Arbitration Clause and Agreement

SHORT ANSWER TO THE MAIN QUESTION

Under Czech law, an arbitration agreement is an agreement under which the parties decide that a particular property dispute will not be decided by a state court, but by one or more arbitrators or a permanent arbitral institution.

If the agreement concerns future disputes arising from a particular legal relationship, it is an arbitration clause.

If a specific dispute has already arisen and the parties only then agree to submit it to arbitration, Czech law uses the concept of an agreement to submit an existing dispute to arbitration, traditionally referred to as a submission agreement.

The arbitration agreement must be in writing and may only be validly concluded for disputes that Czech law permits to be resolved by arbitration.

Current Czech law does not, for example, allow a business to refer disputes arising from consumer contracts to arbitration.

An arbitration clause is not a formality. It is a choice of a different dispute-resolution system instead of ordinary court proceedings.

YOU MAY BE THINKING…

“Isn’t arbitration faster than court?”

“Can we choose the arbitrator ourselves?”

“What if we cannot agree on an arbitrator later?”

“Can one party simply appoint the arbitrator?”

“Is arbitration confidential?”

“Can we appeal an arbitral award?”

“What if the arbitrator gets the law wrong?”

“Can I still sue in an ordinary court?”

“What if the contract itself is invalid? Does the arbitration clause still apply?”

“Is an arbitration clause a good idea in a contract with a foreign business partner?”

“And what exactly is a submission agreement? Does the arbitrator sign it too?”

That last question is a good example of why the terminology can be confusing.

A submission agreement is an agreement between the parties to an already existing dispute that the dispute will be submitted to arbitration. It is not a contract between the parties and the arbitrator.

CLIENTS OFTEN ASK…

What is the difference between an arbitration agreement, an arbitration clause and a submission agreement?

Arbitration agreement is the general legal concept.

It has two main forms.

An arbitration clause covers disputes that may arise in the future from a specific legal relationship or defined category of relationships.

For example:

“All disputes arising out of or in connection with this Agreement shall be resolved by arbitration…”

A submission agreement is concluded only after a specific dispute has already arisen.

For example:

A supplier claims CZK 4 million.

The customer argues that the work is materially defective.

The original contract contains no arbitration clause.

The parties nevertheless agree that this specific dispute will be decided by an arbitrator rather than by a court.

That is a submission agreement.

Which disputes can be resolved by arbitration?

Czech law allows arbitration primarily for property disputes that would otherwise fall within the jurisdiction of the courts and whose subject matter may be settled by agreement between the parties.

There are, however, exceptions.

Arbitration cannot be used, for example, to bypass the rules governing:

• disputes connected with enforcement proceedings,
• incidental disputes in insolvency proceedings,
• the current prohibition on arbitration of disputes arising from contracts concluded between a business and a consumer.

In practice, arbitration is therefore used mainly in B2B relationships and plays a particularly important role in international commerce.

Is arbitration always faster and cheaper than court proceedings?

No.

It may be faster.

It may be procedurally more flexible.

In an international relationship, it may offer other significant advantages.

But it is not automatically cheaper.

The cost depends, for example, on:

• the value of the dispute,
• the chosen arbitral institution,
• the number of arbitrators,
• the complexity of the case,
• the extent of evidence,
• the need for expert witnesses,
• the duration of the proceedings.

In a high-value dispute before a three-member tribunal, the costs may be substantial.

Arbitration is not “cheaper court” by definition. It is a different dispute-resolution mechanism whose advantages must make sense for the particular contractual relationship.

Can we choose our own arbitrator?

Yes.

The parties may directly designate:

• a specific arbitrator,
• several arbitrators,
• or a mechanism for their appointment.

They may also agree that disputes will be resolved by a permanent arbitral institution and become subject to its rules.

The appointment mechanism must, however, be structured so that the choice of arbitrator is not effectively left solely to one party.

The arbitrator must also be independent and impartial and disclose circumstances that may give rise to justified doubts about impartiality.

Can I appeal an arbitral award?

There is generally no ordinary appeal in the same way as against a judgment of a district or regional court.

