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23 March 2006
UNCITRAL Model Law
Different Types of Arbitration
Role of the Courts
Doctrine of Separability of the Arbitration Clause
Issuing Interim Protection Measures
Constitution of Arbitral Tribunal
Conduct of Arbitration Proceedings
Delivery of Award
Jurisdiction Regarding Costs
Challenging an Arbitral Award
Enforcement of Foreign and Domestic Awards
The new arbitration law will come into force in Austria on July 1 2006, and will govern all arbitration proceedings that are initiated on or after that date. Regarding arbitration agreements, the new law will apply if the arbitration clause is agreed on or after that date.
As in the past, the new law will not be codified in a separate act; rather, it continues to be part of the Code on Civil Procedure. Sections 577 onwards will deal with issues related to arbitration proceedings.
The new law does not mirror every single aspect of the United Nations Commission on International Trade Law (UNCITRAL) Model Law. However, the main features of the UNCITRAL Model Law are introduced by the new law, henceforth Austria will rightly call itself a model law country.
Unlike the UNCITRAL Model Law, the new Austrian law will not distinguish between domestic and international arbitrations. The same provisions will apply to both cases. The new law also makes no distinction between commercial and non-commercial arbitration proceedings. As a result, specific rules apply to consumers and employment-related matters. Rules on these issues are not very common in Austria, and the new law contains a number of provisions which make it unlikely that this situation will change in the future (see Sections 617 and following).
The structure of the new law closely follows the UNCITRAL Model Law. The first chapter deals with general issues such as the scope of application of the law and the service of written communications in arbitral proceedings, and the second chapter with the arbitration agreement (definition, arbitrability and form). The third chapter deals with the installation of the arbitral tribunal and the challenging of arbitrators, and the fourth with the tribunal's jurisdiction (including the power to issue interim measures). The conduct of the arbitration proceedings and the making of the award are governed by the fifth and sixth chapters. The seventh chapter deals with the possibility of setting aside an award under Austrian law, and the eighth chapter discusses the recognition and enforcement of foreign awards. The ninth chapter is about state court proceedings relating to arbitration. The tenth chapter contains special provisions dealing with consumers and employment law matters.
Regarding the applicability of the Austrian arbitration law, Section 577 distinguishes between three groups of provisions.
Most provisions of the new law apply only if the seat of the arbitral tribunal is in Austria (Section 577(1)). The term 'seat of the arbitral tribunal' does not, however, mean the place where the oral hearing is being conducted. As with the UNCITRAL Model Law's 'place of arbitration', the seat of the arbitral tribunal refers to the legal rather than the physical venue of the arbitration (Section 595).
Some provisions, all of them relating to the intervention of the courts at a time when the arbitral tribunal has to be installed and when arbitrators are challenged, also apply if the seat of the arbitration has not yet been established, provided that at least one of the parties has its domicile or ordinary residence in Austria. Under such circumstances, the Austrian courts have jurisdiction to assist with the establishment of the arbitral tribunal and may play a role where arbitrators are challenged (see Chapter 3, Sections 586 to 591).
A final group of provisions applies regardless of where the seat of the arbitral tribunal is located and regardless of whether such place has been established at all (Section 577(2)). These provisions include:
As in the UNCITRAL Model Law, under the new arbitration law the role of the courts in arbitration proceedings is very restricted. Except where specifically provided, the courts shall refrain from intervening in arbitration matters at all (Section 578). As a result, matters such as anti-suit injunctions against arbitrators or against the parties of arbitration proceedings are inadmissible under Austrian law.
The definition of an 'arbitration agreement' is modelled after Article 7(1) of the UNCITRAL Model Law. Section 581(1) of the new law states that it is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Like the model law, the new Austrian law explicitly states that an arbitration agreement may be made in the form of an arbitration clause as well as in the form of a separate agreement.
In principle, any proprietary claim is arbitrable. In addition, non-proprietary claims are still arbitrable if the law allows the dispute to be settled by the parties, and arbitrability is one way of doing so (Section 582(1)).
There are, however, several exceptions. Claims in family law, as well as disputes relating to the lease of property and to cooperative apartment ownership as specified in Section 582(2), are not arbitrable. Most employment law and consumer disputes are arbitrable only if the parties enter into an arbitration agreement once the dispute has arisen (Section 9(2) of the Labour and Social Courts Act; Section 619(1) of the Code on Civil Procedure). Other employment law disputes regarding social security issues or claims in relation to works council representation and workplace security are not arbitrable at all.
