In three similar decisions of 17 March 2015 the Austrian Supreme Court (“OGH”) clarified how insolvency proceedings may affect an already pending arbitration. In a nutshell, the OGH held that Section 7 Bankruptcy Act, which provides that all pending proceedings in which the debtor is the claimant or the respondent are (automatically) stayed upon the commencement of bankruptcy proceedings, also applies to arbitral proceedings. Additionally, the OGH gave guidance on the question when arbitral proceedings are considered to be “pending”.
The decisions dealt with materially the same facts: in all three cases the arbitration agreement provided for the appointment of an arbitral tribunal consisting of three arbitrators, but did not specify a procedure to appoint the arbitral tribunal. Hence, Section 587 (2) no 4 Austrian Code of Civil Procedure (“ACCP”) was applicable, which stipulates that the claimant shall request the respondent to appoint an arbitrator. In case the respondent does not appoint an arbitrator within four weeks, the claimant may request the competent court (the OGH) to appoint an arbitrator for the respondent.
In all three cases, Respondent has been requested to appoint an arbitrator before bankruptcy proceedings commenced with respect to Respondent’s assets. As Respondent failed to appoint an arbitrator within the four weeks period, Claimant requested the OGH to appoint an arbitrator. In two cases this request was made before and in one case on the same day bankruptcy proceedings commenced with respect to Respondent’s assets.
As a first step, the OGH determined when arbitral proceedings are considered to be pending as only then Section 7 Bankruptcy Act applies. Notably, according to Section 6 Bankruptcy Act no proceedings against the debtor that relate to the insolvency assets shall be initiated or continued after the commencement of insolvency proceedings. The initiation of arbitral proceedings is not regulated by Austrian statutory law. Therefore, the OGH drew a parallel to state court proceedings which are already stayed pursuant to Section 7 Bankruptcy Act when the statement of claim is received by the court. Hence, the first procedural step that needs to be taken by a claimant to pursue its claim is the connecting factor.
With regard to arbitral proceedings, the OGH held that the first procedural step depends on the arbitration agreement and on the applicable arbitration rules, if agreed upon. For example, if parties have agreed on the application of the Vienna Rules, the arbitral proceedings are pending on the day the statement of claim is received by the VIAC. In the present cases, no institutional arbitration rules were chosen by the Parties. Therefore, the OGH looked at the arbitration agreements and the applicable provisions of the ACCP. Section 587 (2) no 4 ACCP provides that in the absence of other agreements between the parties the claimant shall request the respondent to appoint an arbitrator. According to the OGH, this request to appoint an arbitrator is the first procedural step to assert a claim. Applying this view to the present cases, all three arbitral proceedings were already pending when bankruptcy proceedings commenced. Therefore, all three arbitral proceedings were stayed pursuant to Section 7 Bankruptcy Act.
With respect to the proceedings to appoint an arbitrator for Respondent, the OGH distinguished between the two cases where the bankruptcy proceedings commenced at a time when the request to the OGH was already filed and the third case where the bankruptcy proceedings commenced on the same day as the request to the OGH has been made. With regard to the former two the OGH held that not only the arbitral proceedings are stayed but also the proceedings regarding the appointment of the arbitrator. In contrast, the OGH held with regard to the latter that as the arbitral proceedings were already stayed, the request to appoint the arbitrator must be rejected.
In all three cases, Claimant will have to register its claims in the respective insolvency proceedings. In case the claims are contested by the insolvency administrator, it will need to be clarified if the proceedings in which it is determined whether the claims indeed exist (“Prüfungsprozess”) may be conducted before an arbitral tribunal. This topic will be dealt with in a separate blog post by the authors.