CONTENTS DECEMBER 2012 REAL ESTATE COMMERCIAL LAW LITIGATION PRAGUE BRNO OSTRAVA BRATISLAVA. Czech-Slovak Law Firm with International Approach

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1 PRAGUE BRNO OSTRAVA BRATISLAVA Czech-Slovak Law Firm with International Approach DECEMBER 2012 CONTENTS NOTARIAL DEEDS CONTAINING A DIRECT ENFORCEMENT CLAUSE AMENDMENT TO THE BUILDING CODE CODE AMENDMENT IN RESPONSE TO THE EU DIRECTIVE TO COMBAT LATE PAYMENT AMENDMENT TO THE INVESTMENT INCENTIVES ACT NEW STIMULUS FOR INVESTMENT IN THE CZECH REPUBLIC REVISED SWISS RULES OF INTERNATIONAL ARBITRATION CONTACTS The largest law firm in the Czech Republic Ranked by clients as the best law firm in the Czech Republic Czech law firm of the year (2012) No. 1 legal advisor according to the number of M&A deals in the Czech Republic and Eastern Europe (2011) No. 1 among Czech law firms (2012)

2 NOTARIAL DEEDS CONTAINING A DIRECT ENFORCEMENT CLAUSE Deeds containing a direct enforcement clause represent a modern trend of claim recovery, as they are favourable not only for the debtor, but mainly for the creditor for whom they save costs and are a speedy way to satisfy his/her claims. The current legislation allows for two alternatives when drawing up an agreement as a public deed containing a direct enforcement clause. The first alternative is to draw up the agreement in the form of a notarial deed and the second one is to draw up the agreement in the form of an execution deed. However, this legal status will only last until the end of In September of this year, a regulation that amends, effective from 1 January 2013, the Execution Procedure Code and the Civil Procedure Code was published in the Collection of Laws. One of the significant changes this amendment will bring about is the cancellation of execution deeds containing a direct enforcement clause. Under an explanatory report to the amendment, the main reason for this change is to cancel the duality that exists when notaries public have the powers to draw up any public deeds, including deeds permitting direct enforcement, whereas executors were entrusted, partially not systematically, with the powers to draw up only one type of public deeds, i.e., execution deeds containing direct enforcement clauses. Specifically, as regards the changes, the explanatory report states as follows: The submitted amendment addresses how individual activities in the area of law should on principle be divided among the existing legal professions. The main activity of attorneys should be the provision of legal assistance; notaries public should focus, apart from their competence in inheritance proceedings, on drawing up public deeds; and court executors should primarily engage in the forced execution of decisions. 1 Whatever reasons the legislature had, from 1 January 2013, it will no longer be possible to draw up execution deeds. This change will cause a significant gap, which represents approximately 25 thousand drawn-up execution deeds per year. This shows that there still is a great demand for execution deeds, which executors will not be able to satisfy after 31 December Naturally, notaries public previously could, and also did draw up notarial deeds permitting direct enforcement, but when compared to executors, they did it a lot less frequently. In general, notarial deeds permitting direct enforcement can be divided into the two basic types: (1) unilateral acknowledgement of debt under Section 71a of the Notarial Procedure Code, and (2) an agreement between the entitled person and the obliged person under Section 71b of the Notarial Procedure Code. Although more complicated in terms of logistics, specifically the second type, i.e., the agreement under Section 71b of the Notarial Procedure Code, will be much more used in practice. The form of the agreement has two benefits. The first one is that the entitled person and the obliged person may agree on further obligations or conditions. This also implies that if the debtor as the obliged person agrees to the conditions drawn up in a notarial deed, it is not required to prove other facts. This means less administrative burden for the creditor, as it is completely sufficient if the creditor only provides information required for drawing up the agreement. Thus, the creditor does not have to search for and gather, in a complicated and lengthy way, partial support documents or documentation that would otherwise be required for bringing an action and successfully conducting judicial proceedings. The second benefit is that a notary public may authorise his/her trainee to draw up the agreement under Section 71b of the Notarial Procedure Code, and thus is highly flexible in terms of time and space. Drawing up a notarial deed on the agreement between the entitled person and the obliged person does not mean that it would not be possible to draw up such a deed without the presence of the entitled person or his/her proxy. The form of the agreement only requires that a notarial deed is divided into two parts, whereas in the second part, a so-called continuing, the entitled person agrees to the notarial deed, drawn up at the same place by a notary public or his/her trainee, with the obliged person. The said model of drawing up deeds has proved to work successfully in practice and is an ideal solution. 1 Explanatory report to the amendment to the Civil Procedure Code and related Acts, available at: Litigation 2

