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19 January 2006
In a recent case the Supreme Court reaffirmed the conclusiveness of form requirements set out in Article 2 of the New York Convention. It imposed the burden of proof for the alleged invalidity of an arbitration agreement on the party opposing enforcement.
The Austrian limited liability company that opposed enforcement had chartered a vessel via a Turkish shipbroker for the transport of scrap steel from Ukraine to Malaysia. Arbitration proceedings took place in London to determine whether the shipbroker had been duly authorized to (i) represent the charterer to the Hong Kong-based shipowner, and (ii) sign the charter contract, including an arbitration clause, on behalf of the charterer. The Austrian charterer did not participate in this arbitration. However, in July 2002 the English arbitrator rendered an arbitral award declaring that the charterer was liable to pay a certain amount to the Hong Kong shipowner and to bear the costs of the arbitration. The shipowner sought enforcement of the award in Austria.
The applicability of the New York Convention, to which all countries concerned (ie, Austria, Malaysia, Turkey, Ukraine and the United Kingdom) are signatories, remained undisputed throughout the enforcement proceedings.
The court of first instance declared the arbitral award enforceable and granted execution by way of forced sale of chattel, reasoning that the applicant had proved payment of the costs of the arbitration and provided all other evidence to the extent required by Article 2 of the convention. The shipowner had presented the charter contract bearing a single illegible signature. The Austrian charterer opposed this decision by alleging that the arbitration clause contained in the charter contract had not been signed by any of its managing directors who, in addition, were authorized to represent the charterer collectively only in accordance with the respective entry in the company register. Furthermore, the charterer argued that it had not granted a written mandate to conclude an arbitration agreement on its behalf as required under the Austrian Arbitration Act. Therefore, a valid arbitration agreement, as determined by Article 2(2) of the convention, did not exist. As admitted by the shipowner, the charter contract had been signed by the Turkish shipbroker who had, however, been authorized to enter into the contract on behalf of the Austrian charterer. In addition, the shipowner argued that the question of whether authorization had been granted to sign the charter contract, which - as established in the arbitration proceedings - had been partly performed by the charterer and the shipowner, had been dealt with conclusively by the arbitrator. The arbitration had not revealed any concerns in this respect. Also, as the parties had not specified the law to be used in case of dispute, the law of the place of arbitration (ie, English law) should be applied to the charter contract and the incorporated arbitration clause. However, a written mandate for the conclusion of an arbitration agreement by a representative is not required by English law.
The appellate court confirmed the first instance decision, citing the communication delivered prior to the commencement of the arbitration in which the charterer itself had referred to the valid charter contract and the arbitration clause.
As no choice of procedural law had been argued by the parties, the Supreme Court identified English law as the law applicable to the arbitration clause in accordance with Article 5(1a) of the convention, and confirmed that the written form required under the Austrian Arbitration Act for mandates to conclude arbitration agreements would not come into play in this case. The court affirmed that the charterer was entitled to invoke the invalidity of the arbitration clause due to defective authorization at the enforcement stage, but also held that the party opposing enforcement bears the burden of proof of the invalidity of the arbitration agreement (Article 5(1a), New York Convention). This was found to be appropriate since the contractual partner does not usually have any insight into the authorizations granted by the other party, and the convention does not require that proof of a written mandate to conclude an arbitration clause is furnished (Article 2, New York Convention). Since the charterer was unable to comply with this burden of proof, the appeal was dismissed (OGH August 24 2005, 3 Ob 65/05p).
The Supreme Court's decision confirms the prevailing opinion of Austrian and international scholars. This approach was foreshadowed 15 years ago by another decision of the Supreme Court (OGH May 22 1991, 3 Ob 73/91), in which it held that Article 2 of the convention conclusively deals with form requirements for arbitration agreements, and that the question of whether an individual was authorized to sign for a party does not have to be proved by the creditor seeking enforcement.
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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