The parties may, however, agree in the arbitration agreement that the award may be reviewed by other arbitrators upon request.

If no such mechanism is agreed, the award becomes, subject to statutory conditions, equivalent in effect to a final court judgment and is enforceable.

It is also possible to seek setting aside of an arbitral award before a court.

But that is not an ordinary appeal.

The court does not rehear the entire dispute merely because one party believes the arbitrator applied the law incorrectly.

If we have an arbitration clause, can the other party still sue in court?

Yes, they can file a claim.

The existence of an arbitration clause does not physically prevent a lawsuit from being filed with a state court.

However, the defendant may object, no later than its first substantive procedural step, that the dispute should be heard in arbitration pursuant to the arbitration agreement.

If the objection is timely and the arbitration agreement applies, the court will generally discontinue the proceedings.

An arbitration clause is therefore not a reason to ignore the first court document on the assumption that “the court has no jurisdiction anyway”. A timely procedural response may be critical.

WHAT THE LAW SAYS VS. WHAT HAPPENS IN PRACTICE

The law says “arbitration agreement”. Contracts often say “arbitration clause”

Commercial contracts use terms such as:

• arbitration clause,
• arbitral clause,
• arbitration agreement.

Legally, however, the exact structure matters.

If the parties agree in advance how future disputes will be resolved, they are entering into an arbitration clause.

If the dispute already exists and only then they decide to refer it to arbitration, they may enter into a submission agreement.

Written form is mandatory

The arbitration agreement must be in writing.

Czech law also accepts electronic means if they allow the contents of the agreement to be recorded and the persons who entered into it to be identified.

For electronically concluded contracts, the key question is therefore not merely:

“Do we have a signed PDF?”

The real question is whether the arbitration agreement can be proven to have been concluded in the legally required form.

Who will decide the dispute is crucial

A clause stating only:

“Disputes shall be resolved by arbitration.”

is too vague for a well-drafted contract.

You should think about:

• who appoints the arbitrator,
• how many arbitrators there will be,
• whether the arbitration will be ad hoc,
• whether a permanent arbitral institution will administer it.

Czech case law contains many disputes concerning invalid or insufficiently transparent appointment mechanisms.

The Czech Supreme Court has repeatedly made clear that parties cannot simply create a “private arbitral court” and refer the appointment of arbitrators to its own internal rules if it is not a genuine permanent arbitral institution established or recognised by law.

Similarly problematic may be a mechanism under which the choice of arbitrator is effectively controlled by only one contractual party.

Ad hoc arbitration and a permanent arbitral institution are not the same

In ad hoc arbitration, the arbitrator or arbitral tribunal is constituted for the specific dispute.

The parties have greater freedom to determine:

• the number of arbitrators,
• the method of appointment,
• procedural rules,
• the seat,
• the language,
• other procedural conditions.

But that also means the arbitration clause itself must solve more issues in advance.

With a permanent arbitral institution, part of the procedural infrastructure is already provided by its statutes and rules.

In the Czech Republic, an important institution is the Arbitration Court attached to the Czech Chamber of Commerce and the Agricultural Chamber of the Czech Republic.

Choosing an institution is not merely choosing a name to place at the end of the clause. It also means accepting its procedural and cost rules.

The scope of the arbitration clause matters

Czech law assumes, unless the parties agree otherwise, that an arbitration agreement may cover not only rights directly arising from the relevant legal relationship, but also questions of its validity and related rights.

Even so, the scope should be drafted consciously.

There is a significant difference between:

“disputes concerning payment of the price”

and

“all disputes arising out of or in connection with this Agreement, including disputes concerning its validity, interpretation, performance and termination”.

The first may be too narrow if a later dispute concerns damages or the validity of termination.

Arbitration is not public

Czech law provides that arbitration proceedings are non-public.

Arbitrators also have a statutory duty of confidentiality regarding facts learned in the performance of their function.

That does not automatically create a comprehensive confidentiality obligation for all parties regarding:

• the existence of the dispute,
• submissions,
• evidence,
• the result.

If confidentiality is commercially important, it is worth regulating it expressly.