3 A notarial deed permitting direct enforcement does not represent for the creditor almost any costs connected with claim recovery, as a notary s fee for drawing up the notarial deed is on principle paid by the debtor. This fee may be paid by the debtor directly at the drawing up or may be included as the debtor s obligation in the notarial deed. Thus, the creditor does not have to pay a court fee if he seeks claim recovery in the form of bringing an action. Please also note that when enforcing a claim in the form of a notarial deed, the creditor is not facing the risk of having to cover the costs of proceedings if he loses the case. Indeed, a notarial deed permitting direct enforcement represents an execution title based on which execution may be ordered if the debtor fails to perform his obligations under the notarial deed in a proper and timely manner. This method of recovery of the creditor s claims is thus favourable not only in terms of cost, but mainly in terms of time, as the creditor does not have to go through lengthy judicial proceedings. In this way, the creditor may collect and satisfy its claim quickly and efficiently. The essence of this form of claim recovery is to motivate the debtor who is usually favoured by giving him an option to pay his debt in instalments to which it agrees in the notarial deed. Furthermore, the fee for drawing up a notarial deed is considerably lower than potential costs of the proceedings, which the debtor would have to cover within litigation. Logically, the debtor thus attempts to handle his obligation in this way and not to allow the further increase of his total debt. Given the legislative change and the impossibility to draw up execution deeds, the law firm Havel, Holásek & Partners s. r. o. and its affiliated notary public have prepared a comprehensive project of ensuring the drawing up of notarial deeds. A network of 12 drawing-up points all over the Czech Republic has been created, where debtors can apply for the drawing up of the agreement in their city of residence or within their region, which considerably increases the willingness of debtors to enter into the agreement in the form of a notarial deed. Another advantage is a full service connected with claim recovery, which includes accepting data; sending requests and contacting debtors; ordering debtors for specific drawing-up dates and negotiating the terms and conditions of the agreement contained in a notarial deed as per the creditor s requirements; drawing up the notarial deed and subsequent monitoring of performance by the debtor with the option of recovering claims through execution if the debtor fails to perform the stipulated obligations in a proper and timely manner. Naturally, the project will work only provided that the risk of harming the reputation of the creditor is eliminated, guaranteeing the legal support from the largest law firm in the Czech market. Petr Novák, Senior Associate Veronika Ivanová, Associate Litigation 3

4 AMENDMENT TO THE BUILDING CODE The large amendment to the Building Code (the Amendment ) that we informed you about in the previous issue of Legal News was approved with finality, signed by the president and issued in the collection of laws under No. 350/2012 Coll. The Amendment shall enter into effect on 1 January In the previous issue we informed you about the novelties concerning the placing and approving of structures. Now we will focus on further changes ensuing from the Amendment. Zoning As regards zoning, the Amendment eliminates some problems that have been dealt with in applying the current legislation. The Amendment expressly sets out that with the approval of the superior zoning authority the zoning documentation may contain also a regulation that would otherwise pertain to a higher-level documentation within the system (hence the zoning plan may include also areas or corridors with supranational importance that are not regulated by the principles of zoning development and the principles of zoning development may include also projects of nation-wide importance that are not taken over from the zoning development policy). As a complete novelty, the Amendment regulates the concept of the so-called parcelling which will be required as early as in the zoning plan phase for the implementation of projects within a particular area. In the parcelling agreement the concerned owners of land and structures must express their consent with the project within the area and agree on the distribution of costs and benefits associated with the implementation of the project. One substantial change is the complete abolishment of the institution of a concept in the process of procuring and changing a zoning plan. This will simplify and accelerate the whole process which may take several years under the current legislation. A certain substitution for this institution is the option to prepare alternative drafts of the zoning plan. The new law incorporates the option to cancel the zoning plan or its part which has become a rather frequent practice recently. In such a case the municipality shall be obligated to decide without delay to procure the zoning plan or its change while following up on the last act that was not challenged by the cancelling decision. The changes also concern regulatory plans. While the current legislation provides in general that the regulatory plan replaces the zoning decision to the approved extent, under the new law this replacement is only optional. However, in such a case it must be clearly defined in the regulatory plan what zoning decisions are to be replaced by the regulatory plan. Another important novelty is the extended validity of zoning plans issued before 2007, i.e., during the effective period of the old Building Code. The validity of these plans should be extended until Under the current law these old zoning plans should expire at the end of 2015, which was the deadline for municipalities for procuring new zoning plans or at least for ensuring that the old zoning plans are in line with the new Building Code. On the one hand, this change means that municipalities may avoid the time pressure in approving old zoning plans towards the end of the transition period; on the other hand, this also means that the previous and older laws will continue to have residual effects on zoning documentation for quite a long period of time. Compensation for a change in the zone The Amendment