Section 583, which governs the formal requirements of arbitration clauses, is in line with the relevant provision of the UNCITRAL Model Law (Article 7(2)).
Accordingly, the arbitration agreement should be in writing, either as part of a document signed by the parties or as an exchange of letters, telex, email or any other means of communication which constitutes a record of the agreement (Section 583(1)).
If a separate document of a contract refers to an arbitration clause, that arbitration clause is valid if this reference incorporates the separate document as part of the contract (Section 583(2)).
Section 583(3) ensures that any objections as to the validity of an arbitration clause are raised at an early stage. Therefore, a formal defect in an arbitration agreement is deemed to be cured if a party pleads to the merits of the case in an arbitration without simultaneously raising the issue of the invalidity of the arbitration agreement (Section 583(6)). In addition, if a party has relied on the validity of an arbitration agreement at an earlier point in time, it may not plead at a later point that such an arbitration agreement does not exist unless the relevant circumstances have since changed (Section 584(5)).
The general principle of kompetenz-kompetenz applies. Thus, the tribunal can rule on its own jurisdiction (Section 592(1)).
This decision of the arbitral tribunal, even if it denies its jurisdiction, has to be made in the form of an award.
In addition, once arbitration proceedings have been initiated, an action relating to the matter in dispute brought before a state court shall be dismissed. However, this does not apply if a party to the pending arbitration has challenged the jurisdiction of the arbitral tribunal and if the tribunal cannot be expected to reach a decision within a reasonable period of time (Section 584(3)).
On the other hand, if an action is pending before a court, arbitration proceedings may nevertheless be commenced or continued and an award may be made (Section 584(1)).
Article 16(1) of the UNCITRAL Model Law stipulates that for the purpose of the arbitral tribunal deciding on its jurisdiction, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision of the arbitral tribunal that the contract is null and void shall not automatically entail the invalidity of the arbitration clause. These provisions of the UNCITRAL Model Law which enshrine the widespread international doctrine of separability of the arbitration clause have not been implemented into Austrian law. However, the longstanding notion under Austrian law is that arbitration agreements (including arbitration clauses which form part of a contract) are governed by public law (procedural law) rather than the general provisions of Austrian civil law. As such, arbitration clauses have to be considered as separate contracts which are not necessarily invalid just because the main contract in which they are included is invalid. In addition, numerous court decisions have applied the principle that it can follow from the intention of the parties to the arbitration clause that the clause shall survive the main contract's termination. Taking all this into consideration, it appears that under Austrian law, arbitration clauses are largely separable from the main contract. In practice, there seems to be no substantial difference from the concept of separability under the UNCITRAL Model Law.
Following Article 17 of the UNCITRAL Model Law, Section 593(1) allows the arbitral tribunal, after having heard both parties, to order such preliminary or protective measures as it may consider necessary in respect of the subject matter of the dispute. However, unlike Article 17 of the Model Law, Section 593(1) creates a precondition for the issuance of any interim or protective measure: the measure should be issued only if without it either the enforcement of a claim would be frustrated or materially hampered, or one of the parties would risk incurring irrecoverable damage.
Unlike the UNCITRAL Model Law, the new Austrian law explicitly states that the issuance of ex parte measures is not allowed. Thus, the other party should, in any case, be heard by the arbitral tribunal before the interim or protective measure is issued (Section 593(1)).
The arbitral tribunal may require any party to provide appropriate security in connection with any interim or protective measure.
Sections 593(3) to (6) ensure that interim measures, albeit no awards, are enforceable in Austria, and establish the rules for the enforcement of such measures as well as for the denial of enforcement. The provision covers measures by both domestic and foreign arbitral tribunals. As a result, the new regime not only makes domestic measures enforceable, but also serves as the legal basis for the enforcement of foreign interim measures in Austria.
Even if an arbitration agreement exists, the courts are still competent to issue interim measures. In that respect, Section 585 implements Article 9 of the UNCITRAL Model Law into Austrian law without any significant changes. It establishes the general principle that the Austrian courts retain jurisdiction to grant interim protection measures, regardless of the fact that the parties have entered into an arbitration agreement.
As regards the formation of the arbitral tribunal, the provisions of the new Austrian law follow the UNCITRAL Model Law.
