, ID number (IČO), and possibly date of birth. If there are multiple debtors (e.g., a debtor and a guarantor), a separate letter must be sent to each of them.

• Specification of the claim: Clearly and comprehensibly describe the basis on which the debt arose (the so-called legal grounds), for example, by referencing a specific contract or an unpaid invoice. Precisely quantify the amount owed, i.e., the principal, and, if applicable, any accessories to the claim, such as default interest or contractual penalties.

• Call for payment and deadline: The text must contain an unambiguous call for payment of the debt. It must also include a set deadline for compliance, which, according to the law, cannot be shorter than 7 days from the date the letter is sent.

• Warning of legal action: One of the most important elements, also required by case law, is an explicit warning that if the debtor does not pay within the specified period, you will enforce your claim through the courts.

• Date and signature: The letter must be dated and signed by the creditor or their legal representative.

The most common mistakes that can cost you tens of thousands of crowns

An incorrectly drafted or unsent pre-action letter is not just a formal error. It is a procedural trap that leads to direct financial loss. The costs of proceedings, which include the court fee (typically 5% of the amount claimed) and the lawyer's fee, can easily reach tens or even hundreds of thousands of crowns for higher-value claims. The attempt to save a few thousand on professional drafting of the letter can thus lead to the loss of a much larger amount.

The most common mistakes include:

• Incorrectly calculated claim: If you demand more in the letter than you have a demonstrable right to (e.g., an unjustified contractual penalty), the court may refuse to award you reimbursement of the costs of proceedings, even if you succeed in the matter itself.

• Relying on outdated templates from the internet: General templates often do not contain all the elements required by current case law or do not correspond to the specifics of your case, which can lead to their invalidity and the loss of your claim.

• Insufficient proof of sending: If you are unable to prove in court that you actually sent the letter (e.g., you do not have a postal receipt or a confirmation from a data box), it is legally the same as if you had not sent it at all.

• Vague wording: An imprecise definition of the debt such as "you owe me some money for work" or a vague threat like "I will take this further" are completely insufficient to meet the legal requirements.

Consequences of a flawed pre-action letter

The pre-action letter in practice: From unpaid invoices to international disputes

The application of a pre-action letter varies depending on the nature of the dispute. While the process is straightforward for a simple unpaid invoice, it requires deeper legal knowledge for more complex contractual breaches or international disputes.

Common scenario: Unpaid invoice

In the case of an unpaid invoice, a tiered approach is a proven method. It begins with a friendly reminder, followed by a more forceful demand, and if that does not help, a formal pre-action letter drafted by a law firm comes next. This approach not only gives the debtor several chances but also demonstrates your professionalism and effort to find an amicable solution, which can also be viewed positively by the court.

More complex cases: Breach of contract

A pre-action letter is not only used for monetary debts. Its use is appropriate for any breach of a contractual obligation.

• Defects in work: If a contractor delivers work with defects, you can use a letter to call on them to rectify the defects, provide a discount on the price, or, in the case of a material breach of contract, announce your withdrawal from the contract.
  The lawyers at ARROWS will help you correctly formulate claims for defects and choose the most appropriate course of action.

• Non-delivery of goods: In a situation where you have paid for goods but they have not been delivered, the letter first serves to provide an additional reasonable period for performance. If the seller fails to deliver the goods even within this period, you can withdraw from the contract and then demand a refund of the purchase price.

International element: Enforcement abroad

Many of our clients operate on the international market, where a debtor in Germany, Poland, or Slovakia is a common reality. Even in these cases, sending a pre-action letter is the first and necessary step. But what to do when a foreign partner does not pay? This is where the complexity of international law comes into play – which court has jurisdiction, and how can a Czech judgment be enforced abroad?

Thanks to the ARROWS International network, built over ten years, we handle cross-border cases on a daily basis. We can arrange not only for the sending of a letter in accordance with local customs but also for subsequent representation in foreign courts and effective enforcement of judgments under European regulations, such as the Brussels I bis Regulation.

Do you have a debtor abroad? Contact us at consultation@arws.cz and get a tailor-made legal solution.

Pre-action letter template

This template serves as a basic guide. To ensure legal certainty, we always recommend adapting the text to your specific situation, ideally after consulting with a lawyer.

Creditor: [Your company name / First and last name] ID No. (IČO): [Your ID No.] Registered office: [Your registered office / address] Registered in the Commercial Register kept by [Court], Section [Section], Insert [Insert]

Debtor: [Company name / First and last name of the other party] ID No. (IČO): [ID No. of the other party] Registered office: [Registered office / address of the other party]

In [Place], on [Date]

Subject: Pre-action letter for payment of debt pursuant to Section 142a of the Code of Civil Procedure

Dear Ms./Mr. [Surname of director/other party],

On behalf of [Your name/company], I hereby call on you to pay the outstanding amount that arose on the basis of [specific definition of the reason for the pre-action letter].