introduces a new method of calculating compensation for a change or issuance of a new zoning or regulatory plan or prohibition of construction. Under the current legislation a land owner should only receive compensation for the drop in the price of a land plot equal to the balance of the purchase price and the price after the change as determined by an expert opinion (i.e., regardless of whether or not the land owner intended to begin construction on the concerned land plot). The new concept maintains damage incurred in connection with the preparation of the construction (in the usual amount proven by the investor) including the costs associated with the purchase of the land plot, the costs of the project documentation and engineering or even additional credit costs resulting from the decreased value of a security, if appropriate. As a novelty, the new law should set out restrictions for awarding compensation in cases of inactivity on the part of the land owner, if the possibility to build a structure on the concerned land plot existed at least for five years before the change of the zoning plan. The running of this time-limit Real Estate 4

5 will be interrupted for the effective period of a decision on the placement of a structure or a zoning approval for the construction or, as the case may be, the relevant public contract. In the case of a repeated change allowing the building of a structure on the land plot, the Amendment introduces two exemptions from the rule of returning the compensation: This obligation lasts for five years from the issuance of the change on the basis of which the compensation was paid. Moreover, the compensation need not be returned by persons who asserted an objection or comment while the zoning documentation upon which it is repeatedly allowed to build a structure on the land plot. Pre-emptive right The reworked law will also affect the regulation of the pre-emptive right of municipalities, regions or the state with respect to real estate reserved by the zoning or regulatory plan for public works or areas. In the first place, the Amendment prefers the establishment of an easement as a security for this purpose before the exercise of the pre-emptive right. Another restriction results from the shortened period during which the pre-emptive right may be exercised, from six to three months, and the express applicability of this regulation only to transfers for consideration. The Amendment brings also a more detailed regulation of the process of exercising the pre-emptive right. If a transfer for consideration is intended, this intention must be notified in writing by the transferor to the entitled person who may have prepared, at his/her own expense, an expert opinion to determine the usual price of the real estate and inform in writing, within three months from the notification of the intention, of the interest to exercise the pre-emptive right with the proposal of the purchase price determined in this manner. If the transferor is not satisfied with the proposed price, he may have prepared, at his own expense, another expert opinion and to prove the price determined upon this expert opinion to the entitled person. If this second purchase price is refused, the entitled person should file an application for the determination of the purchase price with a court or send the transferor a confirmation on the termination of the pre-emptive right. Upon the lapse of a period of six months from the filing of this counter-proposal, the pre-emptive right will terminate if it has not been exercised; however, this will not apply if judicial proceedings are commenced concerning the determination of the usual price. Thus, on the contrary, the efforts of the sponsors of the bill aimed at making the procedure for exercising the pre-emptive right more exact and restrict it with time-limits may in specific cases lead to substantial protracting caused by judicial review. Orders to remove structures The Amendment introduces a statutory period of 30 days from the commencement of additional proceedings concerning the approval of construction on the motion of the owner or the developer after the lapse of which it is necessary to expect unfavourable results of these proceedings. These unfavourable results of the proceedings shall be mitigated by means of the duty to advise on the running of this period in the notice on the commencement of the proceedings concerning the removal of a structure. The Amendment also introduces a special definition of parties to the proceedings concerning the order to remove a structure. In addition to the standard owners of land plots and beneficiaries of easements encumbering these land plots, the person obligated to remove the structure and the owners of the adjacent land plots (including beneficiaries of substantive rights) that could be affected by the removal of the structure are also parties. Change of the Act on Administrative Fees One of the important changes brought by the Amendment is also a substantial increase of the fees in the building permit procedure. While until the end of this year CZK 300 is charged for the issuance of a building permit for a family house, CZK will be charged beginning with the new year. For buildings with more than three apartments the fee will increase from CZK to CZK For changes to the structure, investors will be required to pay CZK instead of the current CZK 300. Aleš Roztočil, Senior Associate Lumír Swiech, Associate Real Estate 5

