Unfair Contract Terms Directive, Article 3, 3. Unfair Contract Terms Directive, ANNEX I, 1.

nullification of the arbitration decision

Facts of this case were following. 11th of June, 2007, the plaintiff entered into contract about loan with defendant. They agreed, that the agreement is governed by the Czech Obchodní zákoník (Commercial code) and defendant bound himself to provide plaintiff with loan of 10.000 Kč (Czech crowns). They also agreed, that plaintiff will pay 1.500 Kč to defendant as a fee for providing the loan and payment for administration of the contract of 4.700 Kč. Yearly rate of cost on loan was set to 93,57%. The contract also included arbitration clause. Based on that clause, all disputes had to be decided by one arbitrator, which was appointed by I. Moravskou rozhodcovskou společností ( I. Moravian arbitration company). The contract was drawn by defendant, plaintiff wasn´t able to add anything to contract, scratch anything from it or correct anything in it. She was only able to sign it in version, which was given to her. The plaintiff was not acting for purposes which are related to his trade, business or profession. The defendant, however, was registered as businessman in Obchodní rejstřík (Commercial register), and providing loans was his business.
Plaintiff took a civil action against defendant to the Městský soud v Brně (City court of Brno – court of the first instance). She wanted to have arbitration decision, which was issued by arbiter in a dispute between her and her contract partner, nullified. The reasons she stated were, that the arbitration clause was void and wasn´t in compliance with the law of European communities. One of the reasons for the nullity of the clause was, in her opinion, that it established unequal rights and duties between the parties of the contract, because of the disproportion between the amount of money she received and amount of money she had to give back.

Městský soud Brno came to a conclusion, that the civil action is justified and stated, that the arbitration clause is void. The court evaluated the relation between the parties as a business to consumer (B – C), because defendant acted in relation to his business, plaintiff was not acting for purposes which are related to his trade, business or profession. Further, the court stated that parties came to an agreement that the contract will be governed by Commercial code, but because of the nature of the plaintiff, provisions protecting the consumer must be applied in accordance to §262/4 of the Commercial code. The court also stated, that according to §56/1 of the Občanský zákoník (Civil code), the contract couldn´t include agreements, that are in contrast to the requirement of the good faith and that establishes unequal rights and duties between the parties of the contract, if it means disadvantage to the consumer. However, the damaged party must invoke this right.
The court said, that the agreement about settling the disputes by arbiter means disadvantage for the consumer, because it was a part of the provisions, which could not be changed by the consumer. The judge also bequeathed on article 3/1 of the directive 1999/44/EC, which is dealing with unequal provisions, which are not negotiated individually. According to these findings, the court stated that the arbitration clause is deviation from the law, which is unequal to the consumer and he bequeathed on the article 3/3 of the mentioned directive, which consider provision, that force consumer to submit a civil action only to the arbitrator, as unequal for consumer. One of the other unequal consequences, which court mentioned was that the arbitrator is stationed far away from the plaintiff and that this can make her way to the proceedings more difficult.
Concerning the euro-conformal interpretation of the Civil code, the court found this provision void, based on §55/1, 2 and §39 of the Civil code, because this provision establishes unequal rights and duties between the parties of the contract, that means disadvantage for the consumer. Based on these conclusions, the court nullified the arbitration decision, because he found arbitration clause to be void.
However, I think the problem in court´s decision is the application of §55/1, 2 of the Civil code. In these articles is stated, that the court can pronounce an agreement in consumer contracts void only, if consumer raises an objection. In this case, plaintiff raised objection, but she stated another reasons, then the court used, when proclaiming the clause void. Basically, the judge nullified the clause ex offo, he didn´t use plaintiffs reasons. He applied provisions of the directive itself, ignoring the Czech national law. However, §39 of the Civil code was used right. Based on it, all agreements, that are contra bone mores, are null and void from the beginning.

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