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25 October 2007
The enactment of the new Arbitration Act on July 1 2006 resulted in a number of changes to the Austrian arbitration law landscape.
One new feature of the act was the amendment of the formal requirements of an arbitration agreement, which was formally rather rudimentarily regulated by Section 577(3) of the Civil Procedure Code. This regulation required an arbitration agreement to be in writing (signed by both parties). An arbitration agreement could thus be validly concluded by the parties signing a contract which included an arbitration clause or via an exchange of signed telegrams or telexes between the parties. Whether arbitration agreements could be validly concluded by an exchange of faxes was doubtful in view of the law's wording, but this option was overwhelmingly accepted by Austrian legal scholars. Under the old regime the writing requirement was interpreted rather strictly. For example, in order to provide for the reliable validity of an arbitration clause included in general terms and conditions, the general terms and conditions needed to be attached to the signed contract with special reference made to the arbitration clause in the contract.
Since the new Arbitration Act came into force, the formal requirements for arbitration agreements have been governed by Section 583 of the Civil Procedure Code. According to this provision, the written form requirement may be complied with in two ways: (i) the parties may sign a document including an arbitration clause; or (ii) the parties may conduct an exchange of unsigned letters, faxes, emails or "other means of communication which ensure a record of the agreement". The exchanged communications need only show a representative as their author. The new law hereby acknowledges the different methods by which contracts are concluded in modern commerce.
An additional provision of the law was introduced by Section 583(2) of the Civil Procedure Code. This provision corresponds to the approach taken by both Article 7(2) of the United Nations Commission on International Trade Law Model Law and the German legislature in Section 1031(3) of the German Civil Procedure Code. According to this provision, an arbitration agreement contained in a document to which reference is made in a contract which fulfils the formal requirements under Section 583(1) is valid if the reference is made in such a way that it makes the arbitration clause part of the contract. In accordance with this regulation, an arbitration clause contained in general terms and conditions may now be validly agreed upon even though the general terms and conditions are not attached to the contract and the arbitration clause in the general terms and conditions has not been specifically mentioned in the contract.
Under the old regime, arbitration agreements which did not comply with the formal requirements could not be remedied. However, now even if the arbitration agreement does not fulfil the new formal requirements, such a defect may be remedied if the parties fail to object to the defect prior to entering the merits of the case (ie, before making arguments for the substance of the claim).
Until the enactment of the new Arbitration Act formal defects of the arbitration agreement were not remedied by entering into arbitral proceedings. In these cases, valid submission was possible only if both parties formally declared before the arbitral tribunal that they wished to submit their dispute to arbitration and the tribunal recorded such a declaration in writing.
The new regulation, contained in Section 583(3) of the Civil Procedure Code, thus eliminates the rather awkward situation that existed under the old law in which a party that had not introduced any objection regarding the arbitration agreement during the arbitration could in principle seek to have a final award set aside by claiming the invalidity of the arbitration agreement in the proceedings. Prior to the enactment of the new act, it was therefore even possible for the underlying claimant to challenge an award on the grounds of an invalid arbitration agreement.
However, under both the old and the new law the claimant is precluded from arguing that the arbitration agreement is void on the basis that it was signed by a person not entitled hereto if the claimant itself or its attorney had initiated arbitration proceedings based on this clause. This was recently reaffirmed by the Supreme Court when it held that the filing of a request for arbitration by a duly empowered attorney remedies the fact that the arbitration agreement was not signed by a sufficiently empowered representative of the claimant in the first place.(1)
In addition, Section 592(2) regulates that any pleas concerning the jurisdiction of the arbitration tribunal must be raised before a submission regarding the merits of the case is made.
Setting Aside of Awards on Jurisdiction
Under the old law, it was not possible to challenge a partial award by which the arbitral tribunal decided on its jurisdiction. The Supreme Court reasoned that an award on the jurisdiction of a tribunal did not constitute an award on the merits, which is the only award that can be challenged. In addition, challenging partial awards could result in the duplication of proceedings before arbitral tribunals and state courts.
Section 611(1) now explicitly provides that awards on jurisdiction are capable of being challenged. This of course requires that the party challenging the award objects to the formal validity of the arbitration agreement in a timely manner. If the arbitral tribunal then decides in favour of its own jurisdiction, the parties may challenge the partial award. Furthermore, a party may also challenge an award by which the tribunal denied jurisdiction.
In this context, reference must also be made to the regulation of Section 592(3), which explicitly states that the tribunal may continue the arbitration proceedings while the request for setting aside an award is still pending in court.
For further information on this topic please contact Gerold Zeiler or Barbara Steindl at Schönherr Rechtsanwälte by telephone (+43 1 53 43 70) or by fax (+43 1 53 43 76100) or by email (email@example.com or firstname.lastname@example.org).
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