We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
07 October 2010
In its decision of June 30 2010(1) the Supreme Court was called on to decide whether an arbitral tribunal's disregard of Section 598 of the Code of Civil Procedure constitutes a violation of a party's right to be heard and justifies setting aside an award. According to Section 598, a tribunal is to hold a hearing at an appropriate stage of the proceedings if one party so requests and the parties did not previously agree to exclude the possibility of a hearing.
The claimant in both the arbitral and setting-aside procedures was a construction company that had contracted with an Austrian association for construction works. The parties had concluded an arbitration agreement in which they had agreed to appoint as arbitrator a member of the association and co-owner of the building which the claimant was to refurbish. The claimant had been aware of these circumstances when concluding the arbitration agreement.
A dispute arose in which the claimant demanded payment for various works which the respondent disputed had been commissioned. Therefore, the claimant raised a claim for payment before the sole arbitrator. The arbitrator requested that the claimant submit various documents, and the claimant complied. However, the claimant also requested that the sole arbitrator hold a hearing. Without addressing this request and holding a hearing, the arbitrator rendered an arbitral award dismissing the claims and ordering the claimant to bear the costs of the proceedings.
The claimant challenged this award based on a violation of the right to be heard pursuant to Section 611(2)(2) of the Code of Civil Procedure and a violation of the Austrian ordre public pursuant to Section 611(2)(5).
The court of first instance dismissed the challenge, holding that as the claimant had been aware of the arbitrator's membership in the association, it could not invoke this circumstance as a reason for setting aside the award. With regard to the alleged violation of the right to be heard, the court held that the old Austrian arbitration law was applicable and thus Section 598 of the code, which was inserted by the new Austrian arbitration law in 2006, was not applicable. Accordingly, the claimant's right to be heard had been respected as the claimant had been able to file written submissions.
The court of appeal correctly held that the new Austrian arbitration law applied to the case. According to Section 598 of the code, the arbitral tribunal was to hold a hearing if one party to the dispute requested as such. However, according to the court, the arbitral tribunal's disregard of such a request did not constitute a violation of the right to be heard. Further, the court of appeal concurred with the court of first instance with regard to the alleged violation of the Austrian ordre public.
The claimant appealed this decision to the Supreme Court.
Supreme Court decision
The Supreme Court confirmed that the Code of Civil Procedure, as amended by the new Austrian arbitration law, was applicable. It held that Section 598 of the code is mandatory and obliges the arbitral tribunal to hold a hearing if one party applies for such a hearing to be held and the parties did not explicitly agree that the proceedings should be conducted without a hearing.
The court then examined whether a violation of Section 598 justifies the setting aside of an award under Section 611(2)(2). It held that Section 598 is a manifestation of the parties' right to be heard. Under the old arbitration law, which did not contain a comparable provision, the arbitrator's refusal to hold a hearing would have been a procedural mistake but constituted a violation of a party's right to be heard only if the party had not had the opportunity to file written submissions. The court decided that if a violation of Section 598 were to have no consequences and the disregard of a party's request for a hearing were to be only a procedural mistake as under the old Austrian arbitration law, the legislature's insertion of Section 598 would have had no legal consequences and therefore would have been superfluous. Accordingly, however, a legal provision cannot be interpreted to have no meaning. Consequently, to respect the intentions of the legislature, a violation of Section 598 must be considered to constitute a violation of a party's right to be heard. Therefore, the court set the award aside.
According to the court, this approach is also consonant with the regulation enshrined in Section 477(1)(4) of the code, according to which a court's judgment is null and void if a mandatory hearing was not held.
In this decision the Supreme Court reconsidered the predominant approach in Austrian legal literature to the arbitral tribunal's obligation to hold a hearing. Previously, Austrian scholarly literature had considered the right to be heard to have been respected if the parties had the possibility to submit their case to the arbitral tribunal either in writing or orally.(2) This approach was also taken after Section 598 had been introduced.(3) Thus, the decisions of the first instance appeal courts were consonant with legal literature.
Austrian jurisprudence has generally granted the right to be heard a rather narrow meaning and considered it to have been respected even if the tribunal:
In the present decision the Supreme Court has taken a stricter stance with regard to the right to be heard. In light of the fact that - as the Supreme Court correctly noted - the Austrian legislature obviously intended to strengthen the possibility of parties to present their case orally, this approach seems correct at first glance. However, it is doubtful whether the legislature also intended a violation of this right to justify setting aside an award. It may well be that the legislature merely intended to stipulate expressly that parties have the right to an oral hearing. Neither of the materials on Section 611(2)(2) or Section 598 mention that a violation of Section 598 could constitute a violation of the right to be heard.(5)
However, in the materials on Section 598 the legislature expressly stated that oral hearings, which are of fundamental relevance in litigation before courts, are of far less relevance in arbitral proceedings, despite the fact that an oral hearing is to be held if a party requests it.(6) Accordingly, written submissions conversely have far greater relevance in arbitral proceedings than in court litigation. Therefore, it can be doubted that the legislature considered the possibility of setting aside an award based on the violation of Section 598. In any event, the Supreme Court's reference to Section 477(1)(4), which protects the principal relevance of oral hearings in litigation, seems misguided.
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 (firstname.lastname@example.org).
(2) Hans Fasching, Schiedsgericht und Schiedsverfahren im Österreichischen und im Internationalen Recht 105; Gerold Zeiler, Schiedsverfahren no 23 to section 594; Christian Hausmaninger in Kommentar zu den Zivilprozessgesetzen no 34 to section 598 (Fasching/Konecny eds, 2nd ed 2007).
(3) Christian Hausmaninger in Kommentar zu den Zivilprozessgesetzen no 34 to section 598; Gerold Zeiler, Schiedsverfahren no 23 to section 594.
(4) Gerold Zeiler, Schiedsverfahren no 21 to section 594 with further references.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.