How much does litigation cost a company and how are the costs recovered?

What constitutes the cost of a dispute

The cost of a dispute consists of four components: the court fee, the attorney's fee, the costs of evidence (especially expert opinions), and the company's own time and expenses. The first two can be calculated in advance based on the value of the dispute, while the other two can be estimated. Management should therefore request a budget that accounts for both outcomes: success and failure.

The fee is paid immediately, the attorney's fee progressively, and the expert often in advance. The obligation to pay the fee arises upon filing the lawsuit, appeal, or cassation appeal (Section 4 of the Act on Court Fees). If costs are expected for evidence proposed by the company, the presiding judge will order the company to deposit a security deposit based on the estimated costs before the evidence is presented; without the deposit, the proposed evidence cannot be presented (Section 141(1) of the Civil Procedure Code). A party exempt from court fees does not deposit a security. Thus, two payments are reflected in the budget even before the court decides on the matter.

The remaining components are harder for the company to influence. Costs of proceedings include the out-of-pocket expenses of the parties, the court fee, the costs of evidence, or the lost earnings of the parties and their legal representatives (Section 137(1) of the Civil Procedure Code). The ordinary work of own employees on preparing documents is not separately specified by law, so the company usually does not get it back. Management should therefore also account for these indirect costs and decide whether the dispute makes sense even after factoring them in, not just based on the principal amount.

It is different for specific, reasonably incurred, and documented expenses, such as travel expenses to hearings, which can be reflected in the costs of proceedings. Furthermore, an employee summoned as a witness is entitled to witness fees, i.e., reimbursement of out-of-pocket expenses and lost earnings, which must be claimed within three days of the examination (Section 139). Witness fees are part of the costs of evidence, and the successful party can recover them. The company should therefore record expenses related to the dispute from day one.

It is also good to know in advance how much the opposite outcome might cost. The party that does not succeed in the matter reimburses the opposing party's costs, and the budget should therefore include this item. The lawyers of the ARROWS law firm calculate this as a separate line next to own costs in disputes, so that management can see the full range of outcomes.

Court fee: how much it costs to file a lawsuit and when it is refunded

For a lawsuit for monetary performance up to CZK 20,000, the fee is CZK 1,000; above this amount up to CZK 40,000,000, it is five percent of the value of the dispute. For higher claims, it is CZK 2,000,000 and one percent of the amount exceeding CZK 40,000,000, with the amount exceeding CZK 250,000,000 not being included (Section 5 of the Act on Court Fees, tariff, item 1). For a lawsuit for CZK 500,000, the fee is thus CZK 25,000, and for a lawsuit for CZK 5,000,000, it is CZK 250,000.

For an undisputed debt, a petition for an electronic payment order, filed through a designated application, may be cheaper. Under Czech legislation, the fee for this is four percent for amounts over CZK 20,000, which means CZK 20,000 instead of CZK 25,000 for an invoice of CZK 500,000 (tariff, item 2). If the court does not issue the payment order and continues with the proceedings, it will assess the fee up to the amount of a standard lawsuit. The savings therefore make sense mainly where the debtor does not dispute the claim and the company does not expect opposition.

An unpaid fee will not be ignored by the court. The court will invite the payer to pay within a period of at least fifteen days, and if this expires in vain, the proceedings will be terminated (Section 9(1) of the Act on Court Fees). Late payment is not taken into account. Although the limitation period stops running upon filing the lawsuit, this only applies if the creditor properly continues the initiated proceedings (Section 648 of the Civil Code). Proceedings terminated due to an unpaid fee do not meet this condition, and a company that sues close to the end of the limitation period thus risks the claim becoming time-barred. The fee is therefore paid directly upon filing.

Under certain circumstances, the paid fee is refunded. If the proceedings were terminated before the first hearing, typically after the withdrawal of the lawsuit, the court will refund the fee reduced by 20%, but by at least CZK 1,000. The same procedure applies to the withdrawal of a petition after a payment order has been issued, at the latest on the last day of the period for filing opposition, and to the approval of a settlement before a decision on the merits (Section 10 of the Act on Court Fees). In proceedings where a decision can be made without a hearing, the same applies until the decision on the merits is issued. If the petition was rejected before the first hearing, the fee is refunded in full.

