Austria has long been established as a European hub for international arbitration and, in particular, Vienna as the capital city is a preferred venue for arbitrations related to the SEE and CEE regions. The legal community boasts a number of arbitration specialists providing high-end counsel and arbitration services. The Vienna International Arbitral Centre of the Federal Economic Chamber (VIAC) provides excellent administration of international arbitrations. In general, arbitration is increasingly becoming the preferred method of resolving larger business disputes in Austria.
The VIAC Rules of Arbitration and Mediation 2018 entered into force on 1 January 2018. Part I of the VIAC Rules contains the VIAC Rules of Arbitration (Vienna Rules). Under the revised Vienna Rules, VIAC also administers purely domestic cases. Overall, the revision of the Vienna Rules aims to ensure the efficient conduct of proceedings by introducing an electronic case management system, granting arbitral tribunals the power to order security for costs, and correlating the determination of arbitrators’ fees with their conduct of proceedings in a timely and cost-effective manner.
As a response to the COVID-19 outbreak, the Vienna Rules were clarified in that, with effect from 1 April 2020, the VIAC Secretariat may send a copy of the arbitral award in electronic form in certain cases. In addition, VIAC published the "Vienna Protocol – A Practical Checklist for Remote Hearings".
The Vienna Protocol aims to provide guidance for arbitrators and the parties in determining whether the conduct of a remote hearing is reasonable and appropriate in the specific circumstances of a case. Both measures are designed to stay in place after the COVID-19 pandemic subsides.
There has been a notable increase in arbitration activity in domestic disputes, particularly concerning energy-related disputes, as well as in construction and engineering. The financial services and banking sector is also increasingly turning to arbitration for dispute resolution. The reason for this increase is primarily due to the increased perception of arbitration as the “normal” form of dispute resolution for more complex disputes.
The majority of international arbitrations in Austria are administered either by the Vienna International Arbitral Centre of the Federal Economic Chamber (VIAC) under the Vienna Rules (2018) or by the International Court of Arbitration of the International Chamber of Commerce (ICC) under the Rules of Arbitration of the ICC (2017). A number of arbitrations are also conducted under the rules of other renowned arbitral institutions, such as DIS, LCIA and the Swiss Rules, as well as under the UNCITRAL Rules.
If the seat of the arbitration is in Austria, the arbitration proceedings will be governed by Austrian arbitration law, which is contained in the Fourth Chapter of the Austrian Code of Civil Procedure (Sections 577-618).
The legislation governing arbitration in Austria has been strongly based on the UNCITRAL Model Law since 2006, with few minor deviations. Significantly, Austrian arbitration law does not differentiate between domestic and international arbitration.
There have been no changes to Austrian arbitration law in the past year, nor are there any changes planned in the immediate future. Any discussions regarding possible legislative changes are limited to clarifications (eg, regarding the delimitation of consumer and corporate disputes) to maintain Austria as an arbitration-friendly jurisdiction.
Austrian law requires that the arbitration agreement must identify the parties and the dispute (or a defined legal relationship) that are subject to the arbitration clause. Furthermore, the arbitration agreement must be in writing, either as part of a document signed by the parties or as an exchange of letters, telefax, emails or any other means of communication that provides a record of the arbitration agreement. Regarding the exchange of documents, the Austrian Supreme Court has clarified that “exchanged documents” do not need to be signed, irrespective of the means of communication used. Additional formal requirements must be met if consumers or employees are parties to the arbitration agreements.
The definition of arbitrability is broad. The general rule is that pecuniary claims are usually considered arbitrable, while non-pecuniary claims are considered arbitrable if the parties have the capacity to enter into a settlement agreement with regard to the specific claim. Disputes that fall under the competence of the administrative authorities are not arbitrable.
Family law matters and all claims based on contracts that are – even only partly – subject to the Tenancy Act (Mietrechtsgesetz) or the Non-Profit Housing Act (Wohnungsgemeinnützigkeitsgesetz) cannot be made subject to an arbitration agreement, nor can claims concerning condominium property. In addition, certain (collective) labour and social security matters are not arbitrable.
Disputes involving consumers or employees may only be made subject to an arbitration agreement (with additional formal requirements) after the dispute has arisen. The additional formal requirements are extensive and lead to a very high threshold to validly conclude an arbitration agreement with consumers or employees, rendering arbitration agreements in these areas impracticable.