6 CODE AMENDMENT IN RESPONSE TO THE EU DIRECTIVE TO COMBAT LATE PAYMENT The Government Bill amending the Commercial Code passed its first reading in the Chamber of Deputies. The Amendment is based on Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions that has replaced the existing directive 2000/35/ EC and is to minimise late payments. The fundamental objective of the new regulation is to introduce another mechanism for improving payment discipline and protecting suppliers of goods and services. To this end, the Directive is to, among other things, introduce stricter regulation of payment periods, prescribe a maximum duration of the period of the procedure of the acceptance of goods or services, or authorise creditors to recover from debtors compensation in the form of a fixed sum for costs incurred in recovering the debt. Article 12 of the Directive imposes an obligation on the Member States to implement relevant provisions of the Directive into national laws no later than by 16 March 2013 and the failure to transpose the Directive will result in penalties by the European Union 1. Therefore, the Amendment is expected to become effective on 1 March The draft Amendment to the Commercial Code, implementing the Directive on Combating Late Payment was submitted to the Chamber of Deputies on 16 August 2012 and was discussed in the first reading on 23 October The existing provisions of the Commercial Code, which were implemented into the Commercial Code in response to the previous directive on combating late payment in commercial transactions (from 2000) in 2005, only stipulate a payment period in cases when the respective contract does not imply otherwise. However, the contract concerning the payment period and default interest may not be obviously abusive with respect to the creditor despite the specific circumstances of the case or the established practice between the parties and business practices. Although the current wording of the Commercial Code responded to the previous directive (2000), the existing regulation has been criticised on the grounds that it has mechanically adopted the Directive without any connection to the rest of the Commercial Code. This can be illustrated by the example of the controversial provision of Section 369a (3) of the Commercial Code 2 concerning default interest that is duplicate to other provisions (such as Section 365 on default and Section 369) and raises doubts as to the application of the rule under which the debtor is relieved from the obligation to pay default interest unless the debtor is not liable for default. As mentioned above, the amendment aims at introducing further mechanisms for improving payment discipline and thus minimising bad habits of late payment for supplied goods or services. This has an adverse impact on the liquidity and financial management of businesses, which can in many cases result in subsequent in- solvency where debtors are unable to pay their debts due to claims from their suppliers. For this reason, the Directive has imposed (or the amendment will impose) stricter rules on payment periods, stipulating a maximum payment period of 60 days (the period of 60 days is the maximum possible period for commercial transactions for the supply of goods or services to public authorities). If passed in the wording as currently proposed, the Amendment will directly affect ordinary business activities, especially those of companies that have not stipulated payment periods for their invoices in the contract. This is because the Amendment assumes that payment periods will be primarily governed by the agreement of the parties, and only when no such payment period is stipulated, the payment period of 30 days will apply automatically (proposed Section 340 (3)). However, it should be pointed out that the parties may only agree on payment periods exceeding 60 days unless such extension is grossly unfair to the creditor (proposed Section 343b). The term grossly unfair should be primarily construed in compliance with the implemented Directive that provides that in determining whether a specific contractual term is grossly unfair, consideration must be given to matters such as the circumstances concerning the goods or the services supplied and the fact (beyond the issues concerning payment periods for invoices) whether there are any objective reasons for deviating from the statu- 1 The new Civil Code reflecting the new directive will only become effective on 1 January Current Section 369a (3) reads as follows: The creditor may only request default interest to the extent to which they fulfilled their mandatory and contractual obligations and if they did not receive the due sum within its maturity, unless the debtor is not liable for the default. Commercial Law 6

7 Another significant change by which the bill has responded to the Directive is an increase in the interest rate for late payment. As a new rule, the Czech Republic should incorporate in its laws an interest rate of a minimum of 8 percentage points above the Czech National Bank s reference rate. The Directive further imposes an obligation on the Member States to allow the creditor to claim from the debtor, in addition to the interest for late payment, a fixed amount constituting recovery costs (the proposed provision of Section 369 (1) 3. However, it should be mentioned here that the draft Amendment contains no rules regarding the interest for late payment and the fixed sum of costs for recovery of the claim of a creditor (business) from another business or a public contracting authority. The Amendment presumes that the relevant rules will be contained in Government Decree No. 142/1994 Sb., which stipulates default interest and charges under the Commercial Code. Therefore, the existing level of interest for late payment should continue to be applicable to all obligations. In conclusion, it can be said that the draft amendment to the Government Decree (proposed Section 2a) in compliance with Article 6 of the Directive (or the new wording of Section 369 (1)), which stipulates a special regime for compensating creditors for the costs of recovering payments, assumes that in all cases in which a creditor becomes entitled to claim default interest from the debtor in commercial transactory rate of interest for late payment. The draft Amendment expressly regulates two cases when a contractual term will be