State courts do not disappear entirely

By choosing arbitration, the parties do not create a legal universe without state courts.

Court assistance may still be needed, for example:

• when appointing an arbitrator if the agreed mechanism fails,
• when deciding on challenge or exclusion of an arbitrator,
• when carrying out procedural acts that arbitrators cannot themselves perform,
• when seeking interim relief,
• when bringing an action to set aside an arbitral award,
• when enforcing the award.

Arbitration therefore does not eliminate the state court system entirely.

It transfers the main decision-making on the merits of the dispute elsewhere.

BIGGEST RISKS AND COMMON MISTAKES

❌ Mistake: inserting an arbitration clause only because “it will be faster”

Consequence

Nobody checks in advance:

• the expected costs,
• the institution,
• the appointment mechanism,
• the type of disputes likely to arise.

Only after the dispute arises do the parties discover that they created a more expensive and complicated mechanism than ordinary litigation would have been.

Better approach

Start with the question:

Why do we want arbitration in this particular contract?

Only then draft the clause.

❌ Mistake: the arbitrator will be selected by an “arbitration centre” under its own rules

Consequence

If the entity is not a legally recognised permanent arbitral institution and the clause does not validly determine the arbitrator or the appointment mechanism, the arbitration agreement may face a serious validity problem.

Czech case law has repeatedly dealt with precisely this type of clause.

Better approach

Use:

• a clearly identified arbitrator,
• a transparent ad hoc appointment mechanism,
• or a genuine permanent arbitral institution.

❌ Mistake: one party effectively has the right to choose the arbitrator alone

For example:

“The dispute shall be decided by an arbitrator selected by the Supplier.”

Consequence

The mechanism significantly disturbs the balance between the parties and may be legally defective.

Better approach

Use a neutral mechanism.

For example:

• a sole arbitrator agreed by both parties,
• a sole arbitrator appointed by an independent agreed third party,
• or, for a three-member tribunal, each party appoints one arbitrator and those two appoint the chair.

❌ Mistake: an international contract contains only the sentence “all disputes shall be settled by arbitration”

Consequence

Once the dispute arises, several questions remain open:

• Where?
• Before which institution?
• Under which rules?
• How many arbitrators?
• In which language?
• What is the seat of arbitration?
• Which substantive law applies?

Better approach

In an international contract, treat the arbitration clause as a standalone dispute-resolution mechanism rather than a generic sentence.

❌ Mistake: the parties confuse arbitration with choice of law

The clause says:

“Disputes shall be resolved in Prague.”

That does not automatically mean:

“Czech substantive law governs the contract.”

The following are separate issues:

• the seat or place of arbitration,
• the arbitral institution,
• the governing substantive law.

Consequence

In an international contract, the parties may end up disputing not only the substantive claim, but first which law governs it.

Better approach

Coordinate governing-law and arbitration provisions, but draft them separately.

❌ Mistake: nobody considers review of the award

The parties assume:

“If the arbitrator makes a mistake, we will appeal.”

But an ordinary appeal may not exist.

Consequence

Only after the award is issued does the losing party discover that court proceedings to set aside an award are not a second round of merits review.

Better approach

Before signing, make a conscious decision whether you want:

• one-stage arbitration,
• or a contractually agreed review by other arbitrators.

❌ Mistake: arbitration clause in a consumer contract

Consequence

Current Czech law does not permit businesses to refer disputes arising from consumer contracts to arbitration.

Older online templates and articles may reflect the law that existed before December 2016.

Better approach

For B2C contracts, do not rely on older arbitration-clause templates and always check the current legal regime.

HOW TO APPROACH IT – REALITY, NOT THEORY

1. First decide whether you actually need arbitration

For an ordinary domestic contract between two smaller Czech businesses, an arbitration clause may not automatically provide an advantage.

By contrast, arbitration may make more sense in:

• major technology agreements,
• complex construction projects,
• joint ventures,
• international distribution,
• licensing arrangements,
• cross-border commercial relationships.

The decision should reflect the likely type of dispute, not the fact that an arbitration clause looks “professional”.