Austrian legislation as well as the courts are arbitration-friendly in terms of enforcing arbitration agreements. In practice, courts apply the principle of “in favorem validitatis” – ie, when in doubt interpret the intended scope of an agreement to favour arbitration.
Although legislation governing arbitration in Austria is based on the UNCITRAL Model Law on International Commercial Arbitration, the specific wording of Article 16 (1) of the Model Law regarding separability was not adopted. However, the doctrine of separability is recognised by the courts, which evaluate the question of the validity of an arbitration clause contained in an invalid contract on a case-by-case basis by interpreting the intention of the parties. In practice, this will usually lead to the determination that the parties’ intent was that the arbitration agreement remains valid where the contract is null and void or otherwise terminated. In cases of consensual termination of the main contract, courts have held that the arbitration clause contained in the contract may also be considered terminated if the parties’ intention was to terminate the entire contractual relationship.
The parties are free to agree on a procedure to select the arbitrators. The only limitation under Austrian arbitration law is that an arbitral tribunal must not consist of an even number of arbitrators, and that sitting Austrian judges are prohibited by law from accepting arbitrator mandates.
Austrian law provides for a default procedure if the parties have failed to designate a method for selecting arbitrators, or if the chosen selection procedure fails. However, in most cases, the parties will have chosen a set of rules that deal with this issue.
As a default, Austrian law states that the number of arbitrators shall be three. In principle, each party shall nominate the same number of arbitrators. However, Austrian law does allow for the joint appointment of one arbitrator by several parties – eg, in the case of multi-party arbitrations.
If the parties have not specified a procedure, a sole arbitrator shall be jointly nominated by agreement of the parties, and an arbitral tribunal shall be appointed by each party appointing one arbitrator and the two party-appointed arbitrators appointing the president of the arbitral tribunal. If a party fails to appoint an arbitrator or if no agreement can be found regarding the appointment of a sole arbitrator or the president of the arbitral tribunal or in multi-party arbitrations, a party may apply to the Austrian Supreme Court to make the default appointment.
Courts are only involved in the appointment of arbitrators upon the application of (one of) the parties to support the arbitral process. If there is no default procedure agreed upon by the parties, a party can request the court to appoint an arbitrator if the other party fails to do so, or if no agreement can be reached regarding the appointment of the sole arbitrator or the president of the arbitral tribunal or in multi-party arbitrations. Unless the parties have provided otherwise, courts may also be called upon to decide on the application to remove an arbitrator – eg, due to lack of independence or impartiality.
Austrian law provides for a default procedure if the parties have failed to designate a challenge procedure. It foresees that a party will first submit a written statement of the reasons for the challenge to the arbitral tribunal, which gives the challenged arbitrator the opportunity to resign from office, or the other party may agree that the challenged arbitrator will be removed. If the challenged arbitrator does not resign or is not removed upon mutual agreement of the parties, the arbitral tribunal (including the challenged arbitrator) must decide on the challenge. If the challenge before the sole arbitrator or the arbitral tribunal is unsuccessful, the challenging party may then – within four weeks – apply to the Austrian Supreme Court as the court of first and last instance to decide on the challenge.
If a challenge pursuant to an agreed challenge procedure (eg, contained in arbitration rules) is not successful, the challenging party may also apply to the Austrian Supreme Court for a review of the challenge decision within four weeks of receiving the decision. The possibility to appeal to the Austrian Supreme Court in these cases is mandatory and may not be waived.
The grounds for the challenge of an arbitrator are justifiable doubts as to their impartiality or independence, and the failure of an arbitrator to meet specific requirements set out in the parties’ agreement. The Austrian Supreme Court routinely applies the IBA Guidelines on Conflicts of Interest in International Arbitration as non-binding guidelines. The mere fact that an arbitrator has not disclosed circumstances that may give rise to doubts as to their impartiality or independence alone is generally not per se a ground for a challenge.
Arbitrators are required to be independent and impartial. Both Austrian law and the Vienna Rules state that the prospective arbitrator must disclose any circumstances that are likely to give rise to doubt as to their impartiality or independence, prior to accepting an appointment. The obligation to disclose such circumstances is ongoing throughout the arbitral proceedings.
According to case law, the test is whether the circumstances of the case objectively lead to justifiable doubts regarding the arbitrator's independence and impartiality.