considered grossly unfair: agreements excluding default interest (proposed Section 343b (1) and agreements excluding compensation for costs of recovery (proposed Section 343b (2)). In addition, the draft Amendment provides that a contract stipulating a term of fulfilment in deviation from Section 340 (4) through (6) and a contract on interest for late payment that is grossly unfair to the creditor are null and void. The proposed provisions of the Commercial Code regarding payment periods will be mandatory under Section 263 (1) of the Commercial Code and no deviation may be made from them. The Directive also lays down an obligation to stipulate in national laws the maximum duration of the procedure of acceptance of goods or services. In order not to jeopardise the achievement of the objective of the Directive and not to allow the provision concerning the payment period to be circumvented, the proposed Amendment assumes that the maximum duration of a procedure of acceptance or verification may not exceed 30 days. Nevertheless, it should be possible for a verification procedure to exceed 30 calendar days, for example in the case of particularly complex contracts, when expressly agreed in the contract and in any tender documents and if it is not grossly unfair to the creditor (proposed Section 340 (5)). tions, the creditor will also be entitled to receive from the debtor a fixed amount of at least CZK 1,200 (the Directive stipulates an amount of EUR 40). Petr Bříza, Counsel Radek Riedl, Associate 3 In addition to interest for late payment, the creditor shall be entitled to the payment of a minimum level of costs associated with the enforcement of its claim to the extent and under the conditions stipulated by the Government Decree. Commercial Law 7

8 AMENDMENT TO THE INVESTMENT INCENTIVES ACT NEW STIMULUS FOR INVESTMENT IN THE CZECH REPUBLIC search, development, and technical innovation with respect to advanced products, technology and production processes, including the creation and innovation of software to be used in production and for increasing added value. In order to obtain investment incentives for technological centres, the main requirements are a minimum investment of CZK 10 million in assets (of which, at least 5 million of this must be new machinery) and the creation and placement of at least 40 new jobs. Strategic service centres are defined as centres for the creation of software, repair centres, or joint service centres when the services are provided to at least two countries. For these centres, the main requirement for acquiring investment incentives is the creation and placement of at least 100 new jobs in the case of repair centres and joint service centres, and 40 jobs for software centres. Extending the period for income tax allowances to 10 tax periods Act no. 586/1992 Coll., the Income Tax Act, has also been amended, and the period for income tax allowances has been extended to a period of 10 immediately following the tax periods instead of 5. This change reflects the fact that investors were often faced with the problem of creating sufficient profit, and consequently, sufficient tax liability so that they could draw down the allotted investment incentive during the original period. The new period for income tax allowances should resolve this complication and attract also projects Act no. 192/2012 Coll., which amends Act no. 72/2000 Coll., on Investment Incentives and on amendment to certain acts (the Investment Incentive Act), as amended, and other related acts (the Amendment ) came into effect on 12 July One of the objectives of the Amendment is to set forth a system of investment incentives that is more competitive in relation to neighbouring countries. This is a reaction to the situation in which investment had become less attractive as a result of the amendment to the Investment Incentive Act passed in 2007 and suspension of the national Framework Programme for the promotion of technological centres and strategic service centres (the Framework Programme ). In this article, we focus more specifically on the principal changes in the Amendment and what it will mean for investors. Support for technological centres and strategic service centres The Amendment expands the provision of investment incentives for investment projects, such as introducing or expanding production in the branches of the manufacturing industry, as well as investment projects for establishing or expanding technological centres and launching or expanding the activities of strategic service centres. The Amendment also follows the trend of promoting activities geared to progressive technology and activities with high added value and export potential. The term technological centre can be defined as a centre focusing on applied rethat are more demanding in capital, whose rate of return will be in a more long-term range. Strategic investment projects and financial assistance for acquiring longterm tangible and intangible assets The Amendment introduces category of so called strategic investment projects, which can be used for projects in the manufacturing industry and for technological centres. Strategic investment projects can only be projects in the manufacturing industry that plan to invest a minimum of CZK 500 million and to create at least 500 new jobs and technological centres that plan to create at least 120 jobs and to invest at least CZK 200 million. Thus after complying with the legal terms, only a strategic investor can receive investment incentives in the form of financial assistance for acquiring long-term tangible and intangible assets, in addition to other forms of investment incentives (e.g. income tax allowances, land transfers, including the related infrastructure for an advantageous price, financial assistance for the creation of new job positions, and financial assistance for employee requalification or training). The amount of financial assistance for acquiring long-term tangible and intangible assets can be as much as 5 per cent of the total eligible costs, however, a maximum of CZK 1.5 billion for strategic investment projects in the manufacturing industry and a maximum of CZK 500 million for strategic investment projects in the area of tech- Real Estate 8

