Traditionally in the Czech Republic, both national and foreign arbitration awards could have been enforced either in standard court enforcement proceedings or in proceedings administered by court-appointed bailiffs.  While procedurally enforcement through a bailiff is an alternative to the enforcement through a court, the former possesses a few clear advantages. Some of the advantages include the absence of a court fee or the more pro-active role of the bailiff when it comes to investigating the assets of the debtor to be affected by the enforcement proceedings. Foreign arbitration awards might have just lost the benefit of this more effective enforcement option. In its most recent case law, the Supreme Court has started rejecting enforcement of foreign arbitration awards by court-appointed bailiffs provided that the foreign awards have not first gone through a formalized recognition proceedings before a national court.

Since 1993, the Czech Republic has been a party to, and therefore has been bound by, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“New York Convention”), which is the principal international instrument containing basic principles governing recognition and enforcement of foreign arbitral awards as well as the issue of referral by a court to arbitration. According to Article III of the New York Convention, the foreign arbitral awards are entitled to a prima facie right to recognition and enforcement in the Contracting States.[1] In other words, the national courts should not impose unduly onerous procedural obstacles when recognizing and enforcing the foreign arbitral awards that are covered by the New York Convention, and instead these should be treated more or less the same as the national ones.

Nevertheless, recently the Supreme Court has adopted a new line of argument that contradicts the principle set out in article III of the New York Convention. In its breakthrough decision,[2] the Supreme Court concluded that a foreign arbitral award cannot be enforced in enforcement proceedings executed by a court-appointed bailiff without the award first going through the standard recognition proceedings.

The requirement to have the foreign arbitral awards recognized by a national court could also be viewed as a procedural obstacle forbidden by the New York Convention. Apart from the fact that the recognition proceedings could take several years, it could, in fact, enable the debtor to take steps that in turn may negatively affect or even frustrate the enforcement proceedings as such, e.g. hiding or transferring the assets to avoid the enforcement proceedings. However, according to the Supreme Court rationale, it should be sufficient that the national and foreign arbitral awards are treated in the same way within one of the two types of the enforcement proceedings regulated by the national law.

The main argument for the above conclusion was that, within the regime of the enforcement proceedings through a court, the foreign arbitral award is informally being recognized by the court issuing a formal decision on ordering its enforcement. However, this is not the case within the regime of the enforcement proceedings through a court-appointed bailiff, which is initiated by a court authorization issued to a specific bailiff who shall subsequently enforce the respective award. According to the Supreme Court, such an authorization is not a reasoned court ruling and thus the award is not deemed to be recognized. In the light of this line of argument, a foreign arbitral award needs to be first formally recognized within a formalized court proceedings before submitting such an award to enforcement through a bailiff.

This reasoning has already been used by the Supreme Court in a more recent case[3] in which the Supreme Court considered whether to enforce an arbitral award issued within the territory of the Slovak Republic. Although the Supreme Court once again concluded that a foreign arbitral award cannot be enforced through a bailiff, it also addressed the possible conflict between the New York Convention and a bilateral treaty concluded between the Czech Republic and the Slovak Republic, according to which the recognition is governed by the law of the country where the decision is to be enforced, i.e. by Czech law.

In this regard, the Supreme Court referred to its previous case law, according to which the New York Convention has a specific subject matter and therefore, it is lex specialis towards any bilateral treaty. However, the most favorable treatment clause under Article VII of the New York Convention allows for the application of rules on recognition and enforcement of bilateral treaties or national law that may be more liberal than the New York Convention. Nevertheless, the Supreme Court concluded that even in light of the bilateral treaty the foreign arbitral award could only be enforced within court enforcement proceedings as the bilateral treaty only refers to submitting the request for recognition and enforcement of the award to the competent court.

Finally, the Supreme Court once again declared that enforcement proceedings through a court and the enforcement proceedings through a bailiff are two possible alternatives, thus their conclusion cannot possibly contradict the principles set out in the New York Convention.

This case note originally appeared in the Baker McKenzie International Arbitration Yearbook. The Yearbook comprises reports on arbitration in key jurisdictions around the globe. You can access the Yearbook here. The country chapter “Czech Republic” can be found here.

 

 

[1]Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.

[2] Decision of the Supreme Court file N o. 20 Cdo 1165/2016 dated 3 November 2016.

[3] Decision of the Supreme Court file No. 20 Cdo 5882/2016 dated 16 August 2017.