A. LEGISLATION AND RULES
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 which can be traded on these exchanges. With respect to other disputes, both courts may assist in administering ad hoc arbitrations.
B.1 Recognition of foreign arbitral awards
In the proceedings File No. 23 Cdo 2552/2022, the Czech Supreme Court (“Supreme Court”) dealt with a situation where the appellant considered the arbitral award issued by the Vienna International Arbitral Center to be contrary to the public order of the Czech Republic and thus, in the view of the appellant, the arbitral award shall not have been recognized by Czech courts. According to the opinion held by the appellant, the appeal court should have examined whether the conditions for recognition of the arbitral award were met pursuant to Article V of the New York Convention and pursuant to section 120 et seq. of Act No. 91/2012 Coll., on Private International Law, as amended. In the present case, the assessed arbitral award justified the free use of patents on the basis of an implied contract, whereas pursuant to the case law of the Supreme Court, such legal act must necessarily be in writing.
According to the Supreme Court, the mere fact that in the absence of an arbitration clause the dispute would have been judged differently on the merits by the domestic court does not constitute an obstacle to the recognition of the arbitral award on the ground of conflict with the public order. To refuse recognition of an arbitration award, the arbitration award would have to exceptionally and seriously violate the norms of the Czech legal order. This did not occur in the present case, and for that reason, the Supreme Court dismissed the appellate review.
B.2 Compensation for damage caused by the issuance of an unlawful arbitral award
The District Court in Šumperk rejected a claim for damages caused by the defendant by issuing an unlawful arbitral award as the arbitrator in the preceding arbitration proceedings. The District Court concluded that it cannot be proven that the arbitrator violated his legal obligation, since the arbitral award issued by them was annulled by the court for the invalidity of the contract, but at the time of the conclusion of the arbitration clause and the issuance of the arbitral award the jurisprudence relating to the validity of arbitration clauses had not been established and legal opinions on this issue differed. The mere annulment of the arbitral award in the absence of the arbitrator’s unlawful conduct does not establish their liability for damage. The Regional Court in Ostrava confirmed the decision of the District Court in response to the plaintiff’s appeal.
The Supreme Court in its decision File No. 25 Cdo 3473/2020 rejected the plaintiff’s motion for the appellate review as unjustified. The established decision-making practice of the Supreme Court, represented by the ruling of the Supreme Court of 21 October 2014, File No. 25 Cdo 2790/2013, implies that when assessing a claim for compensation for damage against an arbitrator, the court’s power to review the arbitrator’s proceedings cannot be completely excluded. The responsibility of the arbitrator can only be found if the conditions of general liability according to section 420 of Act No. 89/2012 Coll., as amended (the Civil Code) are met and simultaneously if the arbitrator’s illegal conduct directly led to the annulment (setting aside) of the arbitration award under section 31 of the Arbitration Act. The Supreme Court reiterated that according to the ruling of the Supreme Court File No. 25 Cdo 167/2014, it cannot be deduced that the arbitrator’s obligation has been violated if the arbitral award issued by the arbitrator was annulled (set aside) due to the invalidity of the arbitration clause, but at the time of the conclusion of the arbitration clause and the issuance of the arbitration award, the jurisprudence regarding the validity of arbitration clauses had not been established and legal opinions on this issue had gradually been evolving. The then-existing case law of the Supreme Court allowed for a lower standard of protection for the parties to the arbitration clause, and the issuance of the arbitration award in such a situation cannot be considered as illegal conduct of the arbitrator. For the above, the Supreme Court did not see any reason to admit the motion of the plaintiff for an appellate review.
B.3 Return of arbitration fee for ad-hoc arbitration proceedings
In the present case, the plaintiff was seeking payment from the defendant which was paid as a fee for an ad hoc arbitration where the defendant was the sole arbitrator appointed by the arbitration agreement. However, the arbitration proceedings did not take place. The defendant interrupted the arbitration proceedings and discontinued them after the payment of the fee for the arbitration proceedings (due to pending insolvency proceedings against the defendant in the respective arbitration proceedings). The arbitration agreement between the parties stated that the expenses of the arbitration proceedings, including the arbitrator’s fee and the parties’ legal representation costs, are to be decided by the arbitrator. The amount of these expenses is to be determined in accordance with applicable laws and regulations. The parties have not agreed on any other terms regarding the arbitration process, including the return of the fee.
The court of first instance ruled that the arbitrator is obliged to act predictably in accordance with section 30 of the Arbitration Act (which stipulates that the provisions of the Civil Procedure Act shall apply to the arbitration proceedings adequately). The arbitrator, in their decision to demand payment of the appropriate arbitration fee, referred to Act No. 549/1991 Coll, on Court Fees (“Act on Court Fees”), which created a legitimate expectation in the plaintiff that they would proceed according to this act. However, the court of second instance stated that the validity of the plaintiff’s demand for the return of the paid fee for arbitration proceedings could not be found in the Act on Court Fees because its direct application in the arbitration is not possible. The court of second instance did not exclude that the parties may agree on the possibility of returning the fee under the regime of the Act on Court Fees. However, in the present case, the parties did not proceed in this manner as the arbitration agreement did not include any provision on the returning of the fee.
The Supreme Court issued its decision File No. 23 Cdo 180/2021, by which it dismissed the motion of the plaintiff for appellate review and confirmed the argumentation of the court of second instance. The Supreme Court concluded that the possibility of the appropriate use of regulation contained in the Civil Procedure Act pursuant to section 30 of the Arbitration Act does not automatically result in the possibility of direct application of the Act on Court Fees. According to section 19(1) of the Arbitration Act, the parties can agree on the procedure to be followed by the arbitrator(s) in the proceedings. The plaintiff and the defendant of the respective arbitration proceedings failed to utilize the opportunities provided by the Arbitration Act. They did not adjust the rights and obligations of the arbitrator or the parties to the dispute, and their approach to determining the conditions of arbitration proceedings was very minimalistic. The contractual parties merely agreed that the proceedings would be conducted in writing, determined the procedure for calculating the fee, and agreed that the arbitrator would decide on the costs of the proceedings. The arbitration clause did not imply that the fee should be returned in case of a decision other than decision on the merits of the dispute. Given the autonomy of the will of the parties entering into the arbitration clause and given that the defendant voluntarily accepted the role of the arbitrator in the dispute under previously established rules, which did not address the question of the obligation to return the fee, the court’s legal assessment, according to which the appellant does not have the right to return the fee, cannot be criticized.