Lawyer's liability for damage in arbitration: Czech Supreme Court ruling

A client lost an arbitration over more than three million crowns. His lawyer did not attend the hearing, did not file a response and did not raise a single objection — he merely handed the arbitrator the papers he had received from the client. It would seem to be a textbook case of professional negligence and that the lawyer would have to pay. Yet in July 2026 the Czech Supreme Court confirmed that in arbitration it does not work that simply. Judgment file no. 25 Cdo 921/2025 shows why a lawyer's liability for damage arising in arbitration is assessed differently from a dispute before a general court — and why, for clients who use arbitration, this means a substantially higher evidential bar.

The facts: an heir who signed a guarantee under pressure

The case grew out of a family tragedy. The claimant's father ran a road haulage business and had a framework purchase agreement with his fuel supplier which, among other things, provided for a ten-year limitation period and an arbitration clause referring to the Arbitration Court attached to the Economic Chamber and the Agricultural Chamber of the Czech Republic. After his father's death, the son was appointed administrator of the estate and continued the business; from September to December 2014 he purchased fuel worth CZK 3.3 million. At the same time, the supplier presented him with a guarantee declaration for signature, by which he undertook to fulfil any obligation of the debtor — and which contained its own arbitration clause.

In 2020 the supplier brought a claim before the arbitration court. The client hired a lawyer, who took over the documentation but did not attend the hearing, filed no response and raised no objection. The arbitrator upheld the claim — not on the basis of the guarantee, but on the grounds that while continuing the business the client had bought the fuel himself as a sole trader, so it was his own contractual obligation, not his father's debt. The Municipal Court in Prague dismissed the petition to set aside the award, and the court of appeal upheld that decision. More than CZK 435,000 has so far been recovered from the client through enforcement.

The client then sued his lawyer for damages totalling more than CZK 5.7 million — principal, default interest and the costs of the arbitration. The damage thus consisted not only of the principal debt the arbitrator ordered him to pay, but also of the accessories and costs that would not have burdened the client at all had the dispute ended differently. Case law on lawyers' liability for damage takes such a complex structure of the claim into account.

Why both courts dismissed the claim

The District Court for Plzeň-City and the Regional Court in Plzeň agreed that the lawyer had breached his duties. This was not contractually limited representation for merely filing a request for adjournment — the lawyer should have acted actively, requested the missing documents, arranged a meeting with the client or told him clearly that he would not provide the service. He did none of this. The breach of duties under the Czech Legal Profession Act was therefore beyond doubt for both courts.

Nevertheless, both courts dismissed the claim. The key issue for them was causation between the error and the damage. The court of first instance admitted that, as administrator of the estate, the client had bound not himself but the estate, and could have succeeded with this objection before the arbitrator. At the same time, however, it found the guarantee declaration valid — pressure was not proven, the signature was officially certified at the post office, the claim was not time-barred thanks to the ten-year contractual period under the framework agreement and, in view of Section 2025 of the Civil Code, the claim under the guarantee was not time-barred either. The damage would therefore have arisen for the client anyway, albeit on a different legal basis.

The court of appeal went even further. The arbitral award showed that the arbitrator knew about the client's position as administrator of the estate — and nevertheless concluded that the client had continued the business on his own account. Even if the lawyer had formally raised this objection, the result would, according to the court of appeal, have been the same, because the arbitrator simply had a different legal view. It is not the court's task to examine whether the client could have succeeded in the arbitration with any conceivable defence — only with one that the arbitrator did not consider at all and that would have entered his reasoning only through the lawyer's active intervention.

A lawyer's liability for damage in arbitration: one rule for courts, another for arbitrators

In its judgment of 23 July 2026, the Supreme Court confirmed the basic logic: for damage caused by a lawyer's error in conducting a dispute to arise, the client must otherwise have been successful — the court addresses this as a preliminary question. This applies to both court and arbitration proceedings. The key shift, however, lies in how this success is proven. And it is here that general courts and arbitration diverge.

In a court dispute, the working assumption is that a general court would ultimately have respected settled case law on the legal question at the time the matter would have been finally decided. The injured client can therefore argue: "The Supreme Court resolves such situations this way, my dispute was in this position, and had the lawyer not erred, I would have won." Case law serves as a frame of reference that gives the reasoning about the hypothetical outcome predictability and allows the court to review it objectively. The injured party thus does not have to examine the thought processes of a specific judge; it is enough to point to a settled line of interpretation.

Arbitration, however, is a different world. The Supreme Court recalled that arbitration is a private-law alternative to court proceedings, not an exercise of public power. An arbitrator need not decide according to the applicable substantive law — the parties may authorise him to decide according to principles of fairness. Judicial review of arbitral awards is limited to the defects exhaustively listed in Section 31 of the Czech Arbitration Act and does not include the substantive correctness of the award. Moreover, an arbitrator is not subject to the cassational influence of higher instances, his decision is usually not published and his own legal reasoning is not bound by how other panels resolved similar cases. The assumption that an arbitrator would have respected settled case law therefore does not automatically apply.