ARROWS Commentary: Clearly and comprehensibly describe the basis on which the debt arose. A reference to a specific contract, order, or invoice number is essential for the unambiguous identification of the claim. Avoid vague phrases like "debt for work performed."

The total amount due as of today is CZK [total amount] and consists of the following items:

• Principal amount 

• Accessories [statutory default interest, contractual penalty]

ARROWS Commentary: Be precise. Incorrectly calculated interest or an unlawfully demanded contractual penalty can lead to the court not awarding you reimbursement of the costs of proceedings, even if you win the core of the dispute. If you are unsure about the calculation, it is better to seek advice. Our lawyers can help you with the precise calculation – write to us at consultation@arws.cz.

I hereby call on you to pay the entire amount due of CZK [Total amount] within 7 days of this letter being sent to bank account no. [Your account number], held with [Bank Name], variable symbol [Invoice number or other identifier].  

ARROWS Commentary: The statutory deadline must not be shorter than 7 days from sending. The key date is the date of sending, not delivery. Make it easy for the debtor to pay by providing all payment details.

I would like to warn you that if you do not pay the amount due within the above-mentioned period, I will be forced to pursue my claim through the courts. In such a case, the amount you owe will be increased by the costs of the court proceedings, which you will be ordered to pay if I am successful in the dispute.  

ARROWS Commentary: This is an absolutely crucial phrase, which is also required by court practice. Without an explicit warning of legal action and the associated costs, the letter does not fulfil its purpose, and you lose your right to reimbursement of the costs of proceedings.

I trust that we will be able to resolve this situation amicably and that court proceedings will not be necessary.

Sincerely,

[Your handwritten signature]
[Your name and surname / Name and position for the company]

Attachments:

• Copy of invoice no. xxx

• Copy of contract dated xxx

ARROWS Commentary: By attaching copies of key documents, you increase the transparency and credibility of your letter. The debtor cannot claim not to know which debt is involved. Always keep the originals for a potential court case.  

When is it worthwhile to entrust the drafting of the letter to professionals from ARROWS?

A pre-action letter is not just a threat, but also a valuable diagnostic tool. The debtor's reaction to a professionally formulated document will provide you with key information for your future strategy.

• The debtor pays: The problem is solved quickly and with minimal costs.

• The debtor proposes a payment plan: This opens the way for an out-of-court settlement. In such a case, it is crucial to draw up a debt acknowledgement agreement, which interrupts the running of the limitation period and strengthens your position for any future enforcement.

• The debtor ignores the letter: This is a clear signal that they will not pay voluntarily. It is time to file a lawsuit without delay, ideally in the form of an electronic payment order (EPR), which can significantly speed up the entire process.

• The debtor disputes the debt: You must prepare for a full-fledged court case and carefully gather all documentary evidence.

The investment in having a lawyer draft the letter, which amounts to a few thousand crowns, is negligible compared to the risk of losing the claim for costs of proceedings in the order of tens of thousands, or even losing the entire claim due to the statute of limitations. Our experience from long-term cooperation with more than 150 joint-stock companies and 250 limited liability companies allows us to proceed quickly and efficiently.

DIY approach vs. a solution with ARROWS

It's not just a letter, but a strategic tool for your business

A correctly handled pre-action letter is much more than just a mandatory step before filing a lawsuit. It is a necessary condition for being awarded the costs of proceedings, has a strong psychological effect on the debtor, and serves as a key diagnostic tool for choosing the next strategy. Effective claims management is an integral part of the sound financial management of any successful company.

At ARROWS, we view debt collection as a comprehensive process where the pre-action letter is the first, but crucial, tactical step. Whether you are dealing with non-payers in the Czech Republic or abroad, our experienced lawyers are ready to protect your finances and ensure that your claims are recovered quickly and efficiently.

We provide a complete service from the preparation of documentation, through representation before courts and administrative authorities, to expert training for your employees. Thanks to our experience and wide network of contacts, we can also find new business opportunities for our clients. Connect with us at consultation@arws.cz and turn your receivables back into profit.

Don't want to solve this problem on your own? The law firm ARROWS is trusted by more than 2,000 clients and we have been awarded as the Law Firm of the Year 2024. Take a look at our references HERE and it will be our honour to help you solve your problem. An inquiry is free of charge.