By: Martin Hrodek1Martin Hrodek heads the Dispute Resolution Practice Group in the Firm’s Prague office. He specializes in litigation and arbitration matters, particularly those related to mergers and acquisitions. He also advises industry clients on a wide range of commercial matters, including private equity, divestitures and private competition claims, among others. and Kristína Bartošková2Kristína Bartošková is an associate with the Dispute Resolution Practice Group in the Firm’s Prague office.
A. Legislation, Trends and Tendencies
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 (the “Arbitration Act”), to which no legislative amendment was made in 2015.
A.2 Trends and Tendencies
In the last publication of the International Arbitration Yearbook, we cited the Czech Supreme Court decision pursuant to which arbitration agreements concluded for settlement of disputes concerning domain names registered by CZ.NIC3CZ.NIC is a Czech association that, among other matters, administers .cz domain names. – a top level domain registrar – were deemed invalid.
As of 1 March 2015, disputes concerning .cz domain names are subject to an entirely new system governed by the new Rules of Alternative Dispute Resolution, which form a part of the Rules of Domain Names Registration under ccTLD.cz. This new ADR system does not involve arbitration proceedings within the terms of the Arbitration Act; the decision of the ADR panel does not represent a writ of execution, whereas neither lis pendens nor res judicata principles apply in this respect. In other words, a claimant may always bring the same claim before a competent court, irrespective of whether the matter has already been settled (or is in the process of being settled) within the ADR proceedings. From a practical point of view, the ADR proceedings utilize the online platform managed by the Arbitration Court of the Czech Economic Chamber and the Czech Agrarian Chamber (the “Arbitration Court”) in accordance with the Code for the Resolution of .cz Domain Disputes.
The other peculiarity of the ADR proceedings is that the claimant may only request: (i) termination of a domain name registration; or (ii) transfer of the domain name. Any other claims, such as claims for remuneration for the costs of the proceedings or compensation for damages arising out of illicit domain name registration, must be raised before the competent court.
The rules governing the ADR proceedings are only applicable to and binding upon those domain name holders who registered their domain name or extended its validity by 1 March 2015.
In addressing the attitude of the Czech government towards arbitration, we cannot omit an official declaration of the Czech Minister of Transportation, who, in October 2015, ordered all organizations subordinated to the Ministry of Transportation not to include arbitration agreements in newly concluded contracts, as well as always to make all potential disputes arising from such contracts subject to the exclusive jurisdiction of Czech courts.4In exceptional cases, the Ministry of Transportation may decide on an exception to this rule. The official reason provided for this sudden shift away from arbitration was that results of arbitral proceedings are highly unpredictable, and it is not possible to file an appeal on merits against an arbitral award.
The decision was presumably made as a reaction to a recent loss of Czech Railways in a large arbitration brought against a major Czech manufacturer of trains before the Arbitration Court.5Award dated 12 November 2015 issued in the arbitration proceedings ref. No. Rsp 1327/12 concerning the dispute between ŠKODA TRANSPORTATION a.s. as the Claimant and České dráhy a.s. as the Respondent. The order of the minister may have immense impact, as the organizations subordinated to the Ministry of Transportation6These organizations include, inter alia, Ředitelství silnic a dálnic (Road and Motorway Directorate), Řízení letového provozu (Air Navigation Services of the Czech Republic), Drážní inspekce (Railway Inspection), Státní plavební správa (State Navigation Administration) and Ředitelství vodních cest (Czech Directorate of Waterways). frequently conclude many substantial contracts that could potentially give rise to the biggest disputes led before the Arbitration Court.
B. Cases
There have been no significant court decisions in the Czech Republic relating to arbitration proceedings in 2015.
C. Costs In International Arbitration
C.1 Allocation of Costs
Generally, if the place of arbitration is in the Czech Republic, the matter of costs allocation will be addressed in relation to the rules in the Arbitration Act, as well as of the arbitration institution (if any).
Since the Arbitration Act does not contain comprehensive rules relating to costs allocation, this matter will be adequately governed by the general rules contained in Act No. 99/1963 Coll., Civil Procedure Code, as amended (the “Civil Procedure Code”). In general, pursuant to the Civil Procedure Code, the party that prevails in the dispute shall be awarded full compensation of the costs required for the effective enforcement of its claims against the losing party. Should a party have only partial success in the dispute, the court usually proportionally divides the costs, or declares that no party shall be awarded any remuneration of costs. To a limited extent, the court may also exercise some discretion in the matter of costs allocation.
Unlike the Arbitration Act, the current Rules of the Arbitration Court7We specifically address these Rules as the Arbitration Court is the most influential and used arbitration institution in the Czech Republic. (the “Rules”), in wording effective as of 1 October 2015, contain comprehensive regulation of principles governing the costs of arbitral proceedings. Generally, the regulation of costs allocation contained in the Rules is, in fact, very similar to the principles governing costs allocation in standard civil court proceedings. However, the Rules stipulate that in justified cases, the arbitral tribunal does not need to award reimbursement of costs.8Section 55 (6) of the Rules. In addition, the Rules explicitly allow the parties to agree on this matter in the arbitration agreement.9Section 55 (7) of the Rules. The Rules thus allow arbitrators to exercise more discretion in deciding on costs allocation than is permissible for judges within the standard civil court proceedings governed by the Civil Procedure Code.
As an interesting note, the Rules, in the wording effective until 30 June 2012, contained a different principle that allowed arbitral tribunals to exercise even wider discretion in costs allocation. Specifically, the older version of the Rules stated that each party was to bear its own costs, whereas an arbitral tribunal could award partial coverage of these costs by the other party only in some exceptional cases.
C.2 Security for Costs
Neither the Arbitration Act nor the Rules contain a provision under which an arbitral tribunal would be able to order a party to provide security for the other party’s costs. Although we are not aware of any arbitration proceedings conducted under the Czech procedural rules that would encompass the arbitral tribunal ordering one of the parties to provide security for the costs that the other party incurs, we are of the opinion that such an order would be possible if the parties so agree in an arbitration agreement or in the procedural rules. If this were the case, the order would very likely need to be in the form of an order issued by the arbitration panel.
C.3 Recovery of Costs
As stated in Section C.1, the matter of costs recovery is governed by the Arbitration Act, the Civil Procedure Code and the Rules. In standard civil court proceedings, the court awards the reimbursement of costs of legal representation pursuant to legal regulations that stipulate special rates for each individual act of legal service provided by outside counsel. Other expenses, such as travel expenses or administrative expenses, are recoverable in accordance with submitted documents showing the nature and the amount of these expenses.
As a rule, the Arbitration Court awards recovery of costs relating to outside counsel’s legal fees pursuant to the same statutory rules as applicable in standard civil court proceedings. In addition, the Rules provide that the parties to an arbitration may agree in writing that the remuneration of the legal fees are to be determined in another way. So, in practice, outside counsel’s hourly fees may also be fully recoverable, provided that the parties agree to this in writing.
With respect to the scope of recoverable costs, the Rules contain a definition of “parties’ own expenses,” which are the expenses of the parties covering the costs required for the effective assertion or defense of a claim, in particular, the fees of legal representation or the travel and accommodation expenses.10Section 45 (7) of the Rules. As previously stated, the reimbursement of legal fees is usually awarded within the statutory limits. As to other expenses, such as travel, accommodation or other administrative expenses, the parties need to submit to the arbitration tribunal documents proving that the expenses were incurred as well as the amounts involved.