In its decision of 28 September 2016,[1] the Austrian Supreme Court (“OGH“) partially set aside an arbitral award due to a violation of the procedural ordre public as the arbitral tribunal insufficiently reasoned its decision as to one request filed in the arbitral proceedings.

1. The challenged arbitral award in a nutshell

Claimant (who also claimed to set aside the arbitral award) and Respondent (both in the underlying arbitration and the setting aside proceedings) were parties to a Consultancy Agreement pursuant to which Claimant was obliged to render consulting services with regard to the sale of certain products or services to certain customers. Some of those customers were specifically named in the Consultancy Agreement; further, all other companies that would buy specified products or services were to be regarded as customers under the Consultancy Agreement. Respondent was obliged to pay to Claimant a commission of 10 % of all orders carried out (by Respondent) with regard to the customers encompassed by the Consultancy Agreement.

By its statement of claim, Claimant requested that Respondent should be ordered to provide account as to four concrete projects (requests (i) to (iv)) and all other contracts that have been concluded by Respondent within a certain period of time with customers (request (v)). The requests (iv) and (v) have been amended in the course of the proceedings.

In its interim award, the arbitral tribunal decided that the Consultancy Agreement (underlying Claimant’s requests) was valid until 31 December 2014. The obligation to pay commission applies all contracts regarding products or services mentioned in the Consultancy Agreement that have been concluded with customers encompassed by the Consultancy Agreement; it would not be necessary that Claimant’s actions were causal for the conclusion of a contract.

In its interim award, the arbitral tribunal rejected requests (iv) and (v). As to request (iv) the arbitral tribunal noted that this project did not fall within the objective scope of the contract. As to the dismissal of request (v) the arbitral tribunal noted that it was phrased to broadly and had to be dismissed due to a lack of specificity. This has, however, neither been argued by Respondent, nor has it been mentioned by the arbitral tribunal in the course of the arbitral proceedings.

Notably, the arbitral tribunal in the operative provisions of the interim award incorrectly repeated the requests (iv) and (v) as it left out certain parts of the requests as formulated by Claimant; yet, the interim award does not explain why the arbitral tribunal left out those parts.

2. The OGH’s decision

Claimant based its action to set aside the arbitral award on several grounds. Although rejecting most of them, with regard to the dismissal of request (v) the OGH held that the arbitral tribunal violated the procedural ordre public. Although the following remarks generally follow the sequence of the OGH’s decision, only the OGH’s reasoning with regard to the violation of the procedural ordre public will be addressed.

2.1 The ordre public under Austrian law

The procedural ordre public ispursuant to Section 611 para 2 no 5 Austrian Code of Civil Procedure (“ACCP”) – violated and the arbitral award shall be set aside in case the arbitral proceedings were conducted in a manner that conflicts with fundamental principles of the Austrian legal system. The procedural error must be so manifest that it cannot be accepted by the Austrian legal system any more. Pursuant to the OGH’s case law the procedural ordre public may only be fulfilled in case a violation of the right to be heard would amount to a ground for nullity (Nichtigkeitsgrund) in state court proceedings or would come close to such ground for nullity.[2]

2.2 The OGH’s abstract legal findings

With regard to the lack of reasoning or a manifestly deficient reasoning of an arbitral award, the OGH laid down the following principles:

  • The OGH looked both at Austrian and German legal literature and stated that other than according to Austrian legal literature it is recognized in German legal literature that a lack of reasoning or a manifestly deficient reasoning may be a ground to set aside an arbitral award. The reasoning may not be illogical or in contradiction to the decision; it may also not be limited to meaningless phrases and has to deal with the parties’ major arguments.
  • According to the OGH, it is a fundamental principle of Austrian procedural law that judicial decisions deciding on adverse requests have to be reasoned. In state court proceedings a judgment is null and void in case it is not or only insufficiently reasoned so that it cannot be reviewed (Section 477 para 1 no 9 ACCP). The OGH held that as arbitral awards can generally not be re-assessed as to its content the quality of an arbitral award’s reasoning is even more important. Thus, it has to show in a comprehensible manner on which major considerations the decision is based. Empty phrases do not suffice.
  • With regard to the depth of the reasoning the OGH notes that certain scenarios have to be distinguished: in case an arbitral tribunal follows the argumentation of one party, it may already be sufficient to simply refer to such argumentation. Similar considerations apply in case an arbitral tribunal only briefly reasons its decision, but has already discussed its view with the parties in the arbitral proceedings. Only if the arbitral tribunal uses reasons not argued by or discussed with the parties, the reasoning has to be more substantial.
  • A lack of reasoning or a manifestly deficient reasoning does not constitute a ground to set aside an arbitral award in case the parties have waived the requirement of a reasoning (as provided for in Section 606 para 2 ACCP). Notably, the possibility to waive this requirement does not mean that a reasoning is also otherwise irrelevant.
  • A lack of reasoning or a manifestly deficient reasoning may also not lead to a setting aside of an arbitral award in case the parties agreed on the possibility to request an explanation of the arbitral award. Pursuant to Section 579 ACCP a procedural error of the arbitral proceedings can only be successfully asserted in case it has immediately or within the prescribed time frame been objected to. The possibility to request a explanation of the arbitral award does constitute such objection. Thus, in case such request (for an explanation) was permitted, a lack of reasoning or a manifestly deficient reasoning may only be successfully asserted in case such request was filed without leading to a proper rectification.

2.3 Application to the present case

As mentioned above, the arbitral tribunal decided that the Consultancy Agreement was valid until 31 December 2014 and that it comprises contracts regarding products or services mentioned in the Consultancy Agreement that have been concluded with customers encompassed by the Consultancy Agreement; it is not necessary that Claimant’s actions were causal for the conclusion of a contract. Pursuant to the OGH, a rather broadly phrased request was therefore indeed indicated.

Against this background, basing the dismissal of request (v) solely on the argument that it is phrased too broadly, was not comprehensible as the concrete grounds, why the request was too broad, were not explained by the arbitral tribunal; it rather constitutes a mere pseudo reasoning (Scheinbegründung). As Claimant did not have the opportunity to request an explanation of the arbitral award, the OGH (partially) set aside the arbitral award with regard to request (v).