A practical conclusion follows from this: an agreement concluded in time means that the company gets back about four-fifths of the fee and also saves on the costs of further hearings. A company considering a settlement should therefore offer it as early as possible, preferably before the first hearing. After the judgment is rendered, the fee is generally not refunded, and the court decides on its reimbursement based on success in the matter.

Who pays whom: the rule of success

The court will award a party that had full success in the matter reimbursement of the costs necessary for the purposeful assertion or defense of the right against the party that did not have success (Section 142 of the Civil Procedure Code). If a party had only partial success, the court will divide the costs proportionally, or state that none of the parties is entitled to reimbursement of costs (Section 142(2)).

Full reimbursement can be obtained even with partial success. The court may award it if the party had failure in a relatively negligible part, or if the decision on the amount of performance depended on an expert opinion or on the court's discretion (Section 142(3)). This is essential in lawsuits for damages or for a reasonable price reduction: the company can demand more and not lose the entire dispute over costs if a lower amount is awarded.

In exceptional cases, the court may not award reimbursement in full or in part if there are reasons worthy of special consideration, or if a party refuses without a serious reason to participate in the first meeting with a mediator ordered by the court (Section 150). A company that avoids mediation without a reason thus risks winning the dispute but receiving nothing for costs.

The rule of success also has a business consequence: suing for a high amount that the company cannot prove is a double risk. In the event of a loss, it pays its own attorney's fee, the opposing party's fee, and bears the court fee for the entire sued amount itself. A reasonable setting of the relief sought therefore corresponds to what can be documented, and not to what the company would like to obtain.

Pre-litigation notice: seven days that decide on costs

A plaintiff who succeeded in proceedings for the fulfillment of an obligation is entitled to reimbursement of the costs of proceedings against the defendant only if, at least seven days before filing the petition, they sent a demand for performance to the delivery address, or to the last known address (Section 142a of the Civil Procedure Code). Without the notice, even the winner risks not receiving costs.

In exceptional cases, the court will award costs even without a notice, but this cannot be relied upon. If there are reasons worthy of special consideration, the court may award costs in full or in part even if the notice was not sent (Section 142a(2)). This is an exception, not a rule, and the company should not plan on it. A simple notice is cheaper than the risk of losing the entire reimbursement.

In practice, this means that a pre-litigation notice belongs in every dispute over the fulfillment of an obligation, typically for the payment of a debt. It contains a description of the claim, the amount, the deadline for performance, and a warning of a lawsuit, and is sent in a way that allows proof of dispatch. A good notice also often triggers payment or negotiations, and the dispute thus ends before any costs are incurred.

Companies that have overdue receivables can send the notice in a standardized manner and record its dispatch. Proof can be a registered letter, a data box message, or an email with delivery confirmation. Receivables between entrepreneurs are analyzed in the text on unpaid receivables in B2B, including how to prepare the notice.

How much the court awards for an attorney

When deciding on the reimbursement of costs, the court determines the amount of the fee for representation by an attorney according to the provisions of a special legal regulation on non-contractual fees and reimbursement for value added tax on the fee and reimbursements according to the tax rate (Section 151 of the Civil Procedure Code). What is decisive is therefore not how much the company actually paid the attorney, but what the fee is according to the attorney tariff.

An indicative calculation shows how quickly costs rise. For a dispute over CZK 500,000, the fee for one act of legal service is CZK 10,300 and the flat-rate reimbursement of out-of-pocket expenses is CZK 450, i.e., CZK 10,750. For five acts, it is CZK 53,750, and with the fee of CZK 25,000, a total of CZK 78,750. If the attorney, or their law firm, is a VAT payer, the court will also award tax reimbursement (Section 137(3)); five acts then amount to CZK 65,037.50, and with the fee, CZK 90,037.50.

For a dispute over CZK 5,000,000, the fee per act is CZK 28,300 and the flat-rate is CZK 450, so for five acts, it is CZK 143,750 excluding VAT. With the fee of CZK 250,000, it is CZK 393,750, and if the court also awards VAT reimbursement, CZK 423,937.50. The examples assume five acts; the actual number depends on the course of the dispute.

These amounts are the reimbursement that the court may award to the successful party, and are not the price the company pays to the attorney. If the company agrees on an hourly rate with the attorney, the actual cost may be higher or lower than the tariff rate. Management should therefore account for the possibility that part of the paid costs will not be recovered, and set the budget with this reserve.

