How the Constitutional Court Saved Arbitration

The Constitutional Court and the Supreme Court of the Czech Republic in recent years have gained a reputation of not being very open towards arbitration clauses. Any ambiguity in the wording usually lead to the invalidity of the arbitration clause and thus to unenforceability of the respective arbitration awards. This approach has been one of the reasons why interest in arbitration proceedings has been decreasing in the Czech Republic.

It now seems that at least the Constitutional Court has changed its view and is prepared to give arbitration clauses a second chance. In a recent decision it overruled a decision by the Supreme Court. Pursuant to an arbitration clause any dispute between the parties A and B shall be decided by an arbitrator X and in case the arbitrator X is not able to decide the case, party B shall unilaterally choose the arbitrator from a list of arbitrators.

The Supreme Court came to the conclusion that the arbitration clause was invalid and the respective arbitration award unenforceable. The second part of the arbitration clause allowing only one party to choose the arbitrator was deemed disadvantageous for the other party and thus in breach of fundamental principles of equality of the parties. The Supreme Court deemed it irrelevant that in the given case the dispute was in fact decided by arbitrator X appointed pursuant to the first part of the arbitration clause even though this part of the arbitration clause was found correct.

The Constitutional Court did not share the opinion of the Supreme Court. It declared it excessively formalistic and in breach of fundamental principles of autonomy of will of the parties in their contractual process. Due to the fact that the arbitrator was appointed according to the valid part of the arbitration clause such appointment must also be accepted as valid.

The Constitutional Court also clearly explained how statutory law should be interpreted by the courts. According to the Constitutional Court courts are not blindly bound by the strict wording of statutory law, on the contrary they are obliged to deflect from such wording if requested by the purpose of the law, history of its origin, systematic relations or any constitutional principles. The obligation of courts to apply legal provision does not only mean to search for direct and exact answers in the text of statutory law but also to understand the content of the law with respect to constitutional principles.

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JUDr. Ondřej Rathouský