We want an arbitration clause in a commercial contract. What must it contain in order to be valid and usable?

An arbitration clause often finds its way into a contract at the last moment, as a single sentence taken from an older template. Its flaws come to light only in a dispute, when the other party objects that the clause is invalid, does not cover the claim in question or refers to an institution that may no longer decide. In relations between businesses it is governed by Act No. 244/2002 Coll. on Arbitration. Its requirements are brief, so the usability of a clause depends above all on what the parties agree themselves.

Written form and a precise definition of the disputes

An arbitration agreement must be in writing, otherwise it is invalid.

— Section 4(2) of Act No. 244/2002 Coll. (unofficial English translation)

The written form is preserved where the clause is contained in written correspondence between the parties, or where it was concluded by electronic means capturing both the content of the act and the person who made it (Section 4(3)). A reference in the contract to standard terms containing the clause is also sufficient, where the parties intend it thereby to become part of the contract (Section 4(4)). Draft the reference to the terms so that it is clear that it covers dispute resolution as well.

The clause must determine which disputes under which legal relationship are to go before arbitrators (Section 3(1)). The formulation “all disputes arising out of or in connection with this contract, including disputes as to its validity and termination” is safer than a brief “disputes under this contract”, where it may be argued whether it covers, for example, restitution of performance after withdrawal. The Act also protects the clause from the fate of the contract itself: it is invalid only where a ground of invalidity of the contract applies to it, and withdrawal from the contract does not affect it unless the parties agree otherwise (Section 5(2) and (3)). It also binds legal successors and the acquirer of an assigned claim, unless the parties exclude this in the clause (Section 3(2)).

Who will decide

This part of older templates should be checked most carefully, because since 2017 the range of institutions that may establish a permanent arbitration court in Slovakia has been narrow:

Only the Slovak Olympic and Sports Committee, a national sports association or a chamber established by statute may be the founder of a permanent arbitration court with its seat in the territory of the Slovak Republic.

— Section 12(1) of Act No. 244/2002 Coll. (unofficial English translation)

Where a clause in an older contract refers to an “arbitration court” established by a company or an association not meeting those conditions, the parties are not bound by it under the transitional provision in Section 54c(4), unless proceedings were commenced on its basis by 31 December 2016. Disputes under such contracts will go before the ordinary courts until you agree a new clause. State a permanent arbitration court by its exact name and verify it in the list of permanent arbitration courts kept by the Ministry of Justice (Section 12a).

The second option is ad hoc arbitrators. Their number must be odd, and if the parties do not agree on it, there are three (Section 7). Agree also the procedure for their appointment, for example that each party appoints one arbitrator and those two appoint the presiding arbitrator, and who is to appoint an arbitrator if a party fails to act. Without such agreement the statutory fallback applies, and in the last resort an arbitrator is appointed by the court (Section 8(2)).

What else belongs in the clause

• The place of the proceedings. If it is in Slovakia, the award is deemed to have been made here (Section 34(3)) and any application to set it aside is decided by a Slovak court. Without agreement, the place is determined by the arbitral tribunal, and before a permanent arbitration court it follows that court’s rules of procedure (Section 23(1)).
• The language of the proceedings. With a foreign counterparty this saves translation costs; without agreement it is determined by the arbitral tribunal (Section 24).
• The governing law. In a relationship with an international element, the arbitrators decide according to the rules of law agreed by the parties (Section 31(1)).
• Review of the award. A second round before another arbitrator is possible only where the parties have agreed it in the arbitration agreement itself; otherwise it is excluded (Section 37(1)).

The clause does not prevent you from applying to a court for an interim measure before the proceedings begin or before the arbitrators are appointed (Section 2(2)). That option need not be excluded in the clause.

How we can help

We prepare or review the clause as part of a bespoke commercial contract and give you a candid assessment of whether arbitration is in fact more suitable than a court for your type of dispute. If a dispute is already under way, we take it on within our arbitration service. How to proceed where you have signed a clause and want the dispute brought before an ordinary court is explained in the question on challenging an arbitration clause. A clause for disputes between shareholders is addressed in the article An arbitration clause for disputes between shareholders, and enforcement of an award across the border in the article An arbitral award from Slovakia in Czechia and vice versa.