9 nological centres. If production is launched or expanded in the manufacturing industry and also technological centres are established or expanded, then financial assistance can be increased to as much as 7 percent of the total eligible costs. In view of the fact that strategic investment projects and investment incentives in the form of financial assistance will always involve an extraordinary state-budget expenditure, acknowledgement of the status of a strategic investment project and the provision of financial assistance will be subject to a special approval procedure of the Czech government. Eligible costs The amount of the total assistance provided through investment incentives is calculated from the eligible costs of the investment project. In the case of investment projects in the manufacturing industry, eligible costs are created by the value of long-term tangible assets in the form of machinery and also the value or part of the value of long-term tangible assets in the form of land or structures or long-term intangible assets purchased at market value from non-affiliated entities, up to the value of the machinery included in the eligible costs. Eligible costs may not include assets acquired under a contract for the sale of an enterprise or a part thereof from affiliated entities, or assets that are not used by the recipient at the site of the investment project. As for investment projects in the area of technological centres or strategic service centres, the applicant has two options for determining the eligible costs. Eligible costs are determined either by (i) the value of tangible and intangible assets, as in the case of investment projects in the manufacturing industry or (ii) the value of wage costs incurred for new job positions during a 24-month period immediately follow- ing the month in which the positions were filled. New job positions can only include new jobs created and filled by employees with set weekly working hours during a period starting from the day of issuing CzechInvest s confirmation of the feasibility of the project until three years after issuing the decision on investment incentive pledge. A maximum of three times the average national wage may be included each month in the value of the monthly wage costs incurred for a new job position for the first and third quarters of the calendar year preceding the calendar year in which the applicant submits its project. Deadline for meeting the general conditions for the provision of investment incentives The recipients of investment incentives are required to meet all of the general conditions for the provision of investment incentives in connection with the supported project within three years of issuing the decision on the investment incentive pledge. The amendment has cancelled the option of extending the period for meeting the general conditions to five years. Shortening the approval process The amendment has improved the situation for investment incentive applicants who are also recipients of such investment incentives by introducing one-round administrative proceedings. As opposed to the normal five to six months, the approval process in such a case is reduced to approximately three to four months, which gives investors access to the information necessary for making decisions on their investments at an earlier time. The consequences of not meeting the obligation of maintaining job positions when drawing down the financial assistance for creating new jobs Under the Investment Incentives Act valid prior to the Amendment, if the recipient of an investment incentive in the form of financial assistance for creating new job positions does not maintain the number of newly created job positions and the allocation of these positions to employees with weekly working hours associated with the drawn down financial assistance for a period of at least five years from the first drawdown of financial assistance, the decision on an investment incentive pledge becomes invalid and all that was acquired in the form of an investment incentive must be returned, including penalties and late interest. Now that the Amendment has come into effect, the recipient returns, in the event of not meeting the obligation to maintain the job positions for a period of five years, only a proportionate amount of the acquired financial assistance corresponding to the number of new job positions not maintained. This change also applies to investment projects for which a decision on an investment incentive pledge was issued prior to the Amendment taking effect. However, according to the explanatory report to the Amendment, this will only be true for investment projects that have not yet been reviewed for fulfilling the obligation of maintaining the job positions. Petr Opluštil, Managing Associate Jan Fikar, Associate Real Estate 9

