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Czech Republic: The Dispute Resolution Landscape – Commercial Disputes

Czech Republic: The Dispute Resolution Landscape – Commercial Disputes

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In this article we provide a brief summary of the Czech dispute resolution landscape, focusing on commercial disputes.

Litigation Before State Courts

Most civil-law disputes – including commercial disputes – need to be initiated in one of the 86 District Courts. Based on local competence rules, the respective court then hears the case in the first instance. The second instance (appeal) proceedings are heard in Regional Courts. However, Regional Courts also act as the first instance court for selected agendas (e.g., intellectual property and corporate disputes). In these complex cases, High Courts function as courts of appeal. Above this structure stands the Supreme Court, which deals with cassation requests (extraordinary remedies). The highest court in the system is the Constitutional Court, which stands outside this general structure. According to statistics, the Czech judicial system continuously ranks among the fastest in the EU, with an average duration of less than one year in the first instance. But the reality is different. If the disputes are more complex, first instance proceedings extend to several years. Although improvements are visible, the slowness of justice is often frustrating for entrepreneurs.

An area that could be improved is digitalization. Although this topic is intensively discussed and certain projects for improvement are in progress, Czech courts currently still mostly use physical files. Although submissions can be made electronically, judges (and parties) still need to work with physical case files, which can’t be accessed outside the court’s building. A limited electronic filing system is currently only used in insolvency proceedings because of publication requirements.

In terms of witness testimonies, a relatively recent change in legislation has finally established a much-needed framework for examinations via video conferencing, which has been used during the lockdowns of recent years.

Arbitration and ADR – a Reasonable Alternative?

In the two decades following the fall of communism, arbitration became a popular alternative to the general state court system – especially among commercial entities. However, this instrument was also misused to the detriment of consumers – leading to significant changes in legislation. As a result of these developments, arbitration is no longer available for consumer disputes.

The role of arbitration in commercial disputes is also not as prominent as it used to be. Local arbitration, whether institutional or ad hoc, has undergone a crisis of confidence, resulting in a decline in interest in this dispute resolution framework among businesses. The initiatives in existing institutions and those aiming to establish new ones give hope that we could see changes in this area relatively soon. This is certainly positive news because arbitration can offer speed, flexibility, and expertise that state courts simply cannot compete with.

Aside from arbitration, Czech law also includes a framework for mediation – another method of alternative dispute resolution. Although the popularity of mediation for commercial disputes is not overwhelming, there’s a growing trend in this area. Agreements reached in mediation are not directly enforceable under Czech law unless they are subsequently approved by a court at the parties’ request. This flaw is being addressed (at least at an international level) by the Singapore Convention on Mediation, which opened for signature in 2019. But the Czech Republic is not yet a signatory and there’s no indication this will change anytime soon.

What to Expect in the future?

Possibly the most significant change in terms of civil-law disputes could be brought by the much-anticipated Class Actions Act. Czech procedural law does not currently make any provisions for class actions. The bill on class actions aims to change this area completely, most likely with the introduction of an opt-in mechanism for consumers. The bill is currently in the early stages of the legislative process, and it remains to be seen in which form it will be enacted. As the implementation deadline prescribed by the respective EU directive will lapse by the end of 2022, we expect to learn more in the coming months.

By Petr Sabatka, Partner and Head of Litigation and Regulatory, and Jan Karabeles, Associate, DLA Piper Prague

This Article was originally published in Issue 9.8 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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