The Czech Supreme Court further tightens the rules regarding unilateral selection of a sole arbitrator by one party to arbitration proceedings.
At the end of 2016, the Supreme Court of the Czech Republic rendered an important ruling with far reaching implications for the future of arbitration proceedings in the Czech Republic. Surprisingly, the ruling remains widely unnoticed by market participants and potential claimants.
Facts of the case
The ruling was rendered in a dispute between two entrepreneurs. The parties argued about the validity of an arbitration clause concluded in a framework agreement which stipulated that "any disputes […] will be decided in an arbitration proceeding by one arbitrator. The claimant shall appoint the arbitrator."
At the center of the dispute were two questions:
1. Is the method of selection of the sole arbitrator unilaterally by the claimant?
2. Should such method of selection of the sole arbitrator be invalid and does it render the whole arbitration clause null and void?
Ruling of the court
The Czech Supreme Court first considered the validity of the method of selection of a sole arbitrator when the sole arbitrator is selected unilaterally by a claimant.
The court argued that when the sole arbitrator is to be selected by the very same party bringing the claim to the sole arbitrator, then his or her impartiality is, by definition, imperiled. As a consequence, the fairness of the trial is at risk and difficult to maintain.
The court also cited a similar ruling of the Czech Constitutional Court which was issued in a case of an arbitration clause concluded with a consumer.
As a result, the court ruled on the first question that the method of selection of a sole arbitrator unilaterally by a party bringing a claim before the sole arbitrator is invalid.
Subsequently, the court ruled on the second question and decided that invalidity of a part of an arbitration clause dealing with the selection of a sole arbitrator renders the whole arbitration clause null and void.