Disputes that fall into the competence of the administrative authorities are not arbitrable; the same applies to certain (collective) labour and social security matters, and to family law matters and claims based on contracts that are – even only partly – subject to the Tenancy Act or the Non-Profit Housing Act, as well as claims concerning condominium property. Please see 3.2 Arbitrability for further details.
Austrian arbitration law recognises the principle of “competence-competence”, so the arbitral tribunal may rule on a party’s challenge to its own jurisdiction.
Lack of jurisdiction of the arbitral tribunal may be raised as a ground to set aside an arbitral award, including a partial award on jurisdiction. If such proceedings are initiated, the question of jurisdiction will be reviewed and ultimately decided by the Austrian Supreme Court.
Under Austrian law, the courts may only address matters concerning arbitration in limited cases and upon the request of a party. The rules on jurisdiction generally favour arbitration over court proceedings.
If a court action involving a matter that is subject to an arbitration agreement is initiated prior to arbitral proceedings, the court must dismiss the claim unless the other party enters into the merits of the dispute without raising a jurisdictional objection, or if – after an objection has been raised – the court finds that the arbitration agreement does not exist or is incapable of being performed.
If an action is brought before a court whilst arbitral proceedings are already pending, the court will dismiss the action, unless a party has already challenged the jurisdiction of the arbitral tribunal in the arbitration proceedings and if, exceptionally, the arbitral tribunal is not expected to reach a decision within a reasonable period of time.
Neither of the above actions prevents an arbitration from being initiated or continued, nor an award from being rendered.
Ultimately, the issue of whether (or not) an arbitral tribunal has jurisdiction may also be raised as a ground for setting aside an arbitral award, including an award on jurisdiction.
As a general rule, parties may only challenge the jurisdiction of the arbitral tribunal in setting aside proceedings before the Austrian Supreme Court, which may be initiated after a (partial) arbitral award has been rendered.
However, the parties have the right to go to court to challenge the jurisdiction of the arbitral tribunal during pending proceedings, if a party has already challenged the jurisdiction in the arbitration proceedings and if, exceptionally, the arbitral tribunal is not expected to reach a decision within a reasonable period of time.
In setting aside proceedings, the Austrian Supreme Court may assess questions of jurisdiction without being bound to the findings of the arbitral tribunal. In practice, there is a discernible bias in favour of upholding arbitral jurisdiction in review proceedings.
The approach of Austrian courts toward a party who commences court proceedings in breach of an arbitration agreement will be to dismiss the action, unless the other party enters into the merits of the dispute without raising a jurisdictional objection or if – after an objection has been raised – the court finds that the arbitration agreement does not exist or is incapable of being performed, or if arbitral proceedings are already pending but the arbitral tribunal is not expected to reach a decision on its jurisdiction within a reasonable period of time. The courts are generally arbitration-friendly and will observe an arbitration agreement.
Austrian law does not contain explicit provisions allowing an arbitral tribunal to assume jurisdiction over individuals or entities that are neither party to an arbitration agreement nor signatories to the contract containing the arbitration agreement. However, case law has established that both single and universal legal successors, assignees of a claim or contract, and beneficiaries of contracts explicitly establishing a right of third parties are bound by an arbitration agreement even if they are not signatories to the contract. The difference between transfer of rights and novation is sometimes difficult to determine, and must be evaluated on a case-by-case basis.
Unless otherwise agreed by the parties, arbitral tribunals may award preliminary or interim relief. Such relief may only be awarded by the arbitral tribunal after the other party has been given an opportunity to be heard. A further requirement is that the enforcement of a claim would otherwise be frustrated, or that there is a danger that one of the parties may suffer irreparable harm. The relief granted will be considered binding and is enforceable if it is ordered in writing, signed, and served on the parties. Enforcement will only be refused if the order suffers from a defect that would allow it to be set aside (if the seat of arbitration is in Austria) or to be refused recognition or enforcement (if the seat of the arbitration is outside Austria).
If an arbitral tribunal grants preliminary or interim relief that contains a remedy unknown to Austrian law, Austrian arbitration law expects that the enforcing court will look to the purpose to be achieved by the remedy and – by means of interpretation, reformulation or even modification of the remedy granted by the arbitral tribunal – grant an equivalent remedy available under Austrian law.
Under Austrian arbitration law, parties may turn to the courts or the arbitral tribunal to grant preliminary or interim relief while arbitration proceedings are pending. There are no provisions on emergency arbitrations.