The number of acts varies for each dispute: it depends on whether it is a simple dispute over a receivable, or a complex dispute with expert opinions and several hearings. The examples above are for guidance only. The experience of litigation attorneys with how costs develop in practice is summarized in the text on the procedural experience of litigation attorneys from ARROWS.

What the court will not award and how to manage costs

Costs that would not otherwise have arisen, because they were caused by the parties or their representatives through their fault, or which arose by chance, cannot be reimbursed, with the exception of cases under Section 147 (Section 151(4)). A company that, for example, causes a hearing to be adjourned will bear the added costs itself, even if it wins the dispute. Discipline in the process therefore directly saves money.

Money does not come immediately after the hearing. The court decides on the obligation to reimburse costs without a petition in the decision ending the proceedings, and the amount of costs may be determined only in the written copy (Section 151(1) and (5)). The period for performance always runs only from the legal force of the decision on reimbursement (Section 151(6)). The company therefore expects the income only after legal force.

Managing costs means three things. First, deciding on a step according to the budget: when it pays to negotiate and when to sue. Second, choosing the scope of evidence proportionally to the value of the dispute, because an expert opinion can cost more than the disputed amount. Third, using settlement where the claim is clear and the opposing party is solvent, because it returns part of the fee and saves time.

When deciding whether to sue, management also needs an estimate of whether a potential judgment can be enforced. A dispute that is won but cannot be enforced brings only costs. Assessing enforceability therefore belongs before filing a lawsuit and influences the decision more than the amount of the fee itself. An alternative to court is analyzed in the text on how arbitration works in large and expensive matters.

Six steps: dispute budget before filing a lawsuit

The first step is to determine the value of the dispute and calculate the court fee and the tariff fee for one act of legal service. The second step is to estimate the number of acts and any costs of evidence, especially experts. The third step is to prepare two variants: success and failure, where failure also includes reimbursement of the opposing party's costs. The result is presented on a single sheet and compared with the value of the dispute and the solvency of the opposing party.

The fourth step is to send a demand for performance at least seven days before the lawsuit. Proof of dispatch is kept, as the right to reimbursement of costs depends on it (Section 142a(1)). The fifth step is to decide whether to offer a settlement or mediation before filing, or before the first hearing. The sixth step is to continuously monitor costs against the budget and, if exceeded, decide whether to continue.

Good practice is to have one person who manages the dispute for the company and monitors costs. Without them, the dispute can easily grow: evidence, hearings, and opinions that no one considered in terms of price will be added. A budget that is regularly updated is the best tool against surprises. The lawyers of the Prague-based ARROWS law firm prepare it together with the litigation strategy.

Four mistakes that increase the cost of a dispute

The first mistake is to file a lawsuit without a pre-litigation notice. The company wins the dispute, but the court does not award it costs because it did not prove the notice was sent at least seven days in advance. The price is the loss of the entire reimbursement. Prevention is a standardized notice and records of its dispatch.

The second mistake is to sue for more than can be proven. In the case of partial success, the court will divide the costs proportionally, and the company may thus pay part of the opposing party's fee and its own fee from the entire amount. Prevention is to sue for what is supported by documents, and for claims dependent on an opinion, to consider Section 142(3).

The third mistake is to rely on full reimbursement of costs. The court only awards the tariff fee and reasonably incurred costs, so the actual cost of the dispute is usually higher than what the company gets back. The fourth mistake is to delay settlement: the fee is refunded reduced by one-fifth only if terminated before the first hearing or if a settlement is approved before a decision. The lawyers of the Prague-based ARROWS law firm therefore start with a budget and a notice and only then propose a procedural course of action.

Risks in deciding on a lawsuit

Final summary

A lawsuit costs a court fee, attorney's fee, and costs of evidence, and reimbursement is governed by success in the matter. The article showed that for monetary performance up to CZK 40 million, the fee is five percent of the value, that without a notice sent seven days before the lawsuit there is a risk of losing reimbursement, and that the court awards the attorney's fee according to the tariff.

For management, this implies a clear procedure: first, prepare a budget for success and failure and send a pre-litigation notice, then consider a settlement, and only then file a lawsuit. The reverse order leads to the company winning the dispute but bearing part of the costs itself.

The lawyers of the Prague-based ARROWS law firm prepare dispute budgets, prepare pre-litigation notices, handle disputes before courts and arbitrators, and negotiate settlements. Write to us at consultation@arws.cz or review our service for commercial and court disputes.