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10 June 2010
In a January 27 2010 judgment the Supreme Court was asked to decide on two relevant questions of Austrian law in a dispute between an Austrian distributor and a US company.
The first question was whether an arbitration agreement remains valid when it provides for arbitration abroad in a case in which Austrian mandatory rules may govern the merits of the dispute, or whether the application of Austrian mandatory rules must be safeguarded by the exclusive jurisdiction or at least supervision of the Austrian courts. However, the Supreme Court avoided answering this question.
The second question concerned the possibility of granting interim measures to ensure the enforcement of awards rendered abroad.
An Austrian company concluded a distribution agreement with a US company for the distribution of medical products in Austria. The contract contained an arbitration clause providing for arbitration in California. The US company terminated this agreement in 2008.
The Austrian distributor raised a claim for damages and a compensation payment, arguing that the termination had not been justified. This claim was submitted to the Austrian courts and not to arbitration in California. Further, the distributor requested interim measures from the Austrian courts providing for judicial impoundage of the consignment of goods located in Austria. According to the distributor, these goods were the only assets of the US company in Austria. Therefore, a judgment would not be enforceable in Austria if the assets were removed from the Austrian territory.
The first instance court dismissed the claim for damages and compensation due to the existence of a valid arbitration agreement. It granted the requested interim measure.
Both parties appealed this decision. The second instance court rejected the distributor's appeal against the dismissal of the claim and confirmed the first instance court's decision. The court also ruled that the Ingmar decision - in which the European Court of Justice held that Article 17 of the EU Commercial Agents Directive, which provides for the compensation of a distributor as a mandatory rule that applies regardless of the otherwise applicable law - had no influence on the decision at hand. The reason for this was that the distributor could not be characterized as a 'commercial agent' according to the EU Commercial Agents Directive. The court also overruled the first instance court's decision on the interim measures.
Both parties appealed to the Supreme Court.
Supreme Court decision
First, the Supreme Court addressed the issue of whether the possible applicability of Austrian mandatory rules could affect the validity of the arbitration agreement which provided for arbitration outside Austria and therefore outside the supervisory competence of Austrian courts. However, the court left this question open. Various foreign decisions have found that only the competence of national courts, or at least the supervision of an arbitral award, is sufficient to ensure the application of mandatory rules, and have therefore declared arbitration agreements invalid.(1) The court bypassed this topical question by deciding that the distributor was not to be considered a commercial agent. Therefore, no mandatory rules would apply in any event and the court upheld the dismissal of the main claim.
The court then turned to the possibility of issuing the requested interim measures. The distributor had based its request on Section 379(2)(2) of the Enforcement Act, which provides that interim measures may be issued if a judgment would have to be enforced in a state which is not a party to the EU Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 or the Lugano Convention 1988 (the former having been replaced by EU Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters).
The court briefly referred to its prior jurisprudence, according to which measures based on this provision cannot be ordered to secure the enforceability of judgments (or awards) rendered abroad, regardless of where they will be enforced. Accordingly, the provision applies only in situations in which Austrian judgments would have to be enforced abroad but for interim measures securing certain assets located in Austria. As the court had confirmed the Austrian courts' lack of jurisdiction, it also denied the requested measure, as the main proceedings would have to be held in California. Therefore, no Austrian judgment would be rendered.
The Austrian courts have jurisdiction to issue interim measures to ensure the enforceability of judgments if the dispute is pending before an Austrian court. This rule is not applicable if the main dispute is or will be pending before an arbitral tribunal, whether in Austria or abroad. In addition, the court at which the respondent is domiciled or, if the respondent is not domiciled in Austria, the court in the territorial jurisdiction in which the object to which the interim measures refer is located has jurisdiction to issue interim measures.
The Enforcement Act provides for the issuance of interim measures in two situations. The first is if it is probable that without such injunction, the respondent would impede or considerably exacerbate the enforcement of a claim (eg, by relocating assets (Section 379(2)(1))). This provision was not invoked in the present case. In the second instance, Section 379(2)(2) foresees the possibility of issuing interim measures in the situation described above. The rationale of this second possibility is to protect the applicant from having to enforce a judgment abroad, which the Austrian legislature generally considers more burdensome than the enforcement of (Austrian) judgments in Austria.
However, the prior jurisprudence to which the Supreme Court referred in its decision addresses only cases where a judgment or award rendered by the foreign court or tribunal was to be enforced in that same country. The court has not yet decided whether it is possible to issue interim measures if the judgment is to be enforced outside the country in which these are issued. It remains unclear from the judgment whether, in the present case, the award could be enforced in the place of arbitration. The court did not address this point and has not done so in its past decisions.
However, some arguments can be put forward in support of a measure to ensure the enforcement of foreign awards in third countries. First, the wording of Section 379(2)(2) of the Enforcement Act does not restrict this provision to Austrian judgments; it merely refers to "judgments".(2) Second, the rationale of this provision is to protect a claimant from having to enforce a judgment in a different country from that in which it was rendered. This is obviously not the case if the judgment can be enforced in the country in which it was issued. This is the case addressed by the Supreme Court in its decisions to date. Outside the territorial scope of the European instruments referred to in Section 379(2)(2), the enforcement of judgments in some third countries may cause considerable difficulties and therefore may be far more burdensome than enforcement in Austria. It seems reconcilable with the intent of the Austrian legislature to apply Section 379(2)(2) in these situations so as to protect the claimant from such difficulties. Whether the Supreme Court will follow this approach remains to be seen.
For further information on this topic please contact Alfred Siwy at Schönherr Rechtsanwälte GmbH by telephone (+43 1 5343 70), fax (+43 1 5343 76100) or email (email@example.com).
(1) See the Munich Upper Court decision of May 17 2006 (7 U 1781/06), in which a German distributor successfully argued that the arbitration clause in his contract with a US company providing for arbitration in California was void, as the German courts could not ensure the application of German mandatory rules.
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