Whilst the parties may exclude the power of an arbitral tribunal to grant preliminary or interim relief, the courts may always be called upon to grant preliminary or interim relief upon the application of a party both before and after constitution of the arbitral tribunal. Preliminary or interim relief granted by a court can only be lifted by the courts, and cannot be reversed by an arbitral tribunal.
Only the courts have the power to enforce preliminary or interim relief awarded by an arbitral tribunal, including by an emergency arbitrator.
Courts may refuse to enforce measures that would be incompatible with an Austrian court measure that was either requested or issued previously, or with a foreign court measure that was issued previously and must be recognised.
Austrian arbitration law does not contain a provision explicitly granting an arbitral tribunal the power to order security for costs. However, this power is understood to be implied in the competence of an arbitral tribunal to award preliminary or interim relief, and in the fact that Austrian courts may order security for costs if the enforcement of the cost decision is seriously impaired (ie, due to the lack of enforceability of a judgment abroad).
The Vienna Rules 2018 introduced a provision explicitly granting an arbitral tribunal the power to order security for costs.
Austrian arbitration law grants the parties extensive autonomy in determining the conduct of the arbitration, with only a few mandatory legal provisions that cannot be waived by agreement of the parties. It also provides a framework of default rules that govern the procedure of arbitration if the parties have failed to provide for (institutional or other) rules to govern their arbitration proceedings.
The parties are largely free to agree on the manner in which their arbitration proceedings are to be conducted. In the absence of such an agreement (which may also be a reference to a set of rules to be administered by an institution), Austrian arbitration law applies as a default rule and it is otherwise in the discretion of the arbitral tribunal to govern the proceedings. Under the VIAC Rules, the arbitrators are free to conduct the proceedings at their discretion (without the necessity to apply the Austrian non-mandatory arbitration rules), subject to mandatory law and if the parties have not agreed otherwise.
As a mandatory requirement, the arbitrators must observe the parties’ right to fair treatment and each party’s right to be heard.
The arbitral tribunal has the following powers:
In the course of proceedings, the arbitral tribunal may also grant preliminary or interim relief. It has the duty to treat the parties fairly, and must ensure that each party’s right to be heard is observed. Every arbitrator has the duty to remain independent and impartial throughout the arbitration, and has an ongoing obligation to disclose any circumstances that may call their independence or impartiality into question.
There are no particular qualifications or other requirements for legal representatives in arbitration proceedings. In particular, there are no restrictions as to the nationality and/or qualification of counsel.
In proceedings to set aside an arbitral award, there is an obligation to be represented by a lawyer admitted to the Bar in Austria.
Austrian arbitration law does not contain any explicit provisions regarding the collection and submission of evidence.
In practice, most arbitrators adopt a hybrid approach and will take both civil and common law rules on evidence into consideration. For example, extensive discovery is rare in international arbitrations conducted in Austria, whereas document production, the use of written witness statements and extensive cross-examination are standard features of arbitral proceedings in Austria.
Although the client/attorney relationship is privileged under Austrian law, the scope and rules regarding legal privilege are regulated according to the civil law tradition and thus differ from the common law concept of privilege.
Austrian law does not stipulate rules of evidence that apply specifically to arbitral proceedings. The general principle is the free evaluation of evidence. The IBA Rules on the Taking of Evidence in International Arbitration are frequently referred to as guidelines.
In general, arbitral tribunals do not have any powers of compulsion but may instead request the courts’ assistance regarding the collection of evidence or the interrogation of a witness. Specifically, arbitral tribunals have no power to force a witness to testify or to enjoin a refusing party to produce a document.
An arbitral tribunal that has its seat in Austria may appeal to Austrian and foreign courts for legal assistance, and may therefore indirectly obtain the testimony of a reluctant witness or the production of a document.
There is no difference between the witness testimony of parties and unrelated third parties.
Austrian arbitration law does not contain any explicit provisions on the confidentiality of arbitral proceedings.
There is no provision in Austrian law obliging the parties to keep the arbitral proceedings confidential (including pleadings, documents, and the award). If confidentiality is desired, the parties are advised to agree on the confidentiality in the arbitration agreement or elsewhere.
The Vienna Rules contain provisions binding the arbitral institution and arbitrators to confidentiality, but not the parties.
Austrian arbitration law does provide that the public may be excluded from setting-aside proceedings if this is requested by one of the parties.
