"The delays in the Czech Court system and the lack of experienced
judges constitute a major challenge for the country's integration
in to the European Union". That was the controversial verdict of
the Brussels Commission's Report, Agenda 2000 on the Czech
Republic's application to join the European Union.
While the Commission's views were dismissed by some commentators as
ill-informed and exaggerated, few lawyers with experience of the
Czech legal system would disagree that there are serious problems
to be addressed.
How then can a western company doing business in the Czech Republic
avoid having any dispute he may become involved in being dealt with
by the Czech courts?
Agreeing to litigate in the courts of a different state is one
option, but even if this can be agreed, serious difficulties are
likely to be encountered in trying to enforce a foreign court
judgment in the Czech Republic.
A better solution is to agree to arbitration. The Czech Republic is
a signatory to the New York Convention on the Recognition and
Enforcement of Arbitral Awards and it will enforce awards made in
other member countries.
The purpose of this article, however, is to consider what options
there are for arbitration in the Czech Republic and reviews some of
the key provisions of the Czech Arbitration Act 1994.
Arbitration in the Czech Republic may take a number of forms.
Traditionally, international commercial disputes were referred to
the Arbitration Court attached to the Czechoslovak Chamber of
Commerce. Since partition, this permanent court of arbitration now
operates under the rather cumbersome name of the Arbitration Court
attached to the Economic Chamber of the Czech Republic and the
Czech Agricultural Chamber of the Czech Republic. The role of this
institution is considered later in this article.
Arbitrations under the rules of international arbitral institutions
such as the London Court of International Arbitration and the ICC
are also permitted in the Czech Republic as are ad hoc arbitrations
including arbitrations under the UNCITRAL Rules.
The Arbitration Act 1994
Whatever form the arbitration takes, the Czech Arbitration Act 1994
governs all arbitral proceedings taking place under arbitration
agreements made after 1st January 1995.
A key change effected by the Arbitration Act 1994 is that it
enables domestic as well as international disputes to be referred
to arbitration. It has also widened the scope of disputes that are
capable of being arbitrated. These are significant changes from the
old law, which restricted the use of arbitration to disputes
arising from international trade agreements.
Rationale for the 1994 Act
Following the Velvet Revolution of 1989, a legislative commission
was formed with the task of producing a new arbitration law for the
It was hoped that modernisation of the law of arbitration would
help to secure inward foreign investment by providing an
internationally acceptable and politically neutral system of
commercial dispute resolution. There was also a concern that, in
the post communist era, an increasing number of foreign investment
contracts were providing for arbitration abroad in Sweden and
London rather than outside of the Czech Republic.
The Arbitration Act of 1994 is based on the old 1963 legislation.
In contrast with the new arbitration laws elsewhere in Central and
Eastern European, it is not based on the UNCITRAL Model
Key Points in The Arbitration Act 1994
- All disputes relating to "property" (perhaps more accurately
translated as "assets") are arbitrable. The precise ambit of this
term is unclear, but it is generally accepted to include most
claims of a financial or monetary nature.
- Arbitration clauses must be in writing.
- Both Czech and foreign citizens may act as arbitrators.
- Arbitrators have a statutory duty of confidentiality from which
they can be released.
- There are specific provisions dealing with the appointment and
disqualification of arbitrators.
- Proceedings are commenced only when the statement is lodged
with either the relevant permanent court of arbitration or the
president of the tribunal.
- Arbitral tribunals have the power to decide their own
- The parties can agree their own rules of procedure.
- An arbitral tribunal may only hear evidence given voluntarily
and cannot compel a witness to attend the hearing. A witness can be
only compelled to give oral testimony by order of, and to, a Czech
- Parties can apply to the courts for preliminary measures in
support of arbitral proceedings or the future execution of an
award. In practice, however, the time it takes to secure a hearing
before the court may be self-defeating.
- Arbitrators must invite parties to settle their dispute
- If the parties agree, the tribunal may take into account moral
and equitable consideration instead of strict legal principles (ex
aequo et bono).
