An extract from The International Arbitration Review, 12th Edition
The year in reviewi Developments affecting international arbitration
The most important reform under the 2013 revision of the Arbitration Act was the determination of the Austrian Supreme Court as single instance for certain arbitration-related matters (see Section 615 ACCP). It entered into force on 1 January 2014, and applies to all proceedings initiated on or after that date. Simultaneously, the Supreme Court has established a specialised chamber that deals with the matters under Section 615 ACCP (the docket numbers of these decisions start with '18'). As demonstrated below, apart from the matters referred to in Section 615 ACCP (in most instances, setting aside proceedings, and proceedings relating to the constitution and challenge of arbitral tribunals), there are a number of other civil matters that involve issues of arbitration and that may be tried before first and second instance courts with the Supreme Court as final instance. Finally, proceedings on the recognition and enforcement of foreign arbitral awards are usually initiated with district courts, the decisions of which may be appealed and finally also brought before the Supreme Court. Enforcement matters are usually submitted to the chamber specialised in such matters and not to the arbitration chamber. In conclusion, parties can expect that under the Austrian court system relating to arbitration-related matters, in particular those with a foreign or international context, the Supreme Court will have the final say on certain legal issues of essential importance to the Austrian legal order.ii Arbitration developments in local courts
In August 2019, the Supreme Court rendered a decision in relation to the Austrian state courts' jurisdiction for granting interim injunctions, in case the arbitral proceedings are pending abroad.7 The Supreme Court decided that even if there is an action (be it in front of a state court or an arbitral tribunal) pending abroad, Austrian state courts may render an interim injunction pursuant to Section 387(2) Austrian Enforcement Act, if the Austrian courts have jurisdiction and the decision in the main proceedings abroad is recognised and enforceable in Austria (leaving it, however, open, whether this also applies in case the decision in the main proceedings is not recognised and enforceable in Austria).
In a decision from January 2020,8 the Supreme Court dealt with the right to be heard and the potential violation of the procedural ordre public in relation to requests for evidence or a party's right to a hearing. The Supreme Court confirmed its previous line of jurisprudence and held that an arbitral award may be set aside because of a violation of the right to be heard or a violation of the procedural ordre public only if fundamental procedural principles have been violated. In the present case, the arbitral tribunal cancelled the hearing and decided to render a decision based on the case file because the claimant (in the arbitration proceedings) had not submitted any witness statements within the time period set by the arbitral tribunal. The plaintiff (i.e., claimant in the underlying arbitration) argued that the arbitral tribunal violated its right to be heard or the procedural ordre public by not hearing the requested witnesses (which were nominated by the plaintiff, but no witness statements had been filed). The Supreme Court stated that fundamental values of procedural law would only be violated if the arbitral tribunal had acted arbitrarily. This was, according to the Supreme Court, not the case, as the arbitral tribunal's request for written witness statements was in line with the procedural order agreed on by the parties and the arbitral tribunal could validly assume that no witnesses should be heard. The plaintiff further argued that the arbitral tribunal violated its right to be heard or the procedural ordre public by not holding the hearing as requested but cancelling it instead. The Supreme Court confirmed that in principle, a hearing must take place if requested by one party and if it has not been excluded by mutual agreement and that not holding such hearing would 'regularly' justify the setting aside of the arbitral award. However, not holding a requested hearing does not necessarily violate the right to be heard and justify the setting aside the arbitral award, as the purpose of a hearing is to enable the parties to present their positions, which could also be done by other means (such as written submissions). Yet, such conduct could violate the procedural ordre public, though this is not an absolute principle. For example, in case the request to hold a hearing was only filed at an inappropriate time or the purpose of a hearing is not fulfilled (which should allow the parties to orally present their case or hear witnesses) so that holding a hearing would only be a formality, the arbitral award may not be set aside. In the present case, the plaintiff stated in the arbitration that it was not going to attend the hearing and did not deliver written witness statements. Thus, in the Supreme Court's view, cancelling the hearing did not violate the plaintiff's right to be heard or the procedural ordre public.
