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Legal analysis: The trial between Czech Railways and Škoda Transportation is back on track. Who is making light of the situation?

Legal analysis: The trial between Czech Railways and Škoda Transportation is back on track. Who is making light of the situation?
photo: Škoda Transportation Press Materials/Legal analysis: The trial between Czech Railways and Škoda Transportation is back on track. Who is making light of the situation?
25 / 07 / 2022

In June of this year, the Supreme Court ruled on a dispute concerning the annulment of an arbitration award between Česke Drahy a.s. and ŠKODA TRANSPORTATION a.s. The dispute was returned to the Municipal Court in Prague for the beginning of the judicial review.

There is often a misconception among the general public that the arbitral award (the result of the arbitration) must be the final outcome of the dispute. However, in certain cases, the law allows for the arbitral award to be set aside by the court.

Česke Drahy (Czech Railways) sought to invoke the grounds for setting aside the arbitral award, viz:

  • the arbitration agreement is invalid on other grounds, or it has been annulled, or it does not apply to the agreed matter,
  • an arbitrator was involved in the case who was neither under the arbitration agreement nor otherwise called to arbitrate or was not qualified to be an arbitrator (bias)
  • the award was not made by a majority of the arbitrators,
  • the party was not allowed to hear the case before the arbitrators.

In its decision, the Supreme Court took into account only the objection of bias, stating that the Court of Appeal (here the High Court) erred in not admitting to judicial review the decision of the Presidium of the Arbitral Tribunal on the arbitrator's lack of bias. This ground of procedural error in the judicial review was sufficient to refer the dispute concerning the invalidity of the arbitral award back to the beginning of the judicial review (i.e., to the Municipal Court).

It is not the intention of this text to anticipate further judicial decisions. However, it should be noted that if the courts were to finally find grounds for setting aside the arbitral award (in this case, most likely, the arbitrator's bias), the arbitral proceedings would continue at the request of one of the parties.

Here, however, (unless the parties agree otherwise), the arbitrators would be different from the original arbitrators, and the proceedings would proceed from the outset (i.e., the outcome cannot be predicted).

One can therefore wonder at Skoda Transportation's position that the Supreme Court's decision is a matter of one procedural issue and that the others have been resolved in Skoda Transportation's favour. This statement by the SC is somewhat of an understatement of the whole situation, as realistically the dispute may be back at the arbitration stage.

One can understand that Czech Railways paid the amount lost after the arbitral award was issued. Any application for annulment of the arbitral award did not have a suspensive effect (ŠKODA TRANSPORTATION could have applied to execution in the event of non-payment).

To summarise the procedural development of the dispute, it cannot be said at this point that one party is "pulling the short end of the rope," as Škoda Transportation tries to suggest.

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