The following is an account of a series of events that actually befell one of my firm’s foreign clients in the Czech Republic.
The saga is an ongoing one, but bears comment, even at this stage of the proceedings. The facts are somewhat abbreviated to fit onto this page. The names of individual, companies and courts have been changed or “neutralised” to protect the innocent, evade the wrath of the guilty and avoid possible charges of contempt of court. With respect to the last mentioned reason, I would like to make it very clear from the outset that I am not levying any accusations of incompetence or malfeasance against the Czech judiciary. I shall elaborate on at the end of this article, but now I shall set the stage...
Our client, a foreigner, (let’s call him “Alan”), decided to buy immovable property in the Czech Republic. Alan did not have permanent residence in the Czech Republic. Alan was advised by his bank, a reputable foreign bank doing business in the Czech Republic, that he should acquire a specific purpose limited liability company to acquire the immovable property. The bank also recommended to Alan that he retain the services of a Czech lawyer, “the Attorney”, whose offices are in another region of the Czech Republic. The Attorney has an off-the-shelf company, SPV, registered on the 10th January 2007 in Companies Register of the region where the Attorney has his offices. The Attorney transfers the ownership of SPV to Alan on the 24th September 2007. At the same time, the registered office is moved to the property, which SPV bought (in another region than the one in which SPV was registered). On the 18th November 2007, the Companies Register of the region, where SPV has its new registered office, registers the new office, as well as the new owner of the ownership interest in SPV, Alan. The Attorney remains SPV’s sole executive director. So far, so good!
Alan is not pleased with some aspects of the property, which he bought through SPV. He requests the executive director, the Attorney, to cause SPV to take legal action against the vendor of the immovable property. SPV retains the services of the Attorney and takes legal action. Alan has a change of heart and asks for the legal action to be discontinued. The Attorney follows the instructions of Alan and terminates the legal proceedings without prejudice. The Attorney qua attorney issues an invoice to SPV of which he is the sole executive director. However, the Attorney does not control SPV’s purse strings. The Attorney claims that he sent the invoice to Alan, but offers not proof of that. Alan claims not to have received the invoice. (Even if he had received it, he would have contested the amount of the invoice, which was excessive.)
Alan travels frequently and for extended periods. Communication with him is difficult. the Attorney resigns as sole director of SPV. He sends his resignation to SPV and SPV accepts delivery of the resignation on the 22nd February 2012. On the 4th March 2012, the Attorney ceases to be the executive director of SPV, which is now without a director. Now that he is no longer the executive director of SPV, the door is open for the Attorney to sue his client for the fees that he claims.
In order to substantiate his claim for the fees, the Attorney “finds” a Mandate Agreement between himself and SPV, dated the 12th November 2006, almost two months before the company was registered. This contract could have been held to be valid, even if signed before the registration of SPV. However, SPV, which had not yet been registered in the Companies Register of the region of the Attorney’s office where it had its first registered office, was described in the Mandate Agreement with its new registered office and Company Identification Number in the region to which it moved more than a year later. The Attorney has not yet submitted his crystal ball into evidence.
At the end of July 2012, the Attorney requests the Regional Court where SPV is domiciled, to issue an electronic ex parte judgement for the payment of the invoice. The court accedes to the request and issues the ex parte judgement on the 7th August 2012. The judgement is received in SPV’s electronic “Data Box” on the 14th August 2012. There is no executive director, but the Attorney still has access to the “Data Box” and takes delivery of the ex parte judgement, although not authorised to do so. He claims to have sent the printed judgment to Alan on the 18th August 2012. The only proof of having sent the ex parte judgement to Alan was an envelope sent to the immovable property, which SPV owned and where the Attorney knew or ought to have known, Alan did not reside. The envelope was returned to the Attorney and he opened the envelope, after it had been returned as undeliverable. On the 30th August 2012, the ex parte judgement became enforceable. Sometime thereafter, the Attorney filed for an execution of the ex parte judgement against the immovable property of SPV. A notation of the execution was registered in the Cadastre of Immovables against property of SPV.
In early 2013, Alan decided the SPV should sell the immovable property. However, to his surprise, there was no executive director to execute the sale and – more importantly – there was an execution order registered against the property, rendering it unsellable.
Alan retained our firm to investigate what happened and to try to rectify the situation. From this point forward, exact dates are no longer important. However, it is important to pay attention to the courts where actions and appeals were filed.