The issue of a party's right to a hearing was the subject matter of another decision of the Supreme Court.9 In the arbitration underlying these setting aside proceedings, both parties filed claims regarding several (partly concluded, partly ongoing) business years, with the underlying questions to decide on such requests being basically identical. While the plaintiff (i.e., claimant in the arbitration) filed a specific request for the last business year (which was still ongoing at that time), the defendant (i.e., respondent in the arbitration) only filed a general declaratory request for this business year. After the arbitral tribunal had held a hearing, the defendant amended its general declaratory request regarding the last business year to a specific request for the last business year and the plaintiff specified its previous requests as well. The plaintiff disputed the defendant's request for the last business year and requested that an additional hearing is held. The arbitral tribunal rejected this request for an additional hearing and rendered an award also deciding on the respondent's monetary request for the last business year.
The Supreme Court referred to its previous case law on the right of a party to a hearing and potential grounds for setting aside an arbitral award in this context and applied its rationale to the present case: The issues to be decided for the last business year were basically identical with those of the previous business years and these issues were already the subject matter of a hearing. The arbitral tribunal also gave the plaintiff the right to comment on the defendant's updated request for relief that was filed after such hearing. The plaintiff, however, did not substantiate why another hearing would be necessary. The Supreme Court noted that under these circumstances, the arbitral tribunal rightfully rejected the plaintiff's request for another hearing.
Another decision was rendered on the requirement of translation of an arbitral award.10 The plaintiff filed a claim to set aside an arbitral award rendered under the International Chamber of Commerce (ICC) Rules and submitted the arbitral award, which is considered to be an exhibit in the setting aside proceedings, in English only. Consequently, the Supreme Court returned the plaintiff's action with the instruction to remedy this flaw within four weeks by submitting a German translation of the arbitral award. The court held that written submissions are admissible only if they are in German. Regarding exhibits to submissions, the same applies whenever those exhibits are not only documents of evidence but also form the subject matter of the proceedings, as was the case with the arbitral award in question.
Once again, the Supreme Court had to deal with a case on the distinction between an expert and an arbitrator.11 It defined that while an arbitrator decides the parties' dispute in a binding manner (by rendering an arbitral award), an expert by rendering an expert opinion on certain aspects of a case renders the basis for a resolution of the parties' dispute by the parties themselves. In this context, the Supreme Court confirmed its position in previous rulings that the designation of the contract or the use of the words 'arbitrator' or 'expert' is not decisive per se; yet, the words chosen by the parties may constitute an indication of their intent. The delimitation always depends on interpretation, and the classification of a concrete agreement (whether it is an arbitration agreement or an agreement regarding an expert opinion) is to be examined on a case-by-case basis. As to the effects of an expert opinion, the Supreme Court confirmed that an expert's opinion is in principle binding on the parties and the courts, unless it is against good morals according to Section 879 (1) Austrian Civil Code (i.e., if the expert opinion violates the principles of fairness and equity).
In a 'regular' litigation before the Austrian courts,12 the plaintiff requested the annulment of a purchase contract concluded with the defendant. In the revision proceedings before the Supreme Court, the plaintiff eventually argued that the Austrian courts have jurisdiction because the purchase contract contained both an arbitration clause and a choice-of-court agreement (of a court in Moscow). According to the plaintiff, the two clauses were in contradiction with each other and thus, both clauses should be declared invalid. In its decision, the Supreme Court first referred to Section 584 (1), first sentence of the ACCP, pursuant to which an Austrian should reject a claim, which is subject to an arbitration agreement, a limine litis unless the defendant participates on the merits of the matter or orally without raising a jurisdictional objection. The Supreme Court then confirmed its position that if a contract contains both an arbitration clause and a non-exclusive choice-of-court agreement, both clauses may validly coexist. In that particular case, the court found that neither did the arbitration clause provide for an exclusive application of one of the two clauses nor for a mandatory submission to either of the two institutions (i.e., arbitral tribunal or court). Thus, according to the Supreme Court, the interpretation of the lower court instances that the parties have a right to choose the forum could not be successfully challenged.