In arbitral proceedings with more than one arbitrator, any decision of the arbitral tribunal shall be made by a majority of the arbitrators, including any arbitral award. The parties may, however, agree otherwise and require a unanimous decision to be rendered. The further requirements for an arbitral award are that it must be made in writing, state the date on which it was rendered and the seat of the arbitration, and be signed by the arbitrator(s).
Unless the parties have agreed otherwise, the award must also state the reasons on which the decision is based.
The delivery of the award is not subject to any time limits, unless so agreed by the parties.
Austrian arbitration law does not contain any explicit provisions on the types of remedies that an arbitral tribunal may award. Generally, the available remedies as well as any limits thereto or prescription periods must be determined by reference to the law applicable to the merits.
The remedy of punitive damages is not known under Austrian Law and, in principle, the concept of punitive damages is considered contrary to Austrian public policy.
Austrian arbitration law does not contain any explicit provisions on whether the parties are entitled to recover interest. In most cases, this will depend on the law applicable to the merits.
Unless the parties have agreed otherwise, they are entitled to recover legal costs, upon request (encompassing the reasonable costs of legal representation, the fees of the arbitrators and – where applicable – the administrative costs charged by the institution). Both Austrian law and the Vienna Rules foresee that the arbitral tribunal must render a decision on costs upon termination of the proceedings, including in cases where the arbitral tribunal ultimately finds it has no jurisdiction. The general practice with regard to allocating costs between the parties is to take into account all circumstances of the case, with a particular focus on the outcome of the proceedings.
Within three months of receiving the arbitral award, a party is entitled to file an action for the award to be set aside based on one (or more) of the following grounds:
Additional grounds are available to set aside an arbitral award rendered in arbitral proceedings in which either a consumer or an employee was involved.
The action to set aside an award is to be filed with the Austrian Supreme Court, which will decide as first and last instance – ie, without possibility of a further appeal. Practice has shown that a well-reasoned decision will be rendered within a comparatively short period of six to eight months on average.
Under Austrian law, parties cannot agree to exclude or expand the scope of an appeal or challenge.
It is firmly established in the case law of the Austrian Supreme Court that there is no “révision au fond” of the merits of the case. This principle is strictly applied and the Austrian Supreme Court has consistently refused to entertain a review of the merits of the arbitral decision when claimants in setting aside proceedings have requested this in the guise of annulment grounds.
Austria has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards without reservation. Austria is also a contracting state to several other multilateral conventions on the recognition and enforcement of arbitral awards, including the 1961 European Convention on International Commercial Arbitration and the Geneva Convention on the Execution of Foreign Arbitral Awards (1927), as well as a number of bilateral agreements governing the reciprocal recognition and enforcement of arbitral awards. Moreover, Austria has ratified the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States, and a number of Bilateral Investment Treaties.
Arbitral awards are deemed to be equivalent to judgments of state courts and, thus, will be enforced the same way by means of application to the District Court (Bezirksgericht) of the district where the respondent has its seat, or where the object, asset or third-party debtor that will serve to satisfy the claimant's request for enforcement is registered or located.
An authenticated original or a duly certified copy of the arbitral award must be submitted together with the application for enforcement. The original or a certified copy of the arbitration agreement must only be presented upon a request by the court.
If the arbitration was seated outside Austria, the award will first have to be formally recognised (pursuant to the New York Convention or other multilateral or bilateral treaties) by the District Court that is competent for enforcement. The application for recognition can be made together with the request for enforcement, and the courts will decide simultaneously on both requests. After being declared enforceable, the foreign award is treated as a domestic arbitral award – ie, equivalent to the judgment of an Austrian Court.
The general approach of the courts toward the recognition and enforcement of arbitral awards is pragmatic, and the grounds listed in the applicable conventions are interpreted restrictively.
Whilst the opposing party will be granted the opportunity to raise grounds based on which it believes the recognition and enforcement of the award will be refused, these grounds are interpreted narrowly. This applies in particular to public policy grounds, which must reach a high threshold in order to be considered sufficient reason to refuse recognition and enforcement.
Austrian law does not provide for specific class action or group actions in general. Accordingly, there are also no provisions governing class action or group arbitration.
In Austria, various rules that apply to multi-party proceedings are used as bases for group actions in court proceedings. Provided there is a valid arbitration agreement in place, there is no reason to assume that the same cannot apply to group arbitrations, given the fact that Austrian arbitration law contains rules regarding the appointment of arbitrators in multi-party arbitrations.
