The so-called arbitration clause forms in practice a relatively common component of contractual arrangements in commercial relationships (for example, the relationship between a trader and his supplier), most frequently within the supplier’s terms and conditions. Given that we are often asked what the advantages and disadvantages of arbitration proceedings are, we dedicate our December circular to the fundamentals of this matter.

An arbitration agreement is a special type of agreement which is concluded pursuant to Section 2 of Act No. 216/1994 Coll., on Arbitration Proceedings and the Enforcement of Arbitration Awards, as amended. According to the said provision, the parties may agree that proprietary disputes between them (with certain exceptions), for the hearing and decision of which the jurisdiction of a court would otherwise be given, shall be decided by one or more arbitrators or by a permanent arbitral tribunal. The jurisdiction of the general court is thus excluded.

The arbitration agreement may relate both to an individual dispute which has already arisen and to all potential disputes which might arise in the future from a particular legal relationship. Having regard to the serious consequences, the arbitration agreement must be concluded in writing, otherwise it is invalid. Written form is preserved even where the arbitration agreement is concluded by telegraph, telex or by electronic means which enable the recording of their content and the identification of the persons who concluded the arbitration agreement. Where the arbitration agreement forms part of terms and conditions governing the so-called main contract (for example, a contract of sale, a contract for work, etc.) to which the arbitration clause relates, the arbitration clause is validly agreed even where the written proposal for the said main contract containing the arbitration clause has been accepted by the other party in a manner from which its consent to the content of the arbitration agreement is apparent. In this case, it is therefore necessary to observe written form only in respect of the proposal to conclude the contract; acceptance may also be made by conduct (konkludentně).

In their decision-making, arbitrators are governed by law, but they may also decide the dispute according to the principles of equity, however only where the parties have expressly authorised them to do so. Arbitration proceedings are (unlike proceedings before a general court) in principle single-instance and conclude with the issuance of an arbitration award, a written copy of which must be delivered to the parties and, after delivery, be provided with a clause on legal force. An arbitration award acquires, on the day of its delivery, the effect of a final court decision and is judicially enforceable. However, the parties may also agree in the arbitration agreement that the arbitration award shall not be final and may be reviewed by other arbitrators at the request of the participants.

A court may, at the request of either party, set aside an arbitration award, but only on grounds narrowly defined by law (for example, if the arbitration award was issued in a matter on which a valid arbitration agreement cannot be concluded, if the arbitration agreement were invalid, if the arbitration award were not passed by a majority of the arbitrators, if the arbitration award were to order a party to perform an impossible performance, etc.). Moreover, the filing of a request for setting aside does not in principle have suspensory effect on the enforceability of the arbitration award and it is therefore possible to continue enforcement or execution of the decision pursuant to the award.

In conclusion, we draw attention to the fact that where an arbitration agreement were to be concluded between a supplier and a consumer, it would then be a consumer contract and the provisions on consumer contracts pursuant to Section 51a et seq. of the Civil Code would also apply to it, as well as the provisions of European Community legislation concerning consumer protection (in particular the Directive on Unfair Terms in Consumer Contracts and the Commission Recommendation on the principles applicable to the bodies responsible for out-of-court settlement of consumer disputes).

This text was translated from Czech to English using an AI translator.