10 REVISED SWISS RULES OF INTERNATIONAL ARBITRATION On 1 June 2012 the newly revised Swiss Rules of International Arbitration (Rules), one of the most commonly used arbitration rules, came into force. They will apply to proceedings commenced after this date unless the parties agree otherwise. Although the revisions are often described as light, for they do not represent any radical change, they do amend the Rules so as to make them more practical and thus attractive for arbitration users. The most significant changes include the introduction of the Arbitration Court, an institution charged with administering proceedings governed by the Rules. Following the example of some other established arbitration rules that were amended with the aim to enhance the protection of the parties rights before or in the initial stage of arbitral proceedings, the revised Rules newly provide the parties with the right to apply for a preliminary measure even before the arbitral tribunal is constituted. Yet another noteworthy amendment broadens the powers of the arbitral tribunal to decide on such measure. The Arbitration Court The most apparent change in the Swiss Rules is probably the establishment of the Arbitration Court. Before 1 June 2012, there was no administrative body responsible for handling arbitrations under the Rules, as each of the six Swiss cantonal chambers of commerce and industry, which together adopted the previous version of the Rules in 2004, managed the cases lodged with them on its own. By founding the Arbitration Court charged with administering arbitrations initiated under the Rules, the Swiss chambers of commerce joined other prominent arbitration centers such as the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA) or the Stockholm Chamber of Commerce (SCC), in having one administrative institution vested with the power to handle arbitration disputes. Just as its counterparts, the Arbitration Court (and its Secretariat) is charged with tasks typical of permanent arbitration institutions, such as administering the initial stage of arbitral proceedings, facilitating the constitution of arbitral tribunals, and deciding on challenges to arbitrators. One of the significant powers newly vested in the Arbitration Court is its duty to approve and, if need be, adjust the costs of arbitrations conducted under the Rules. Unlike before 1 June 2012, when chambers were merely consulted by the tribunals regarding the costs, the amended Rules require tribunals to submit their draft decisions on the costs of proceedings for a binding approval to the Arbitration Court. The Court, when giving such approval or making such adjustment, has to follow the principles enshrined in the provisions of the Rules governing the issues of costs, such as that the costs should be borne by the party that was not successful in the case. Interim measure and emergency arbitrator Perhaps the most significant change in the Swiss Rules is the newly implemented emergency relief procedure, which allows an interim measure to be issued prior to the constitution of the arbitral tribunal. This amendment to the Rules follows the recent trend in international arbitration that was recently reflected, among others, in the revision of the ICC rules in effect as of 1 January The maxim behind the introduction of the emergency relief procedure is primarily to make arbitration under the Rules as time and cost efficient as possible. At the same time, the drafters of the amendment tried to strike a balance between that efficiency and the parties rights that may be threatened or impaired by preliminary measures. The emergency relief procedure under the Rules is applicable by default to all disputes, unless the parties opt out. It goes without saying that by initiating the emergency relief procedure, the party is not prevented from petitioning for an interim measure to the state courts. In accordance with the newly inserted Article 43 of the Rules, the emergency relief procedure is carried out by an emergency arbitrator appointed, in urgent cases, upon the party s request by the Arbitration Court. An emergency arbitrator enjoys very similar standing and powers as an arbitral tribunal in ordering an interim measure. A decision on an interim measure in the emergency relief procedure must be adopted within fifteen days following the Litigation 10

11 transmitting of the file to the emergency arbitrator; this limit may be varied by the parties agreement or by the Court. Although the wording of the Rules is not clear with respect to the form in which an interim measure may be issued in the emergency relief procedure, the prevailing part of jurisprudence suggests that emergency arbitrators, as arbitral tribunals, may deliver an interim measure in both forms, i.e., as a procedural order or interim award. Such ruling has the same effect and will be enforceable to the same extent as one awarded by an arbitral tribunal constituted pursuant to Article 26 of the Rules. The enforcement of such an interim measure will in the end depend on the laws of the country where the enforcement is sought. A party may apply for an interim measure before or after submitting its notice of arbitration. If it does so before, the notice must be submitted within ten days following receipt of the application by the Secretariat. If a party fails to comply with that time limit, the Court will terminate the proceedings. Compared to the ICC Rules, the Arbitration Court has a relatively wide terrain to maneuver when deciding on an application for an interim measure in the emergency relief procedure. First, it may decide on a case-to-case basis whether it is more suitable for the case at hand to proceed with the constitution of the tribunal empowered to decide on the application rather than to appoint an emergency arbitrator. Second, the Court may refuse to appoint an emergency arbitrator if it finds that there is manifestly no agreement to arbitrate referring to the Rules. Article 26 of the Rules, governing interim reliefs adopted by a properly constituted tribunal, was also slightly amended, and now stipulates that the arbitration tribunal may modify, suspend or terminate any interim measures granted. More importantly, the 2012 version of the Rules extends the powers of the arbitral tribunal, granting it the right to deliver an interim measure on its own motion and without any request by the party in exceptional circumstances and with prior notice to the parties. It should be further noted that according to the 2012 Rules the arbitral tribunal is empowered to decide on an interim measure by way of preliminary order without notifying in advance the party against which the measure is directed (ex parte