The conduct of the legal profession in Austria is subject to the Code of Professional Conduct for Lawyers (Rechtsanwaltsordnung), and to numerous EU regulations. While none of these expressly refer to international arbitration, it is common practice to apply them also in arbitral proceedings. Lawyers must not make allegations they know to be false. However, there is no obligation to verify the truthfulness of the information given by a client or a witness. Foreign lawyers acting in arbitrations seated in Austria are not bound by Austrian professional ethics rules but are generally understood to be bound by the ethics rules of their respective home jurisdiction.
The Austrian market shows that third-party funding is a well-established practice in litigation and arbitration. This is also evident from the increasing number of third-party funders active in the Austrian market.
There are no express provisions on third-party funding under Austrian law, although there are two rules that could be understood to limit it. First, Austrian law requires the claim to be made (litigated) by the person who owns it – ie, it is not permissible for a claim to be made in one person’s name but on behalf of another person. Second, it is forbidden for attorneys to enter into contingency fee arrangements.
Whilst Austrian arbitration law does not provide for rules regarding the consolidation of separate arbitral proceedings, it is considered permissible.
The Vienna Rules allow for the consolidation of separate arbitral proceedings – eg, if the seat of arbitration in all of the arbitration agreements is the same and the parties agree to the consolidation, or if the same arbitrators were nominated for all proceedings concerned.
As a general rule in Austria, only the signatories of an arbitration agreement are bound by it, although there are exceptions. In particular, it has been established by case law of the Austrian Supreme Court that legal successors and third-party beneficiaries are bound by the arbitration agreement. Please see 5.7 Third Parties for further details.
Austria and its capital Vienna remain a leading hub for international arbitrations. A reliable legal framework, coupled with modern infrastructure and a convenient location, has contributed to Austria becoming one of the most popular arbitration locations worldwide.
In a bid to retain this popularity, Austria has recently amended its legislation to provide for a single instance jurisdiction of the Supreme Court in most arbitration-related matters, which has substantially shortened such proceedings and vastly improved the quality of decisions. As has already been reported, the Vienna International Arbitration Centre overhauled its Vienna Rules in 2013, and adopted further amendments in 2018, reflecting modern arbitration approaches, and meeting the needs and demands of contemporary legal practice. The caseload of the Centre remains stable, with 45 newly registered cases in 2019, and a larger caseload is expected in the coming years, due to recent amendments in the Austrian legislation governing the Chamber of Commerce, which now also enables VIAC to administer purely domestic arbitrations.
In addition to proceedings administered by VIAC, a stable number of ICC arbitrations seated in Vienna have been reported by practitioners. According to the ICC Dispute Resolution Statistics, 13 newly registered ICC arbitrations were seated in Austria in 2018. Austrians also remain among the most frequently appointed arbitrators at the ICC Court, with 27 appointments in 2018.
Recent Jurisprudence of the Supreme Court
Since the 2013 revision of the Austrian Code of Civil Procedure (CCP), the Austrian Supreme Court has been the first and final instance in most arbitration-related matters – ie, proceedings concerning appointments of arbitrators and their challenges, declaration of the existence or non-existence of an arbitral award, and requests for setting aside arbitral awards. Austria is, therefore, one of the countries where decisions on setting aside are not subject to appeal, which helps to avoid unnecessary delays in court proceedings after an award has been rendered. Furthermore, the concentration of the cases in front of the specialised 18th senate of the Supreme Court ensures a high quality of decisions in line with international arbitral practice. A short report on some of the Court’s noteworthy recent decisions is provided below.
Arbitrability and Verification of Claim in Insolvency Proceedings
In a landmark decision in its case 18 ONc 2/18s, the Court clarified long-standing divergences in scholarly writings on the issue of whether the claim verification procedure as defined in insolvency law (Prüfungsverfahren) may be conducted by an arbitral tribunal where there was an arbitral agreement concerning the disputed claim. The main criticisms of such an approach were the statutorily prescribed exclusive jurisdiction of the insolvency court for the verification procedure, and concerns about the possibility of the remaining creditors wishing to dispute the claim to participate in such claim verification procedure in arbitration.