In another matter, the Supreme Court dealt with the unsuccessful challenge of an arbitrator.13 In the underlying arbitration under the Vienna Rules, the applicant (respondent in the arbitration) objected to the nomination of a person nominated by the defendant (claimant in the arbitration). In that objection, the applicant said that one of the lawyers of the legal representative of the defendant had a close and permanent relationship with the arbitrator nominated by the defendant. Despite this objection, VIAC confirmed the nomination. Thereafter, the applicant filed a challenge for the same grounds as already raised in its objection. VIAC again rejected the challenge and held that the applicant had not furnished additional grounds in relation to the previous challenge. Subsequently, the arbitrator made a disclosure according to which he and a partner of the law firm representing the party that nominated him had both become members of the board of VIAC, which consisted of 17 members in total. The applicant then challenged him for the second time based on reasons it already alleged in the first challenge and, in addition, on the latest disclosed circumstances. VIAC also rejected the second challenge. The applicant then filed, in accordance with Section 589 (3) ACCP, a request to the Supreme Court by alleging that two partners of the defendant's law firm had – independently from each other – each close relationships with the challenged arbitrator.
In its legal reasoning, the Supreme Court first held that the application was admissible because the applicant did not only rely on the grounds raised in the first challenge (which had not – after the rejecting decision of the VIAC board – been brought before the Supreme Court), but also on new circumstances raised in the second challenge before VIAC. The Supreme Court then discussed its settled jurisprudence on independence and impartiality of arbitrators with reference, among other legal provisions, also to the IBA Guidelines on Conflict of Interest in International Arbitration (IBA Guidelines).
In the present case, the facts were as follows: Partner X of the law firm was president of the Austrian Arbitration Association which co-organised certain lectures and events with the law faculty of the University of Vienna of which the challenged arbitrator was the dean. Furthermore, Partner X was a coach of the Moot Court team of that same law faculty, the coaching team consisting of six coaches in total. Partner X also held a lecture (with other practicing lawyers) at the faculty. Partner Y of the law firm was – as indicated above – one of the 17 members of the VIAC board. The court eventually stated that doubts were not justified as long as the relationship with the law firm representing one party is of a peripheral nature and does not go beyond a factual relationship of a professional nature. According to the Supreme Court, in view of the circumstances of arbitration and the 'network' among the Austrian lawyers, a neutral third party would not see a particular intimacy that would prevent the resolution of a case in an unbiased manner. Finally, the Supreme Court held that the present circumstances were similar to those listed in the 'Green List' of the IBA Guidelines, which should generally not constitute a conflict of interest.
In another decision,14 the Supreme Court had to render a decision the challenge of all members of the arbitral tribunal based on (basically) procedural decisions rendered by the arbitral tribunal. Referring to Section 588 (2) first case ACCP, pursuant to which an arbitrator may only be successfully challenged if justifiable doubts as to his or her impartiality and independence exist, the Supreme Court noted that a challenge of an arbitrator based on alleged procedural violations may only be successful in cases of serious procedural violations. The Supreme Court rejected the challenge as follows: the Supreme Court held that the arbitral tribunal's decision to reject respondents' request for postponement of the hearing leading to a short preparation time for the hearing and to schedule the starting time of the hearing (due to different time zones) for one attendee at 6.00am in casu did not constitute an unfair treatment. Further, the Supreme Court – referencing to the widespread use of videoconferencing in state court litigation and balancing the right to be heard against the right to effective access to justice – held that holding the hearing by videoconference although respondents objected to such approach did not violate the principles of a fair trial and fair treatment. Finally, the Supreme Court decided that an alleged eye-rolling of an arbitrator, even if it indeed had happened, would not constitute justifiable doubts as to his or her impartiality and independence.
