A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in the Czech Republic continues to be governed by Act No. 216/1994 Coll., on Arbitration Proceedings and Enforcement of Arbitration Awards, as amended (“Arbitration Act”). The Arbitration Act is based on the UNCITRAL Model Law and has not been amended since 2017. Pursuant to section 30 of the Arbitration Act, the Czech Rules of Civil Procedure (Act No. 99/1963 Coll., as amended) are to be used adequately as a subsidiary law.
A.2 Institutions, Rules and Infrastructure
The most-used arbitration institution in the Czech Republic is the Arbitration Court of the Czech Economic Chamber and the Czech Agrarian Chamber. However, there are two other arbitration courts with international ambition and a growing reputation – the International Arbitration Court of the Czech Commodity Exchange and the Prague Stock Exchange Court of Arbitration. The statutory jurisdiction of these courts is limited to disputes relating to transactions with instruments that can be traded on these exchanges. With respect to other disputes, both courts may assist in administering ad hoc arbitrations.
B. CASES
B.1 Validity of arbitration clause incorporated in the general terms and conditions
In proceedings File No. 23 Cdo 2563/2019, the Czech Supreme Court (“Supreme Court“) dealt with a situation when the arbitration clause was incorporated in the general terms and conditions and the main contract was arguably a letter marked as an “order” referring to these terms and conditions. The “order” did not include any space for a stamp or a signature of the other party to the contract (the supplier). The court of first instance and the appeal court both concluded that such a letter is not sufficient to be considered as the main contract and, therefore, the arbitration clause was not duly concluded. According to the opinion of the lower courts, the letter marked as “order” was a unilateral legal act and not a contract between two parties, due to the absence of the signature of the supplier.
The Supreme Court referenced section 3 paragraph 2 of Act No. 216/1994 Coll., on Arbitration Proceedings and Enforcement of Arbitration Awards, as amended (“Arbitration Act“), which provides, that if the arbitration clause is incorporated in the terms and conditions governing the main contract to which the arbitration clause applies, the arbitration clause is also considered validly concluded provided that a written offer of the main contract containing the arbitration clause was accepted by the other party in any manner clearly indicating the latter party’s consent with the terms of the arbitration agreement. In this particular case, the Supreme Court interpreted the letter in question as an offer that had been implicitly accepted by the supplier by acting accordingly to the order (i.e., supplying the product). Therefore, the Supreme Court ruled that the arbitration clause has been duly concluded and applies to the dispute.
B.2 Limitation period in connection with arbitration awards issued based on invalid arbitration agreement
Based on the established case law of the Czech Supreme Court[1], if an arbitrator was selected by reference to arbitration rules issued by a legal entity that is not a permanent arbitral institution established by law, then the arbitration award is not an eligible execution title. It is so because such an arbitrator was selected based on an invalid arbitration clause and thus, the arbitrator has no jurisdiction to hear the case. If the enforcement of such a title is already pending, the court is obliged to terminate the enforcement proceedings. In proceedings File No. 33 Cdo 1230/2020, the Supreme Court assessed such ineligible execution title (i.e., arbitration award issued by an arbitrator lacking jurisdiction) and its bearing upon the running of the limitation period. The Supreme Court clearly stated that until the court in enforcement proceedings or insolvency court in insolvency incidental dispute does rule that the arbitration award has no legal effects since it was issued by an arbitrator lacking jurisdiction, the possible time limitation of the claims should be dealt with as if the arbitration award would not suffer from such a defect. In other words, even if the enforcement proceedings take place on the grounds of an inadmissible execution title, the effect of stopping the limitation period initially triggered by the filing of the claim in arbitration is maintained. The limitation period does not run during the enforcement proceedings until the court decides on the inadmissibility of the execution title and terminates the enforcement proceedings. Once such a decision is made, the plaintiff must file a lawsuit without any undue delay in order to avoid its claim being time-barred and to continue to maintain the effect of stopping the limitation period.
B.3 Invalidity of the main contract may result in invalidity of the separately concluded arbitration agreement
In proceedings File No. I. ÚS 3692/18, the Constitutional Court of the Czech Republic (“Constitutional Court“) dealt with a standard form contract, specifically a revolving loan contract, which was contrary to good morals because of extremely high interest rate and multiple unjustified contractual penalties. The parties to the revolving loan contract also concluded a separate arbitration agreement governing their potential disputes. Such arbitration agreement did not form part of the revolving loan contract, but it was concluded on the same date. In the course of the enforcement proceedings, the appeal court ruled that the main (loan) contract and the arbitration agreement shall be reviewed independently and thus, it ordered the enforcement of the arbitration award issued based on the said arbitration agreement.
The Constitutional Court reminded that the enforcement courts are obliged to assess whether a valid arbitration agreement has been concluded and whether the arbitrators had jurisdiction to hear the case. In the view of the Constitutional Court, and especially taking into account the contractual process in the particular case, the main contract and the arbitration agreement were signed on the same day and thus, jointly created one business contract even though they did not form part of the same document. Therefore, the invalidity of the main contract results in the invalidity of the “separately” concluded arbitration agreement.
[1] Decision of the big senate of the civil and commercial law collegium File No. 31 Cdo 958/2012 dated 10 July 2013