The Court had been called upon by the claimant to nominate an arbitrator following the respondent’s failure to do so. However, before the appointment was made, insolvency proceedings were opened against the respondent and the Court subsequently stayed the nomination proceedings. Once the claimant attempted to register its claim in the insolvency proceedings, the insolvency administrator contested the claim. The Claimant thereupon requested the Court to lift the suspension of the proceedings and continue with the appointment of an arbitrator, stating that it was the arbitral tribunal, rather than the insolvency court, that had jurisdiction over the claim and therefore for conducting the verification procedure.
When a claim is contested, its validity and ranking are examined in a verification procedure pursuant to the Insolvency Law (Insolvenzordnung). The exclusive jurisdiction for this verification procedure lies with the court conducting the insolvency proceedings. However, where proceedings have been instituted in front of another court before the commencement of insolvency proceedings, they are to be continued in front of that court. The rationale of this provision is to avoid the loss of procedural effort already expended in the previously commenced proceedings, as opposed to starting proceedings anew in another forum.
The Court thereupon examined the effect of a forum selection clause; where proceedings have commenced in a court selected by the parties prior to the commencement of the insolvency proceedings, they should be continued in front of that court. Since an arbitration agreement has – in principle – the same effect as a forum selection clause, this approach extends also to arbitral proceedings. Given that there has been no doubt that the insolvency administrator is bound by an arbitration agreement entered into by the insolvent debtor, the Court held that, where it was only the insolvency administrator who disputed the claim, the proceedings are to continue in arbitration.
With its decision, the Court addressed the disputed concerns of a part of the Austrian scholarly doctrine, particularly as regards the possibility for other creditors of the insolvent debtor to participate in arbitral proceedings. The Court disposed with those concerns, stating that, when a remaining creditor has not disputed the claim, it has no legal interest to participate in the proceedings anyway. With regard to any remaining creditors wishing to dispute the claim, the Court noted that the fact that the effect of a final and binding court judgment of an arbitral award applies “between the parties” (Article 607 CCP) does not mean that an extension of this effect to third parties cannot be achieved by other legal provisions. Such extension, however, requires that these third parties have an opportunity to participate in the proceedings. In the case of the verification procedure under insolvency law, this can be achieved by allowing other insolvency creditors to dispute the claim in the arbitration. Should they not dispute the claim, they have no legal interest to participate in the arbitration. The Court thus found that the mere abstract possibility of contesting a claim cannot result in a general impossibility of conducting the verification procedure in arbitration. The Court therefore lifted the suspension of the proceedings and appointed an arbitrator as requested.
In the case at hand, it was only the insolvency administrator who disputed the claim; therefore, the Court did not decide on whether the rest of the creditors were bound by the arbitration agreement. However, the Court’s obiter dictum explanation was in favour of such an approach. It stated that disputing creditors would be bound to a forum selection agreement entered into by the debtor and, given the equal effect, in principle, of arbitration and state court proceedings, the Court saw no reason for differentiating between the effects of a forum selection clause and an arbitration agreement. These creditors, like the administrator, are not exercising their own rights based on insolvency law but rather acting in the interest of the community of creditors. This in turn suggests that, like the administrator, the disputing creditors are bound by the procedural dispositions made by the debtor before the commencement of the insolvency proceedings.
Furthermore, the Court did not exclude the possibility for the verification procedure to be conducted in arbitral proceedings even where they commence after the declaration of insolvency. The answer, pursuant to the Court, will depend on whether a forum selection clause takes precedence over the exclusive jurisdiction of the bankruptcy court.
With this welcome and thoroughly reasoned decision, the Supreme Court has clarified a long-standing issue regarding the possibility for the claim verification procedure to be carried out in arbitration. It ruled that the claim verification procedure may be conducted in an arbitration that has commenced prior to the opening of the insolvency proceedings (and where none of the remaining creditors have disputed the claim).
Besides its ruling, the Court provided a welcome and clear guidance in its obiter dictum. As the Court is the only judicial authority to deal with such arbitration-related matters, it is not likely to depart from this opinion in its future jurisprudence. The well-reasoned decision reflects the Court’s understanding and awareness of the legal debates within the Austrian dispute resolution community and their practical significance, and has made a considerable contribution to legal certainty in cases of insolvency of a party in arbitration proceedings.