2. Define which disputes the clause should actually cover

Only unpaid invoices?

Or also:

• damages,
• contractual penalties,
• confidentiality breaches,
• intellectual property,
• termination,
• validity of the contract,
• related agreements?

The scope may become a very practical issue once the dispute has arisen.

3. Choose between institutional and ad hoc arbitration

A permanent arbitral institution provides an existing procedural framework.

Ad hoc arbitration offers greater contractual flexibility, but also greater responsibility for making the mechanism workable.

Neither option is universally better.

4. Decide who should arbitrate

For a relatively simple dispute, a sole arbitrator may be economically sensible.

For a high-value or complex dispute, a three-member tribunal may be more appropriate.

In specialist disputes, experience with a particular area may matter, for example:

• IT,
• construction,
• international trade,
• energy,
• M&A.

One of arbitration’s genuine advantages is the ability to influence the expertise of the person deciding the dispute.

5. In international contracts, deal separately with seat, language and governing law

These three concepts are often confused.

The seat of arbitration affects the legal framework governing the arbitration.

The language of arbitration affects costs and practical conduct.

The governing substantive law determines the legal rules applied to the contract and the substantive claim.

One choice does not automatically determine the others.

6. Think about the procedure itself

Should there be an oral hearing?

Can the dispute be decided on documents only?

How will documents be served?

How many arbitrators will there be?

Should there be a review mechanism?

Should expedited proceedings be possible?

With a permanent arbitral institution, many of these questions are governed by its rules.

In ad hoc arbitration, contractual drafting may matter much more.

7. Think about enforcement already when signing the contract

In a purely Czech B2B relationship, this may be relatively straightforward.

In an international contract, you should also ask:

• where the other party has assets,
• whether the award will need to be recognised abroad,
• which international enforcement framework will apply.

The cross-border recognition and enforcement of arbitral awards is one of the reasons arbitration plays such an important role in international commerce.

PRACTICAL EXAMPLES

The following examples are illustrative.

👉 Two Czech companies enter into a software development agreement

The project price is CZK 15 million.

Both parties want any technically complex dispute to be decided by someone with experience in IT projects.

Arbitration may make sense.

But it is not enough to say:

“The dispute shall be decided by an arbitrator.”

The clause should at least establish a workable appointment mechanism and the parties should also consider the procedural rules.

👉 A dispute has already arisen, but the original contract has no arbitration clause

Two companies are disputing defects in a production line.

One claims payment of the outstanding contract price.

The other claims damages.

Both parties want to avoid lengthy litigation and agree on a specific arbitrator.

It is not necessarily too late.

They may enter into a submission agreement for this specific existing dispute.

👉 The contract refers to a “private arbitral court”

The clause says that the dispute will be decided by an arbitrator selected from a list maintained by a private company under its arbitration rules.

But the company is not a permanent arbitral institution within the meaning of Czech law.

The problem becomes visible only after the dispute arises and one party challenges the validity of the clause.

A provision intended to simplify dispute resolution creates a new dispute:

Who has authority to decide the case at all?

👉 A Czech company enters into a distribution agreement with a foreign partner

Neither party wants to litigate before the courts of the other party’s home country.

Arbitration may offer a neutral forum.

But then the parties should address at least:

• the institution,
• the seat,
• the language,
• the number of arbitrators,
• the appointment mechanism,
• the governing law,
• the scope of the arbitration clause.

This is where the difference between a tailored clause and a generic clause becomes very practical.

👉 A company loses an arbitration and wants to “appeal”

The arbitrator awards the other party CZK 8 million.

The losing company believes the legal conclusion is wrong.

But the contract contains no agreed review by other arbitrators.

Mere disagreement with the legal analysis does not automatically mean that a state court will set the award aside.

Single-instance arbitration can be an advantage when you want finality quickly. It becomes a disadvantage when you lose.

 WHY YOU SHOULD BE CAREFUL WITH “I’LL DO IT MYSELF”

Generative AI can easily produce a sentence such as:

All disputes arising out of or in connection with this Agreement shall be finally resolved by arbitration.