The consequence for injured clients is harsh. They must specifically prove that, had the lawyer acted properly, the arbitrator would actually have taken a different legal view leading to a more favourable decision. A general probabilistic argument such as "had the lawyer argued, the arbitrator might have decided differently" is not enough unless it is backed by something concrete. And that was key in the case at hand: the arbitrator knew of the client's position as administrator of the estate, yet drew a conclusion unfavourable to the client, and nothing suggested that merely formally raising the objection would have made him change his mind. Transferring to the lawyer liability for an outcome that would have looked identical under a different approach would turn liability law into insurance against losing.

What this means for clients who use arbitration

The practical impact is significant for anyone with arbitration clauses in their contracts — in commercial relationships, framework supply agreements, construction or international trade. If a lawyer errs in arbitration and the client loses, the route to compensation is more demanding than for an error before a general court. It is not enough to say how the dispute should have ended according to the law. It must be proven how the specific arbitrator who had the case before him would actually have decided.

Several things follow from this. First, the choice of lawyer for arbitration should not be underestimated — an error in arbitration is harder to remedy both procedurally (limited review of the award) and subsequently at the level of compensation for damage caused by the lawyer. Second, during the proceedings the client should document communication with the lawyer and the lawyer's conduct: what he handed over, what he asked for, what the lawyer did not respond to, what instructions he gave. Written traces are later the strongest evidence of how the dispute could and should have gone, because the recourse proceedings involve reconstructing the hypothetical course of the arbitration. Third, for higher-value disputes it is worth asking the lawyer for ongoing reports on progress and planned steps — not out of distrust, but as a standard that in itself reduces the risk of a fatal omission.

The text of the arbitration clause itself also deserves attention. A clause that allows a decision without a hearing and by a sole arbitrator amplifies a procedural error by the legal representative — a missed opportunity to defend oneself in single-instance proceedings without a hearing cannot be taken back. Clients who repeatedly conclude arbitration clauses (typically in framework agreements) should consider whether a single-instance model without a hearing really suits the type of disputes that usually arise in their business.

At the same time, the ruling does not mean that a lawyer's error in arbitration is boundless and unsanctionable. Compensation for damage caused by a lawyer is realistically achievable in arbitration too — it just requires more careful preparation of evidence about the hypothetical course of the dispute. Ideally, the lawyer's error should mean that the arbitrator never received information or an argument that would have materially changed his reasoning. Once the arbitrator had the relevant factual basis and nevertheless decided against the client, the chain of causation is essentially broken — exactly as the dispute in question showed.

The point: the lawyer's passivity versus the arbitrator's reasoning

A claim against a lawyer for professional negligence therefore cannot be built on the legal representative's mere passivity. Passivity alone — even if it is contrary to professional duties under Section 16 of the Legal Profession Act and obvious — does not automatically give rise to a claim. It must be linked to a specific defence that the client had in the arbitration and the lawyer failed to raise, and to demonstrable reasoning that precisely this defence would have led the arbitrator to a different outcome. That is a different test from a court dispute, where it is enough to point to the settled case law of the higher courts.

In evidential terms, this means working with material that does not usually feature in an ordinary damages dispute: knowledge of the specific decision-making practice of the arbitration court concerned, published awards (if available), similar disputes before the same arbitrator, or at least a logical analysis of how the arbitrator argued in the contested award and where there was a gap in his reasoning that the lawyer's objection would have filled. Without such a reconstruction, the claim of hypothetical success remains mere speculation, which the court in the recourse proceedings will reject.

We handle such situations as part of our litigation and arbitration practice — from drafting arbitration clauses through representation in the arbitration itself to any follow-on damages disputes. Experience shows that the key decision is made not when something goes wrong but much earlier: when choosing a representative, when setting up communication about the procedure, and when deciding whether it makes sense to put arbitration in the contract at all or rather leave disputes to the general courts.

The Supreme Court's judgment does not close the door on injured clients, but it shifts the burden of allegation and proof to a position that most claimants underestimate. Liability of a legal representative for the outcome of an arbitration remains, but success in recourse depends on how convincingly you can reconstruct what would have happened in a hypothetical parallel version of the arbitration. And that is work that starts long before anyone considers suing a lawyer.

Source: Judgment of the Supreme Court of the Czech Republic file no. 25 Cdo 921/2025 of 23 July 2026 (ECLI:CZ:NS:2026:25.CDO.921.2025.1); Profipravo.cz, 14 September 2026.