Challenge Proceedings – Co-operation of Arbitrator and Party Representative in Another Matter
Another exclusive competency of the Supreme Court in arbitration-related matters is to decide as an authority of “second instance” on arbitrator challenges initiated pursuant to Article 589(3) of the Code of Civil Procedure (CCP), the equivalent of Article 13(3) of the UNCITRAL Model Law. In a particularly interesting case, 18 ONc 1/19w, the Supreme Court was deciding on a challenge against an arbitrator whose law firm had, after the constitution of the tribunal, started co-operating as co-counsel in a different matter together with one of the representatives in the original arbitration. The arbitrator duly informed the parties and co-arbitrators thereof, stating that the appointments of the two law firms as co-counsel had happened independently from each other and had not been co-ordinated between the two firms.
The challenge was first rejected in challenge proceedings before the arbitral tribunal conducted pursuant to Article 589(2) CCP. In its decision to reject the challenge, the arbitral tribunal noted that, given the size of the Austrian arbitration community which is limited to specialised attorneys and professors, its members are bound to also meet and co-operate in other venues. It found that such co-operation, particularly in the case at hand, did not give rise to justifiable doubts as to the arbitrator’s independence and impartiality. The challenging parties filed a challenge request at the Supreme Court.
In line with its established jurisprudence, the Court applied as guidance the provisions on conflict of interest applying to the judges of the state judiciary, as well as the IBA Guidelines on Conflict of Interest in International Arbitration. Regarding the former in particular, it is worth noting that, before the 2006 enactment of the new arbitration law, the conflict of interest provisions for state court judges applied also to the challenge of arbitrators. This was abolished in 2006, but the Supreme Court has consistently found that those provisions, which serve the protection of the reputation of the state judiciary, may be used as guidelines in deciding arbitrator challenges. The Court noted that, comparable to the reputation of the state judiciary, the reputation of arbitration as a means of dispute resolution should also be protected by applying a strict standard of assessment of potential bias, which requires the arbitrators not only to be professionally competent, but also to act in an independent and impartial manner, free from any conflicts of interest.
The Court was further guided by the standard of justifiable doubts as contained in the IBA Guidelines. In this regard, it noted that a conflict of interest exists where facts or circumstances have arisen that would lead a reasonable third person who had knowledge of the relevant facts and circumstances to have justifiable doubts as to the arbitrator’s impartiality or independence. Doubts are justifiable when such third person would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case as presented by the parties in reaching his or her decision.
The Court first noted its established practice, according to which doubts as to the impartiality and independence are not justified if the relationship to the law firm of the party representative is peripheral and does not go beyond an objective relationship of a professional nature (citing its case 18 ONc 2/14k). It considered that contacts of arbitration practitioners are frequent due to economic or professional circumstances, and should therefore not be regarded as legitimate grounds for challenge. If every prominent lawyer who engages in professional circles is exposed to justifiable doubts as to his or her impartiality, arbitration would largely be impossible in Austria’s well-networked legal scene (citing its cases 18 ONc 2/14k and 18 ONc 1/14p).
Applied to the situation before it, however, the Court found that the co-operation of several legal representatives in the representation of the same party did not amount to contacts of a merely peripheral nature. From the point of view of a reasonable third person having knowledge of the relevant facts and circumstances, such co-representation would imply intensive contacts between the party representatives. The Court noted that this situation has been included on the orange list of the IBA Guidelines as a situation where justifiable doubts could arise, depending on the facts of a given case (IBA Guidelines, II.3 in connection with 3.3.9). Work as co-counsel would, referring also to Austrian scholarly writings, not be problematic if it had occurred in the past. This, however, does not apply to current co-counsel appointments. Based on the restrictive standard applied by case law, such a situation would give to a reasonable third party the appearance of such a degree of familiarity that could preclude an impartial assessment of the arbitration matter. With regard to the preservation of the reputation of arbitration as a means of dispute resolution, the Court found that the simultaneous co-operation of an arbitrator and party representatives in another matter as co-counsel would cause justifiable doubts as to the arbitrator’s impartiality. It therefore found that the challenge was justified.
Austria remains an arbitration-friendly jurisdiction with modern legislation and an efficient Supreme Court. The centralisation of jurisdiction in arbitration-related matters with some of the jurisdiction's best judges has vastly contributed to the quality and overall efficiency of arbitrations seated in Austria, which has been reflected in the recent decisions. Coupled with the modern approaches of VIAC as well as highly skilled arbitration practitioners, Austria is determined to keep and continue to strengthen its reputation as a preferred place for arbitration.