The wording is easy.

The legal questions begin afterwards:

• Which disputes can legally be arbitrated?
• Before whom?
• How will the arbitrator be appointed?
• Is the institution actually a valid permanent arbitral institution?
• Which rules apply?
• How many arbitrators?
• What will the seat be?
• What language will be used?
• Do we want review of the award?
• Is the contract domestic or international?
• Where does the other party have assets?
• Does the relationship contain any consumer element?
• Will the clause continue to work after assignment or another change in the contractual relationship?

The hardest part of an arbitration clause is not writing that you do not want a state court. The hardest part is designing an alternative that is legally valid and practically workable for the kind of dispute that may actually arise from the contract.

LAWYER’S RECOMMENDATION + CHECKLIST

With an arbitration clause, I would not start from a template.

I would start with the question:

What dispute could realistically arise from this contract, and why would I want an arbitrator rather than a state court to decide it?

If there is a good reason for arbitration, I would check in particular:

• whether the dispute is legally arbitrable,
• whether the contract has any consumer element,
• whether the agreement should cover one existing dispute or future disputes,
• whether the arbitration agreement satisfies the written-form requirement,
• which disputes the clause should cover,
• whether it also covers validity, interpretation and termination of the contract,
• whether the dispute should go to ad hoc arbitration or a permanent arbitral institution,
• whether the selected institution is actually one to which jurisdiction can validly be granted,
• how many arbitrators there will be,
• how they will be appointed,
• whether the appointment mechanism gives factual control to only one party,
• what happens if the designated arbitrator refuses or is unable to act,
• whether specialist expertise matters,
• where the seat of arbitration will be,
• what language will be used,
• which substantive law will apply,
• which procedural rules will apply,
• whether proceedings should be predominantly written or include an oral hearing,
• how service will work,
• whether the parties want review of the award by other arbitrators,
• whether additional contractual confidentiality is needed,
• what the expected costs are,
• where the award will ultimately need to be enforced.

FAQ

What is an arbitration clause?

An arbitration clause is a written agreement under which future property disputes arising from a particular legal relationship or defined category of relationships will be resolved by arbitrators or a permanent arbitral institution instead of ordinary state courts.

What is a submission agreement?

Under Czech law, a submission agreement is an arbitration agreement concerning one specific dispute that has already arisen.

It is not a contract with the arbitrator. It is an agreement between the parties to submit that existing dispute to arbitration.

Must an arbitration clause be in writing?

Yes.

Without written form, the arbitration agreement is invalid.

Czech law also recognises electronic conclusion if the content of the agreement can be recorded and the parties can be identified.

Can an arbitration clause be used in a consumer contract?

Under current Czech law, a business cannot validly refer disputes arising from a consumer contract to arbitration.

Older contracts may raise transitional and historical issues, so older online arbitration-clause templates should not be relied on without checking the current law.

Is an arbitral award enforceable?

Yes.

An arbitral award that is no longer subject to review by other arbitrators, or for which the agreed review period has expired, has the effects of a final court judgment under Czech law and is enforceable.

Can an arbitral award be challenged before a court?

Yes, but only under statutory conditions.

A party may seek to have an arbitral award set aside.

This is not a traditional appeal, and the court does not rehear the entire dispute merely because one party disagrees with the arbitrator’s legal or factual conclusions.

The general time limit for an action to set aside an award is three months from delivery of the award.

Is arbitration confidential?

Arbitration proceedings are non-public under Czech law and arbitrators have a statutory duty of confidentiality.

That does not necessarily create a comprehensive confidentiality obligation on the parties themselves concerning all information related to the dispute.

If confidentiality is important, it is advisable to regulate it expressly.

Is arbitration suitable for an international contract?

Very often, yes.

In cross-border B2B relationships, arbitration may offer:

• a neutral forum,
• specialist decision-makers,
• procedural flexibility,
• important advantages in international recognition and enforcement.

But the arbitration clause must be drafted more carefully, particularly as regards:

• the institution,
• the seat,
• the language,
• the governing law,
• the appointment of arbitrators.