interim measure). This right may be nonetheless exercised only in exceptional circumstances. Moreover, in order for such measure to be valid, the party against which the measure is directed must be notified of it no later than at the time when the procedural order is adopted and the defending party must be immediately given an opportunity to be heard. Time and Cost Efficiency In its effort to make arbitration proceedings expeditious and efficient, the authors of the revision introduced Article 15.7 of the Rules, requesting the parties to make every effort to contribute to the efficient conduct of the proceedings and to avoid unnecessary costs and delays. Although this provision may appear rather of a declaratory nature, as it does not lay down any sanction for non-compliance, it may be taken into consideration by arbitrators deciding on the allocation of the costs of proceedings. Although there is no clear provision in the Rules instructing arbitrators to order the party causing unnecessary delays and making the arbitration more expensive to bear a greater share of the costs of the proceedings (by contrast, such a provision can be found in the 2012 ICC Rules), it is an important criteria that may be of relevance when the tribunal fixes and the Court approves such costs. Another amendment to the Rules that intends to expedite arbitral proceedings is to be found in Article 18.3 and Article 19.2 of the Rules. According to them, all documents and evidence must be submitted to the tribunal together with the Statement of Claim or Statement of Defense, i.e.. at the time when such submissions are filed. As can be observed from the wording as a rule, it is not a provision that is set in Litigation 11

12 stone and might be derogated from. It nevertheless reflects the trend the tribunals and parties should observe. While introducing minor technical amendments to the provisions providing for the already existing expedited procedure, the 2012 version of the Rules preserves the core principles of this highly praised component of the Rules. The expedited procedure, which is from its introduction in 2004 mandatory for all cases with amounts in dispute of less than one million Swiss Francs, has been seen as a success; almost all disputes governed by the expedited procedure provisions were decided within the prescribed six-month time limit. It should be noted in that regard that Article 42(1) of the Rules allows for a voluntary expedited procedure. This provision thus enables the parties to agree to subject their disputes to that procedure even if the amount in dispute exceeds one million Swiss Francs. Influenced by current trends in international arbitrations, reflected recently by the revision of the ICC Rules, the 2012 Swiss Rules revision drafters follow the trend to make arbitration faster, more flexible and less expensive. The outstanding record of the expedite procedure taken in conjunction with the newly introduced changes may well preserve the firm standing of the Swiss Rules amongst the most respected and used institutional rules in international arbitration. Vít Makarius, Senior Associate Anna Hlaváčová, Junior Associate Litigation 12

13 PRAGUE BRNO OSTRAVA BRATISLAVA Czech-Slovak Law Firm with International Approach DECEMBER 2012 Havel, Holásek & Partners, attorneys-at-law, based in Prague, with offices in Brno, Ostrava, and Bratislava and with 21 partners, more than 140 lawyers, and a total staff of more than 400 employees, including 130 employees of the cooperating collection agency Cash Collectors, is the largest Czech-Slovak law firm. The firm currently provides services to approximately 1000 clients, more than 35 of which have been ranked as Czech Top 100 companies; approximately 80 rank among the Fortune 500. The firm has won the largest number of awards in the last four years in the Czech Republic s Law Firm of the Year competition, and can be considered the most successful law firm of 2009 and 2010 in the Czech Republic. In 2011, the firm became the winner in the Public Contracts category and ranked among the top Czech law firms in other ten categories. This year, the firm was awarded the prestigious Who s Who Legal Award and was ranked the best law firm in the Czech Republic of the year 2011, and was also ranked the No. 1 local law firm in the overall ratings published by Practical Law Company. Furthermore, Havel, Holásek & Partners was awarded an ILO Client Choice Award 2010 by International Law Office (ILO), which named it the bestrated law firm by clients in the Czech Republic. Our lawyers are regularly cited as leading or recommended specialists by renowned international rating publications, such as PLC Cross-border, European Legal 500, Chambers Global Guide, European Legal Experts, Global Law Experts, and IFLR 1000, all of which have cited Havel, Holásek & Partners as one of the best law firms for transactions carried out in the Czech Republic in the areas of mergers and acquisitions, corporate and commercial law, banking and finance, capital markets, insolvency and restructuring, real estate and construction law, labour law and dispute resolution. Týn 1049/ Prague 1 Czech Republic Tel.: Fax: Hilleho 1843/ Brno Czech Republic Tel.: Fax: Poděbradova 2738/ Ostrava Czech Republic Tel.: Fax: Apollo Business Center II, Block H Mlynské Nivy Bratislava Slovak Republic Tel.: Fax: Partner Responsible for Legal News: Jan Topinka: jan.topinka@havelholasek.cz, Counsel: Jana Buršíková: jana.bursikova@havelholasek.cz The purpose of the document and of the information it contains is to create a general idea of specific issues, not to present a comprehensive legal analysis. Notwithstanding the attention and care exerted in the preparation of this document, the law firm Havel, Holásek & Partners recommends consulting the issues prior to taking any decisions on the basis of the information contained herein Havel, Holásek & Partners s.r.o. All rights reserved.