According to a recent decision of the Czech Supreme Court, foreign arbitral awards granted under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”) are enforceable only by Czech courts and not by private bailiffs following the wording of the Czech Enforcement Code. Such decision now puts down a major obstacle, which inevitably makes the enforcement of foreign arbitral awards significantly less efficient in the Czech Republic.
In its judgment, the Court confirmed that the New York Convention is directly applicable and that foreign arbitral awards falling within its scope must be recognised by Czech courts without any due procedure. However, the Court concluded that such judicial recognition does not automatically lead to enforceability for seizure purposes. This is in contrast to previous practice, where foreign arbitral awards granted under the New York Convention were also enforceable under the Czech Enforcement Code - a practice considered to be both convenient and efficient.
The Court referred to the Article 3 of the New York Convention, which states that parties to the Convention shall recognise arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon. The territorial rules according to which enforcement of the awards is to be governed are the Civil Procedure Code and Czech Enforcement Code.
The Court followed the literal wording of Section 37(2) of the Czech Enforcement Code and held that for a foreign arbitral award to serve as a valid enforcement title, it requires a formal declaration of enforceability pursuant to directly applicable EU Regulation or international treaty. Alternatively, a private bailiff can automatically enforce the foreign arbitral award if such award is recognised by a separate decision. Unfortunately, such declarations or recognitions are very scarce as it is not an established practice.
The Court´s interpretation of the Enforcement Code potentially creates a substantial obstacle for the effective enforcement of foreign arbitral awards. The requirement of an additional step for the recognition of arbitral awards has attracted sharp criticism for being wholly incompatible with the New York Convention, which requires the direct enforceability of arbitral awards. The level of controversy sparked by the decision has led some to speculate that the Court may shift their position on this ruling in the future.