- Reasons for any award must be given.
- A second appellate tribunal may review the award if this has
been expressly agreed by the parties in the arbitration agreement.
This review then forms part of the proceedings of the arbitration
as a whole.
- Arbitration awards may be enforced through the courts.
- There are provisions dealing with the role of official bodies
in maintaining the custody of arbitral documents and awards.
- Arbitrators must apply the provisions of the Code of Civil
- The act specifies the grounds on which a Czech court may set
aside an award made in the Czech Republic. One reason for setting
aside such an award is that the court is satisfied that there would
be grounds to apply for a new trial in civil proceedings. It is not
clear how widely this particular power will be used.
- The act defines the jurisdiction of the courts in relation to
Permanent arbitration bodies in the Czech Republic
Since 1992, three private permanent arbitration bodies (as opposed
to ad hoc tribunals or state entities) have been recognised by
Czech law: the Arbitration Court attached to the Economic Chamber
of the Czech Republic and the Agricultural Chamber of the Czech
Republic ("the Arbitration Court"); the Arbitration Court of the
Stock Exchange Chamber; and the Arbitration Court of the
The only Czech entities able to enact valid bylaws or rules for the
procedural conduct of arbitrations held in the Czech Republic are
the permanent courts of arbitration which can only be legitimately
established by an act of parliament.
The Arbitration Court attached to the Economic Chamber of the Czech
Republic and the Agricultural Chamber of the Czech Republic ("the
Given the number of important arbitrations that it handles, this is
the most internationally prominent of the three permanent
The Arbitration Court dates back to 1949 when it was founded as the
Arbitration Court of the Czechoslovak Chamber of Commerce. On 3
November 1994, the Czech parliament adopted a law on the merger of
the Czechoslovak Chamber of Commerce and industry with the Czech
Republic's Economic Chamber. The idea was to create a new central
commercial interest body for the newly emerged state, to be known
as the Economic Chamber of the Czech Republic.
The unified chamber, in partnership with its sister agricultural
chamber, found itself the new guardian of the country's best known
permanent arbitral institution. The functions of the old
Arbitration Court were preserved and, under the 1994 legislation,
arbitration agreements that refer to the old Czechoslovak Chamber
are deemed to refer to the new Czech Arbitration Court.
Initially, the rules of the new Czech Arbitration Court remained
those of the old Czechoslovak institution. But following on from
the Arbitration Act 1994, new rules were issued on 15 March 1996 to
govern the conduct of arbitrations in the new economic
Organisation and services of the Arbitration Court
As well as its main centre in Prague, the Arbitration Court has now
established a series of Czech regional offices which maintain their
own specialised lists of regional arbitrators. This is in addition
to the main list of both Czech and foreign arbitrators kept by the
Arbitration Court's secretariat.
The key aim of this new venture has been to generate domestic
arbitration business for the Arbitration Court following the loss
of fee income from the drop in Moscow Convention references. To
help attract business, the Arbitration Court has introduced a
reduced fee structure for Czech parties. However, given the absence
of a domestic dispute arbitration culture, generating new local
work is proving difficult.
The Arbitration Court maintains an archive of the documents and
awards connected with the arbitrations that it administers these
are available for the parties but not the public.
A conciliation service is also offered by the Arbitration Court at
half the cost of administering an arbitration of the same
The Arbitration Court of the Stock Exchange Chamber and the
Arbitration Court of the Commodities Exchange.
Arbitrations conducted under the auspices of the stock and
commodities exchanges deal exclusively with disputes arising from
dealings on the two exchanges. Their tribunals only operate on the
basis of their own rules.
While it remains to be seen whether the court system of the Czech
Republic (which has also applied to join the Lugano Convention) is
considered acceptable by the European Union, a western company
doing business with a Czech entity would be well advised to include
in his contracts a clause providing for arbitration, whether in the
Czech Republic or in a neutral venue.
Neil Aitken and Charles Spragge
This article was first published in In-Brief and Arbitration