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Practical Aspects of the Use of Prorogation Clauses Under Czech Law

Practical Aspects of the Use of Prorogation Clauses Under Czech Law

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Prorogation clauses are forum-selection clauses in contracts between entrepreneurs, who agree in writing on the local jurisdiction of a first-instance court for disputes arising out of or in connection with their business matter, unless the law states otherwise and prescribes an exclusive jurisdiction. It is possible to enter into a separate prorogation agreement instead of a contractual clause with the same effect.

This practice constitutes a good representation of freedom of contract and the emphasis is put on the maxim pacta sunt servanda  (“agreements must be kept”). In line with the freedom to agree on the jurisdiction of courts of one country, entrepreneurs are explicitly allowed to select their local jurisdiction as a place of adjudication for possible disputes. A prorogation clause may refer to a specific litigation or cover any and all disputes arising from the contract. The law requires that prorogation clauses be in writing and be sufficiently certain to allow an independent third party to be able to identify the intended forum any doubts. In practice, the parties often choose a court in the jurisdiction of the seat of one of them, or by some other party-related factor. It is also possible to agree on prorogation by reference to the General Terms and Conditions available online as indicated in the written contract, if they were known to the counterparty or attached to the contract on its execution. However, parties contracting under Czech law should be aware of the battle-of-forms issue where the “knock-out” rule of contradictory prorogation clauses can lead to the applicability of the general rules of a local jurisdiction under the Czech Civil Procedure Code.

In practice, there were problems related to the exclusivity of prorogation clauses. In contrast with Regulation (EU) No. 1215/2012 of the EP and the Council of 12 December 2012 on the jurisdiction, recognition, and enforcement of judgments in civil and commercial matters (recast) (the “Brusel I Bis (recast)”), the Czech Civil Procedure Code does not expressly stipulate that the chosen jurisdiction must be exclusive. It was therefore unclear whether a general prorogation clause without reference to exclusivity would exclude the option of the parties filing a lawsuit with a court that has jurisdiction by operation of law. This question was resolved by the Constitutional Court of the Czech Republic, which rejected the opinions of legal commentators and ruled that prorogation clauses that did not include a remark about the exclusion of courts with jurisdiction by operation of law were nonetheless to be interpreted as exclusive. The Constitutional Court argued that as the law grants entrepreneurs such discretion, it falls within the parties’ constitutional rights to do as they wish un-less prohibited by law. Public law should respect the will of the parties to the fullest possible extent, therefore where the parties express their will for a specific jurisdiction but do not express their will towards general jurisdiction, they are to be understood to have intended to exclude the latter.

Another unclear feature about prorogation clauses is their elasticity with factual changes over time. If a prorogation clause states that jurisdiction is to be determined based on the seat of one of the parties as of the date of execution of the contract and later the company moves its seat, it is unclear whether the prorogation remains with the court with jurisdiction attached to the original seat or if it moves to the company’s new seat. Legal commentators unanimously state that prorogation aligns with the place on the date of execution. Adjudication on this matter is awaited.

All of these scenarios relate to domestic settings. Cases with an international element will generally be resolved by international treaties or norms (such as the Brusel I Bis (recast), bilateral treaties on legal cooperation, etc.), and will be assessed on a case-by-case basis. The Czech Supreme Court has ruled that for cases with an international element, unless it is clear from the prorogation clause that the parties intended to agree on the jurisdiction of a particular court, such arrangements should be understood as agreements on the choice of international jurisdiction or the jurisdiction of a particular country.

Although there are potential risks attached to prorogation clauses, with careful and clearly defined wording, the use of prorogation clauses should predominantly be beneficial for entrepreneurs to achieve clarity at the initial stages of a dispute.

By Tomas Matejovsky, Partner, and Petr Benes, Senior Associate, CMS Prague

This Article was originally published in Issue 7.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

 

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