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26 November 2009
In its decision of July 22 2009 the Austrian Supreme Court addressed for the first time some of the uncertainties surrounding the relevance of Section 617 of the Code of Civil Procedure in enforcement proceedings. Section 617 of the code was introduced by the Arbitration Act in 2006 and contains several provisions intended to protect consumers from becoming involved in arbitral proceedings.
According to Section 617:
However, it remained unclear what relevance Section 617 may have if enforcement of a foreign award is sought against a consumer before the Austrian courts. Some of these uncertainties were addressed by the Supreme Court; others, however, remain.
A Danish entrepreneur successfully raised claims against an Austrian limited liability company and two Austrian natural persons before an arbitral tribunal in Denmark. The two natural persons had acted as guarantors for the company. In the course of the arbitration proceedings, the natural persons argued that the arbitration agreement was not binding on them. It is unclear from the judgment, which only briefly summarizes the course of the arbitral proceedings, which arguments were raised before the arbitral tribunal. However, the arbitrators dismissed the objections as belated because the respondents had entered an appearance before the tribunal and raised their objections only later on in the proceedings.
The Danish entrepreneur then applied for recognition and enforcement of the award in Austria.
The two natural persons claimed that the arbitration agreement was not valid, invoking Articles V(1)(a) and (c) of the New York Convention. Further, they claimed that they were to be considered consumers under Austrian law. Accordingly, as the arbitration agreement did not comply with Section 617 of the code, enforcement of the award would violate Austrian public policy.
The Supreme Court rejected the argument that Article V(1)(a) and (c) of the New York Convention had been violated as the respondents had entered an appearance before the arbitral tribunal without raising objections and therefore the alleged invalidity of the arbitration clause had healed.
The court then addressed the alleged violation of the Austrian public policy based on the incompatibility of an arbitration agreement with Section 617 of the code.
The court held that Section 617 of the code does not apply to arbitral awards rendered abroad, as Section 577(2) of the code exhaustively lists those provisions of the code which apply even if the seat of arbitration is not in Austria and Section 617 is not among them. Therefore, it has no immediate relevance in enforcement proceedings.
However, according to the court, some provisions of Austrian law for the protection of consumers may form part of the Austrian public policy. Therefore, their violation may be invoked under Article V(2)(b) of the New York Convention.
The court did not provide guidance on which provisions it considers may be part of the Austrian public policy. It merely stated that not all arbitration agreements between entrepreneurs and consumers are invalid per se, as Section 617 of the code permits such agreements even if only within certain limits. Also, according to Section 14 of the Consumer Protection Act, which prohibits the conclusion of choice of forum clauses in favour of the jurisdiction of a court (or an arbitral tribunal) outside the place of domicile of the consumer, the conclusion of arbitration agreements is not prohibited, but only limited. The court held that a possible violation of Section 14 of the Consumer Protection Act, which in essence corresponds to Sections 617(4) and (5) of the code, had healed in the present case when the respondents failed to raise it in the arbitration proceedings in a timely manner. Therefore, Section 14 of the Consumer Protection Act and Sections 617(4) and (5) of the code do not pertain to the Austrian public policy.
However, the court held - at least implicitly - that Section 6(2)(7) of the Consumer Protection Act pertains to the Austrian public policy. This provision stipulates that an arbitration agreement with a consumer must have been individually negotiated (and therefore have not been included in general terms or conditions). In the present case the court found that as the parties had not argued that the arbitration clause had not been individually negotiated, there was no basis for denying the enforcement of the award based on Section V(2)(b) of the New York Convention.
Therefore, the court rejected the respondents' objections.
The court's decision leaves room for discussion on several points.
First, it is questionable whether Section 617 of the code can ever be relevant in the enforcement stage of foreign awards. Section 617(1) permits arbitration agreements only for disputes which have already arisen. It is generally regarded to restrict the objective arbitrability of disputes.(1) According to Article V(2)(a) of the New York Convention, Austrian courts may refuse ex officio the recognition and enforcement of awards if the dispute is not arbitrable under Austrian law. The absence of any discussion of this issue in the court's reasoning may indicate that the court does not consider Section 617(1) to be a limitation of arbitrability.(2) The alternative reason for the lack of any consideration on this point would be that Section 617(1) restricts arbitrability only if the place of arbitration is in Austria. This would mean that Austrian courts would apply different standards of arbitrability depending on the place of arbitration.
Second, the Supreme Court's decision must be read in light of the subsequent decision of the European Court of Justice (ECJ) in Asturcom Telecomunicaciones SL v Rodríguez Nogueira.(3) In that case the ECJ held that national courts in enforcement procedures are obliged to examine ex officio whether an arbitration agreement complies with the domestic laws on consumer protection implementing the EU Directive on Unfair Terms in Consumer Contracts (93/13/EEC). This duty also exists if the consumer failed to raise an objection in the arbitral proceedings or even to take part in it. Section 6(2)(7) of the Consumer Protection Act corresponds to Article 3 of the directive in connection with Lit q of its Annex. As mentioned, the court held that it could not find a violation of Section 6(2)(7) of the Consumer Protection Act because the parties had not raised this issue and submitted evidence thereon. However, it did not order further evidence on this point to be submitted to assess a possible violation. Therefore, in future cases the Supreme Court may take a stricter approach towards alleged violations of this provision and request findings on whether the arbitration agreement was individually negotiated.
Finally, the ECJ judgment clarifies that a violation of the other provisions of the Consumer Protection Act, which implement the EU Directive on Unfair Terms in Consumer Contracts, will prevent the recognition and enforcement of foreign awards.
For further information on this topic please contact Gerold Zeiler or Alfred Siwy at Schönherr Rechtsanwälte GmbH by telephone (+43 1 5343 7275), fax (+43 1 5343 76100) or email (firstname.lastname@example.org or email@example.com).
(1) Christian Hausmaninger, Kommentar zu den Zivilprozessgesetzen, Number 24 to Section 617 (Fasching & Konency eds, 2nd ed, 2007) with further references.
(2) This is also the opinion of Christian Koller in Aktuelles AGB-Recht 186 (Knyrim et al eds, 2008).
(3) ECJ judgment, October 6 2009, C-40/08.
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