The Austrian Supreme Court (Oberster Gerichtshof,”OGH“) dealt in its decision under the docket 18 OCg 1/19z with an application to set aside an arbitral award issued by an ad hoc arbitral tribunal under the UNCITRAL Arbitration Rules. The OGH dismissed the invoked violation of procedural ordre public. It held that the applicant was precluded from relying on defects in the arbitral tribunal’s reasoning because it did not file a request for clarification.
Factual background
The present dispute arose out of a sub-dealer agreement (“Agreement“) concluded between a Czech distributor of construction equipment and its sub-contractor. The Agreement included an arbitration clause that referred any dispute, disagreement or claim arising out of or in connection with the Agreement to the UNICITRAL Arbitration Rules to be decided by an ad hoc arbitral tribunal of three arbitrators with seat in Vienna.
In 2015, the distributor terminated the Agreement with effect from the next termination date and subsequently issued an extraordinary termination notice. The sub-contractor initiated arbitration proceedings and requested the arbitral tribunal to (i) declare the extraordinary termination invalid, (ii) award him monetary compensation for the violation of contractual obligations, and (iii) oblige the distributor to render inspection of its accounts. The arbitral tribunal confirmed the distributor’s failure to fulfill its contractual obligations, thus declared the extraordinary termination void and partially awarded the claimed amount of damages.
In 2019, the distributor filed an application to set aside the affirmative part of the arbitral award. It primarily invoked a violation of procedural ordre public (§ 611 para 2 cif 5 Austrian Code od Civil Procedure, “ACCP“) based on a lack of reasoning of the arbitral tribunal. Specifically, the applicant argued that the arbitral tribunal reasoned the contested part of the award with merely two short paragraphs. According to the applicant, the scope and quality of the reasoning’s content raised concerns in light of the rule of law.
The sub-contractor (claimant in the arbitration and defendant in the setting aside proceedings) objected to any deficiencies in the arbitral tribunal’s reasoning. It pointed out that the applicant could have requested an explanation of the arbitral award pursuant to § 610 para 1 cif 2 ACCP. Moreover, Article 35 of the agreed UNCITRAL Arbitration Rules (1976) provided for a request for interpretation of the award.
The Court Decision
The OGH – in Austria the only and last resort with jurisdiction over actions to set aside an arbitral award (§ 615 ACCP) – based its decision to uphold the arbitral award on the following considerations:
A formal ordre public violation exists when the arbitral award lacks substantiation or provides only empty phrases regarding essential points in dispute (§ 611 para 2 cif 5 ACCP). Though, the intensity of the reasoning must be distinguished. When the arbitral tribunal follows the position of one of the parties or has elaborated on its opinion in the course of the proceedings, a respective reference may fulfill the required reasoning. In contrast, when the arbitral tribunal relies on new considerations that were neither pleaded by one of the parties nor discussed by the arbitral tribunal, it shall explain such reasons in more detail.
When a party did not file a request for explanation under § 610 para 1 cif 2 ACCP, an action for annulment invoking a violation of procedural ordre public is, however, precluded (RS0131053). A defect in the arbitral proceedings can only be asserted in an action to set aside the award if a due objection was raised. The request for explanation pursuant to § 610 para 1 cif 2 ACCP constitutes such a complaint of inadequate reasoning. Whenever a request for explanation was possible, a defect in the reasoning can only be successfully asserted if the request was filed but did not remedy the defect (18 OCg 3/16i).
The OGH hold that in the present case the applicant could request an explanation of certain parts of the award from the arbitral tribunal but it refrained from filing a request for explanation under § 610 para 1 cif 2 ACCP or a request for interpretation of the award under Article 35 UNCITRAL Arbitration Rules (1976). Consequently, it is precluded from invoking procedural ordre public as a ground for setting aside the arbitral award.
Conclusion
It is recommendable to seek clarification of potential defects in an arbitral tribunal’s reasoning by requesting explanation, clarification respectively interpretation of (parts of) an arbitral award if possible under the applicable lex arbitri and/or the lex fori as this may safeguard to invoke such defects as procedural ordre public violation in a subsequent action to set aside the award in Austria.