In a claim for setting aside15 a partial award rendered under the ICC Rules, the arbitration itself was still pending. The plaintiff (i.e., claimant in the arbitration) belonged to a multilateral energy group involved in the supply and storage of gas. The defendant operated gas pipelines in Austria. In the arbitration, the plaintiff requested, among other reliefs, that the arbitral tribunal declared certain provisions of a capacity agreement null and void. The defendant raised jurisdictional objections. In the partial award, the tribunal confirmed its jurisdiction on rights arising out of the capacity agreement but denied its jurisdiction on the claim for damages because of the allegedly monopolistic position of the defendant (cf. Article 102 TFEU). With regard to two further issues of jurisdiction, the tribunal reserved its decision. The tribunal's main reasoning was that it was not competent to decide on tort claims. The tribunal's reasoning was that the wording claims 'out of a contract' do not include tort claims such as the present ones and relied, in this context, on a previous decision of the Supreme Court16.
In this setting aside proceedings, the Supreme Court followed the argument of the plaintiff and held that the claims related to the allegedly monopolistic position were in close connection to the capacity agreement concluded between the parties. In particular, the plaintiff argued that the performance of its obligations under this contract caused damage, which it claims in the arbitration. The Supreme Court referred to a judgment of the Court of Justice of the European Union (CJEU)17 on a choice of court agreement. In that matter, the CJEU held that damage claims based on Article 102 TFEU were covered by the choice-of-court agreement even if the agreement did not explicitly refer to claims arising out of the breach of competition law.
The Supreme Court further explained why its previous decision 4 Ob 80/08f, on which the defendant relied in its submission before the arbitral tribunal, was not relevant in the present case. In that other decision, the claims relating to competition law were raised independently from the contract that contained the arbitration clause. On the contrary, in the case at hand, the claims on the alleged breach of Article 102 TFEU had a causal link with the contract between the parties. The court thus set aside one decision of the partial award on jurisdiction in accordance with Section 611 (2) lit 1, 2nd case ACCP as the tribunal had wrongfully denied its jurisdiction.
In a matter where the applicant requested an Austrian court to issue an interim measure,18 the defendant raised, among others, an objection to the jurisdiction of Austrian courts and relied on an arbitration clause in a contract between the parties. When the matter was referred to the Supreme Court as third and final instance, the court stated, among several other reasons, that in the matter 4 Ob 80/08f, the claimant in the underlying arbitration had raised non-contractual claims that had merely an 'illustrative context of meaning' and were thus not covered by the arbitration agreement.iii Investor–state disputes
Under the International Centre for Settlement of Investment Disputes (ICSID) regime, there are currently 11 cases pending in which an Austrian investor has brought a claim against a state (the respondent states are Germany, Tajikistan, Romania, Argentina, Italy, Serbia, Montenegro and Croatia). The most recent claims were filed in the second half of 2019 against Romania and Germany. In June 2018, several investors from various countries, one of which is Austrian, jointly filed a claim against Romania with ICSID. According to news reports, the matter relates to changes in Romania's legal regime on renewable energy. The timing is of particular interest, because the claim was filed after the CJEU rendered its famous Achmea decision, according to which the arbitration clause in a particular bilateral investment treaty between two EU Member States was found to be incompatible with EU law. Further, in 2017, four Austrian banks each filed claims against Croatia because of the mandatory conversion of loans in Swiss francs into loans denominated in euros. One of the four banks has further filed a claim against Montenegro for similar reasons. In the four banking cases against Croatia, the banks are represented by three different law firms, while the state has retained one firm for all four matters. On the other side, Austria was sued by a Dutch company under the bilateral investment treaty between Austria and Malta in 2015. This case has received particular media attention not only because it is the first investment case against Austria, but also because the claimant company belongs to the Anglo Austrian AAB (formerly Meinl Bank) group, which was an Austrian bank. In 2017, the arbitral tribunal declared the proceedings closed. Media reports say that the claim was rejected. Due to an interpellation in the Austrian parliament, it became public that the same claimant – that is, the affiliate of Anglo Austrian AAB – has filed a new claim against Austria, this time before the ICC in Paris.
To date, no other cases under arbitration rules other than those mentioned above are publicly known.