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. 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 The possibility to partially set aside an arbitration award regarding costs of the proceedings
In the proceedings, File No. 23 Cdo 2848/2022, the Czech Supreme Court (“Supreme Court“) dealt with a question whether it is possible to set aside an arbitration award by the court pursuant to section 31 (e) of the Arbitration Act, solely to the extent of the operative part concerning the reimbursement of the costs of the arbitration proceedings.
In its decision-making practice, the Supreme Court has repeatedly held that the institute of setting aside an arbitration award pursuant to section 31 of the Arbitration Act does not constitute an ordinary or extraordinary remedy against an arbitration award; solely a review by other arbitrators pursuant to section 27 of the Arbitration Act (which is a specific type of review) may be a form of remedy in respect of the procedural and factual correctness of an arbitration award. The purpose of the institute of setting aside an arbitration award by a court is to enable a judicial review in proceedings other than court enforcement proceedings as to whether or not the basic conditions for the arbitrators to hear and decide the case have been met (i.e., the basic conditions for the suspension of the constitutional right to seek one’s rights before an impartial and independent court pursuant to article 36(1) of the Charter of Fundamental Rights and Freedoms, which is also linked to the constitutional right under the last sentence of article 38(2) of the Charter).
The Supreme Court concluded that the judiciary cannot renounce its supervisory function even in relation to the arbitrator’s decision on the reimbursement of the arbitration costs, to the extent that it is permitted by the limits set out in section 31 of the Arbitration Act. It therefore answered the question affirmatively and concluded that an application to set aside an arbitration award pursuant to section 31(e) of the Arbitration Act may challenge the arbitration award solely as regards the operative part concerning the costs of the proceedings.
B.2 Arbitration agreement contained in the General Terms and Conditions
The dispute in the Supreme Court proceedings File No. 23 Cdo 2151/2024 concerned an arbitration clause agreed by reference to the general terms and conditions of one of the parties (“General Terms and Conditions“). The losing party argued that the appeal court departed from established decision-making practice of the Supreme Court when it considered the arbitration clause agreed by reference to General Terms and Conditions to be valid.
Based on the factual findings of the courts, the main contract stipulated that the General Terms and Conditions of the party form part of the main contract (i.e., the main contract is governed by those terms and conditions). The General Terms and Conditions were published on the website to which a link was included in the main contract. Therefore, in the view of the Supreme Court if these General Terms and Conditions, which contained an arbitration clause, were part of the main contract as agreed in the main contract, the General Terms and Conditions were known to the parties and both parties, including the appellant, agreed to the content of the main contract by attaching their signatures. The Supreme Court thus refused the objection that the arbitration clause was not validly agreed and that the contract does not indicate agreement to the content of the arbitration clause.
As a result, an arbitration clause contained in the General Terms and Conditions which formed part of the main contract and was known to the parties (since a link to a website on which these General Terms and Conditions had been published was included in the main contract) should be considered a valid arbitration clause under Czech law.
B.3 Prohibition of surprising decisions in arbitration proceedings
In the proceedings File No. 23 Cdo 2151/2024, the Supreme Court assessed the question whether the arbitration court, by issuing an arbitration award on the basis of a legal opinion which could not have been expected in view of the previous course of the proceedings, deprived the party of the possibility to have the case heard before the arbitrators pursuant to section 31(e) of the Arbitration Act.
First, the Supreme Court reminded its previous case law based on which prohibition of surprise decisions also applied in arbitration proceedings. The same conclusion was reached by the Constitutional Court in its award of 8 March 2011, File No. I. ÚS 3227/07, in which it emphasized that the exclusion of unpredictability in the decision-making of arbitrators was all the more urgent because arbitration proceedings were in principle single-instance (see section 27 of the Arbitration Act), which made it impossible for the parties to react at least subsequently to a surprise legal opinion. The arbitrator cannot be merely a passive actor but must ensure that their decision is not surprising by the way the proceedings are conducted. The Supreme Court emphasized that in arbitration proceedings, it must also be clear to the parties how the arbitrator may assess their case in legal terms in order to comply with the principles of due process, since only on that basis can the parties make a judgment as to what facts or legal arguments are relevant to the case and, if necessary, introduce them in the proceedings. Without such an instruction from the arbitrator, it might not be clear to the parties on which means of defense or attack to base their action in the proceedings. As a result, the purpose of the proceedings would be impeded. The purpose of the proceedings is primarily – including in proceedings before arbitrators ‒ the fair protection of the subjective private rights and legitimate interests of the parties (cf. section 1 of the Civil Procedure Code in conjunction with section 30 of the Arbitration Act).
In the case at hand, the arbitration court assessed the claim in legal terms in a manner that was not set out in the arbitration action and was not contemplated by any of the parties to the arbitration. In the reasoning of its award, the arbitration court itself, in accordance with the findings of the lower-instance courts, stated that it had found the conditions for pre-contractual liability on the part of the (predecessor) Plaintiff and, although such a legal assessment had not been offered for consideration by any of the parties to the arbitration proceedings, the arbitration court took this liability into account in its decision. Despite this, the appellate court, reviewing the arbitration award pursuant to section 31(e) of the Arbitration Act, concluded that the arbitration court had not made any procedural error, since the parties had an equal opportunity to exercise their procedural rights pursuant to section 18 of the Arbitration Act and the arbitration court was not obligated to instruct the parties pursuant to section 118(a)(2) of the Civil Procedure Code.
The Supreme Court had a different view than the appeal court. It concluded that it was the duty of the arbitration court to alert the parties to the arbitration proceedings (in particular, the Plaintiff’s predecessor) to the possibility of a different legal assessment of the case, not yet considered by the parties in the proceedings, and thus give both parties the opportunity to provide their statements in factual and legal terms. By failing to do so, the arbitration court failed to give the Plaintiff’s predecessor the opportunity to have the case heard before the arbitrators pursuant to section 31(e) of the Arbitration Act. If the appellate court then concluded that there was no obligation on the arbitration court to inform the parties of a different possible legal assessment of the respective case and that there was no such deprivation of the party’s opportunity to have the case heard before the arbitrators, it departed from the established decision-making practice of the Supreme Court and its decision was, therefore, incorrect.
