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) (“Civil Procedure Code“) is 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 growing reputation — the International Arbitration Court of the Czech Commodity Exchange and the Prague Stock Exchange Court of Arbitration. 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 The duty to instruct in arbitration proceedings
In the proceedings, File No. III. ÚS 2797/23, the Czech Constitutional Court (“Constitutional Court“) gave its opinion with respect to the significance of not fulfilling the duty to instruct the parties to the arbitration proceedings pursuant to Section 118a of the Civil Procedure Code as a reason for the arbitration award to be set aside. The plaintiff sought the setting aside of the arbitration award, as they argued that the court arbitrarily rejected the evidence they proposed to counter the allegedly incorrect conclusions and, therefore, breached the principle of equality of parties pursuant to Section 18 of the Arbitration Act. The Constitutional Court rejected the constitutional complaint. The Constitutional Court continuously holds that although arbitration proceedings cannot account for giving up legal protection, it does not mean that the procedural guarantees must be of the same quality as civil procedure before civil courts since that would mean eliminating the advantages of arbitration. The judicial review of arbitration awards is limited to fundamental procedural aspects (e.g., the jurisdiction of the arbitrator), whereas a review of the substantive quality of arbitration award is excluded. Faults or deficiencies of reasoning of arbitration awards are typically not themselves a reason for their setting aside, same as the absence of instruction pursuant to Section 118a of the Civil Procedure Code. According to this provision, the court is obliged to instruct the party to the proceedings to complete their statements and propose evidence to prove such statements and of the consequences of not doing so, as well as about different procedural rights and obligations of the party to the proceedings. If in the course of arbitration proceedings both parties sufficiently had the chance to be heard regarding the subject matter of the case, were mutually acquainted with their statements, and could adequately react to those, the set-aside proceedings cannot successfully serve as a remedy against an arbitration award issued in such proceedings.
Similarly in the proceedings File No. II. ÚS 2584/23 relating to the duty to instruct, the Constitutional Court further clarified the importance of the duty to instruct within arbitration proceedings. The plaintiff claimed that their procedural rights were violated due to the absence of the instruction by the arbitration court (pursuant to Section 118a paras 1 and 3 of the Civil Procedure Code in connection with Section 30 of the Arbitration Act) regarding the need to complete their statements and propose evidence to prove such statements, and for this reason requested the setting aside of the arbitration award. The lower courts concluded that although the party to the proceedings was not expressly instructed in accordance with Section 118a of the Civil Procedure Code, there was no need for such instruction, as such party must have been aware of the facts to be proven within the lengthy proceedings, with sufficient possibilities to raise their allegations, propose evidence, and get acquainted with the submissions and proposed evidence of the opposing party, and therefore contrary to their statements, the party could not be surprised by the arbitration award. The principles of predictability of decisions and equality of parties were therefore not violated. The Constitutional Court confirmed the substantial development of the case law of lower courts, which retreated from the original stricter view on the duty to fully instruct the parties within arbitration proceedings similarly to within standard proceedings before state courts and emphasized that the arbitration proceedings, on one hand, do not account for deprivation of judicial protection, but on the other hand, arbitration proceedings do not provide a full guarantee of the duty to instruct as that would eliminate all sorts of characteristics and advantages of arbitration proceedings.
B.2 The arbitrability of unfair competition cases
The High Court in Prague set aside an arbitration award and justified its decision by stating that unfair competition cases cannot be decided within arbitration proceedings because the conditions of arbitrability are not fulfilled. One of the conditions of arbitrability is that the case concerns a property dispute that has already arisen or that could arise in the future out of a particular legal relationship or a particular range of legal relationships between parties. That is not the case of an unfair competition claim in the view of the High Court in Prague because such a claim arises out of a breach of a legal obligation to act in accordance with good morals of competition and refrain from causing damage to other competitors or clients. Such cases are solely within the jurisdiction of state courts and cannot be delegated to private law entities. The fact that the alleged unfair competition conduct consists of a breach of contractual obligations does not affect such a conclusion. The matter was referred to the Czech Supreme Court.
In its decision File No. 23 Cdo 479/2023, the Supreme Court reiterated that the conditions of arbitrability are that: (i) the dispute concerns a property claim; (ii) there is no statutory exemption from arbitrability; (iii) the dispute would otherwise be within the jurisdiction of state courts; and (iv) the parties could reach a settlement over the subject matter of the dispute. In the view of the Supreme Court, the dispute in relation to an unfair competition claim certainly has an impact on the property sphere of the parties to the dispute as it arises out of their position given by their participation in the competition, respectively out of the realization of their property interests led by their competitive intention. Considering a broad interpretation of the notion of a property dispute pursuant to Section 2 (1) of the Arbitration Act, it is not decisive whether conduct within economic transactions can cause damage directly on the property of a competitor or a customer since non-pecuniary harm in such cases also results from the economic transactions of particular persons, or from their participation in competition as their manifestation in the property sphere has at least a potential property importance. There is no statutory exemption regarding the arbitrability of unfair competition cases. The parties can generally reach a settlement on the subject matter of the dispute, typically in two-sided legal relationships in which they are allowed to adjust their legal relationships through dispositive acts. Therefore, it is also possible to reach a settlement within unfair competition cases. The Supreme Court concluded that unfair competition cases are, therefore, arbitrable.
B.3 The scope of applicability of an arbitration clause
In the proceedings File No. 23 Cdo 1307/2022, the Supreme Court decided that an arbitration clause, unless otherwise stipulated, is also applicable to disputes related to the legal relationships within which the arbitration clause is concluded, including the disputes related to unjust enrichment supposedly arisen in connection with a withdrawal from a contract to which an arbitration clause applies. The subject matter of the proceedings was an unjust enrichment claim in connection with a withdrawal from share purchase agreements caused by an increase in the value of such shares. Pursuant to Section 2 (4) of the Arbitration Act, unless otherwise stated, an arbitration clause applies to rights directly arising out of the legal relationships, the legal validity of these legal relationships, as well as the rights related to these rights. According to the Supreme Court, “the rights related to these rights” means rights arising between the parties to the arbitration clause in connection with the legal relationship for which the arbitration clause is concluded, including a claim for damages or unjust enrichment. However, it reminded us that the arbitration clause does not apply to legal relationships of third persons who have not consented to the arbitration proceedings.
B.4 The assignment of a receivable and participation of the assignee in the set-aside proceedings
In the proceedings File No. 23 Cdo 2886/2022, the Supreme Court dealt with the question of whether an agreement on the assignment of a receivable constitutes a legal event capable of effecting the passage or transfer of a right or an obligation pursuant to Section 107a of the Civil Procedure Code. The essential question was, therefore, whether an assignment agreement might affect the legitimation (standing) of a party in the set-aside proceedings and, consequently also, the range of parties to such proceedings. The Supreme Court highlighted that the result of the set-aside proceedings is decisive for the possibility of the assignee claiming the forced debt collection or a new hearing of the case. Such proceedings, therefore, concern rights associated with the claim decided by the arbitration court, which the assignee collects together with the assigned claim (regardless of whether as a plaintiff or as a defendant). The agreement on the assignment of a claim can therefore constitute a legal fact pursuant to Section 107a para (1) of the Civil Procedure Code in the set-aside proceedings and may result in a change of participants to the set-aside proceedings.