The tribunal may thus consist of one or more arbitrators, depending on the agreement between the parties. In the absence of such an agreement, there will be three arbitrators. However, a tribunal must not consist of an even number of arbitrators. If the parties agree on an even number of arbitrators, the appointed arbitrators must agree on an additional arbitrator who will act as chairman of the tribunal (Section 586).
In further derogation from the UNCITRAL Model Law, Section 587 contains special provisions for multi-party arbitrations. In this respect, Section 587(6) stipulates that all arbitrators shall be appointed by the court if co-claimants or co-respondents on one side fail to agree on the appointment of the arbitrator and the parties are not bound by agreement (eg, in the arbitration clause) to agree on an arbitrator to be appointed by their side. On the other hand, if an agreement on the appointment of a joint arbitrator of the co-claimants or co-respondents exists, only the arbitrator of those parties would be appointed by the court if they fail to agree on a joint arbitrator (Section 587(5)).
When a person wishes to act as an arbitrator, he or she must disclose any circumstances which could give rise to doubt as to his or her impartiality or independence, or which contradict the agreement between the parties (Section 588(1)).
An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubt as to the arbitrator's impartiality or independence, or if the arbitrator does not possess the qualifications the parties have agreed upon (Section 588(2)).
Although the wording of Section 588 differs slightly from Article 12 of the UNCITRAL Model Law, its meaning is still the same and an objective standard applies to both the obligation to disclose and the grounds for challenge.
As stipulated in the UNCITRAL Model Law, the conduct of the proceedings is primarily governed by the mandatory provisions of domestic law - in this case the new Austrian legislation. Failing mandatory legal provisions, the parties may agree on the conduct of the proceedings (eg, by referring to the rules of an arbitration institution). In the absence of such an agreement, non-mandatory law applies. If a matter is not covered by non-mandatory law, the arbitral tribunal decides at its own discretion.
Most of the remaining provisions are generally in line with the model law. However, according to Section 594(2) the parties shall be treated fairly - 'fair' having the meaning defined in Article 6 of the European Convention on Human Rights. The equal treatment requirement of Article 18 of the model law is one aspect of the requested fair treatment. In this respect, there appears not to be much difference from the model law. The same is true of Section 594(2), which derives from Article 18 of the UNCITRAL Model Law. Instead of stipulating that each party shall be given a full opportunity to present its case, it simply states that the parties have to be heard. By so doing, the new law is in line with past and present Supreme Court rulings which hold that the parties must be given an opportunity to present their facts and to comment on any facts presented by the other party, as well as on any evidence introduced into the proceedings by either of the parties or the arbitral tribunal.
Unless otherwise agreed by the parties, Austrian law requires arbitrators to make a reasoned award (Section 606(2)). It does not, however, stipulate any time limit for the delivery of the arbitral award.
The award must be issued in writing and signed by at least a majority of the arbitrators (Section 606(1)). It must contain the date on which it was issued as well as the seat of the arbitral tribunal (Section 606(3)). Upon the request of any party to the arbitration proceedings, the award has to contain confirmation that it is final and enforceable (Section 606(6)).
The arbitral tribunal has jurisdiction over costs awards. The new law also stipulates that such jurisdiction exists even if the arbitral tribunal finds that it has no jurisdiction over the subject matter (Section 609(2)).
Section 611 stipulates the grounds for challenging an arbitral award, which in principle echo those set out by Article 34 of the UNCITRAL Model Law. However, there are some differences. In particular, unlike the model law, not every deviation of the arbitral tribunal's conduct of the proceedings from the agreement of the parties or the applicable law constitutes grounds for setting aside an award (Article 34(2)(iv) of the model law). If, however, the deviation violates public policy, the award can be set aside (Section 611(2)(5)).
In addition, Section 611(2)(6) has no basis in the model law. It states that an award can be set aside should the preconditions occur under which the judgment of a court of law can be appealed by filing a complaint for revision pursuant to Section 530(1).
Arbitral awards are enforced by the Austrian courts in the same way as judgments of state courts (eg, seizure of movables or immovables, financial claims of the defendant against third parties). Since Austria is a party to the New York Convention, the Washington Convention and the Geneva Convention, the enforcement of foreign awards is also subject to these state treaties.
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 (firstname.lastname@example.org or email@example.com).
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