Alan was named the new executive director of SPV. One of our firm’s paralegals went to the court to review the court records and take copies thereof.
We filed a petition to reopen the case of SPV’s alleged debt toward the Attorney, on the basis of which the ex parte judgement was issued. The Regional Court rejected the petition to reopen the case, finding that the ex parte judgement had been validly delivered and that the delays for contesting the ex parte judgement on the merits had long expired. The decision was appealed and the High Court ruled that there were no grounds to reopen the case, because the ex parte judgement had not been validly delivered and therefore there was no case to reopen. The High Court reasoned that the law provides for personal delivery of an ex parte judgement into the hands of the debtor. This did not happen and so the delivery was flawed; ergo there was no valid ex parte judgement in effect.
Based on this decision, of the High Court, we filed a motion with the District Court in the district where SPV had its registered office to rescind the execution order and expunge the notation from the Cadastre of Immovables. Despite the decision of the High Court stating that the ex parte judgement had not been validly delivered, the District Court claimed that it had been validly delivered and rejected our motion. We appealed the District Court’s decision to the… Regional Court, where the same judge, who heard and rejected our previous petition to reopen the case of the alleged debt, dismissed the appeal. He motivated his decision by stating that even if the delivery of the ex parte judgement were not delivered to the right person, that flaw was remedied at the moment our firm, acting on behalf of SPV, viewed the court records.
We have since this last decision filed a protest against the ex parte judgement and against the execution. We are preparing an extraordinary appeal to the Supreme Court of the Czech Republic. However, the execution order still stands and the executor is moving ahead.
The first problem, of course, is that of the dishonest attorney. Unfortunately, there are by far too many lawyers – and not only in this part of the world – who put money above morals. This is a problem for the Bar Associations of the jurisdictions in which rapacious attorneys manipulate the truth to reach their own ends some Bar Associations are more effective in dealing with this kind of problem than others. However, the damage in this case has been done. It is now up to the courts to remedy it.
As I mentioned in the first paragraph, it is not my intention to criticise any individual judge or the Czech judiciary as a whole. Judges are a product of the systems in which they operate. It is the judicial system, which is – in my humble opinion – somewhat flawed. Although common throughout continental Europe, I find it aberrant that young men and women, who have just completed their legal studies, are able to choose to go to judges’ school to become judges, without any other experience, whether legal or in the school of life. After a couple of years and a couple of exams, they become judges. The role of a judge is to adjudicate on the matters, which come before him or her, wisely and according to the law. This requires both a profound grasp of the law and the wisdom, gained through the experience taught by life, to determine how to apply the law. Czech law faculties are capable of educating their students in the letter of the law, both substantive and procedural. The Czech legal system of naming judges ensures that the applicants for the positions of judges are indeed amongst the law school graduates with the best knowledge of the law. The first element of a good judge has been fulfilled. However, how is one able to expect a young woman or man, with no life’s experience and barely any experience, except their passage through judges’ school, to possess the requisite wisdom to apply the law in a manner, which brings about a just result? I am not advocating judicial intervention in the legislative process. That is the role of parliament. Nevertheless, the law must be applied wisely, not merely literally.
I am also not advocating the superiority of Common Law over a codified system of law. However, I am proposing that continental Europe could learn from the experience of – for example – the Province of Québec in Canada. It has retained its system of law, based on a Civil Code. However, judges are named, as in the Common Law provinces of Canada and in many other parts of the English-speaking world, from amongst lawyers, who have had many years of experience and have gain a large measure of respect in the practice of law. They are highly respected, well paid and with very few exceptions, irreproachable. The judiciary is in Anglo-Saxon countries and, in my opinion, should be the crowning of many years of service in the legal profession, not a career choice like becoming and advocate or a notary.
My criticism is also directed at the legislator, which allowed the same court which heard a case in first instance to hear an appeal in the same or a closely-related matter, as happened in the case in point. When the Code of Civil Procedure was amended, making the District Courts the court of first instance in matters where previously the Regional Courts held this role, the legislator should have foreseen problems such as the one, which arose in Alan’s case. The legislator should have made it impossible for a judge, who decided a matter in first instance to hear an appeal in a related case.
The Czech judicial system has made great strides over the past quarter century, since the days when judgements were politically motivated and the political fidelity of a judge was more important than his or her legal abilities. Nevertheless, there remains a long road ahead, before anything approaching perfection is achieved.
By Thomas Hruby, Partner, Law Offices of Hruby & Buchvaldek
