A. Legislation, Trends and Tendencies
Arbitration in Austria is governed by Sections 577 et seqq. of the Austrian Code of Civil Procedure (ACCP), to which no legislative amendment was made in 2015.
A.2 Trends and Tendencies
The Vienna International Arbitral Centre (VIAC) has revised its Rules of Conciliation, which stem from 1975. The new so-called Vienna Mediation Rules are embodied in Annex 5 of the Vienna Rules and replace the former Rules of Conciliation. They entered into force on 1 January 2016 and apply to all proceedings in which the request for mediation was filed after 31 December 2015.3 The new Vienna Mediation Rules are framed to cover not only mediation proceedings, but ADR proceedings in general. Therefore, VIAC administrates any type of proceeding in the field of amicable dispute resolution that involves the support of a neutral third party.
An overriding principle of the new Vienna Mediation Rules is party autonomy, but it also seeks to create a procedural framework defining minimal procedural standards to be used where parties fail to jointly determine the basis for the conduct of their proceedings. In addition, they highlight certain issues that parties should consider when drafting multitier dispute resolution clauses. Another aim was to create a one-stop-shop solution, making ADR proceedings particularly compatible with arbitration where users wish to combine arbitration with other methods of ADR in the context of VIAC-administered proceedings.
B.1 Challenge to an Arbitrator Before a State Court
In its decision of 13 November 2014,4 the Austrian Supreme Court (Oberster Gerichtshof – OGH) dealt with the procedure for challenging an arbitrator before a state court. The OGH held that the scope of subsequent challenge proceedings before a state court is limited by the initial challenge during the arbitration. In the proceedings before the state court, the challenging party may not assert additional grounds of challenge that were not already argued in the arbitration.
The respondents initially challenged an arbitrator on the ground that he failed to disclose a personal connection to one of the claimants. Subsequent to this challenge being rejected by the arbitral tribunal, the respondents challenged the entire arbitral tribunal on the ground that due to ex parte communication with the claimants, the arbitral tribunal must have formed a premature opinion regarding the dispute at hand. After this challenge was rejected by the arbitral tribunal as well, the respondents turned to the OGH and challenged the arbitral tribunal.
Pursuant to Section 589 (1) ACCP, parties are free to agree on a procedure for challenges to an arbitrator. In the absence of such agreement, the arbitral tribunal itself is to decide on the challenge. However, if the challenge is rejected by the arbitral tribunal, the challenging party may request the competent state court to decide on the challenge pursuant to Section 589 (3) ACCP.
The OGH reached its decision by construing the wording of Section 589 (3) ACCP to suggest that the court effectively reviews the arbitral tribunal’s decision rather than deciding on a “new” challenge. The initial application for challenge has to be filed with the arbitral tribunal. The option to request a decision by the state court is designed as a procedure to review the initial decision on the challenge rendered by the arbitral tribunal. New circumstances may therefore only be asserted before the state court if they are within the scope of the pleadings of the initial challenge before the arbitral tribunal.
B.2 EU Competition Law Rules Form Part of National Ordre Public
In its decision of 18 February 2015,5 the OGH – in reliance on its previous decision of 23 February 19986 and with reference to the ruling of the European Court of Justice in Eco Swiss – confirmed that Articles 101 and 102 of the Treaty on the Functioning of the European Union generally form part of the national ordre public of member states of the European Union. The OGH also affirmed that a challenge based on a violation of Austrian public policy pursuant to Section 611 (2) no. 8 ACCP is only permitted if the outcome of the award conflicts with fundamental values of the Austrian legal system. The OGH may not conduct a review on the merits (révision au fond).
In 1998, a Russian gas supplier and a Czech importer entered into a long-term gas supply agreement. The agreement imposed upon the importer an annual minimum purchase obligation coupled with a volume reduction clause, which allowed the importer to reduce the volume of gas to be purchased by an amount corresponding to the supplier’s volume sales to the importers’ consumers in the Czech Republic. A dispute arose between the parties regarding the compatibility of the volume reduction clause with EU competition law. The arbitral tribunal confirmed the validity of the volume reduction clause and dismissed the supplier’s claim for payment. The supplier initiated set-aside proceedings pursuant to Section 611 (2) no. 8 ACCP.
The OGH confirmed the ruling of the Court of Appeal that the arbitral tribunal’s dismissal of the supplier’s payment claim was compatible with Austrian public policy. The Court of Appeal explained that even if the volume reduction clause were invalid, as stated by the supplier, this invalidity would also affect the minimum purchase obligation of the importer and therefore invalidate the supplier’s claim for payment. As the Court of Appeal did not deviate from the established case law, the OGH upheld the Court of Appeal’s decision.
B.3 Effect of a Party’s Insolvency on Pending Arbitral Proceedings
In three similar decisions of 17 March 2015,7 the OGH held that Section 7 Bankruptcy Act, which stipulates that all pending proceedings in which the debtor is claimant or respondent are automatically stayed upon the commencement of bankruptcy proceedings, also applies to arbitral proceedings. The OGH further determined that proceedings are considered pending when the first procedural step to assert a claim has been taken.
The decisions dealt with materially the same facts. The arbitration agreements provided for the appointment of an arbitral tribunal consisting of three arbitrators, but did not specify a procedure to appoint the arbitral tribunal. Therefore, Section 587 (2) no. 4 ACCP applied, which stipulates that the claimant is to request the respondent to appoint an arbitrator. In the event that the respondent does not appoint an arbitrator within four weeks, the claimant may request the OGH to appoint an arbitrator on behalf of the respondent. In all three cases, the respondent was requested to appoint an arbitrator before bankruptcy proceedings commenced with respect to the respondent’s assets. After the four-week period had elapsed, the claimant requested the OGH to appoint an arbitrator. In two cases, this request was made before and in one case on the same day bankruptcy proceedings commenced with respect to the respondent’s assets.
The OGH held that the request sent to the respondent to appoint an arbitrator is the first procedural step to assert a claim. As a consequence, the arbitral proceedings were already pending when bankruptcy proceedings commenced; therefore, the arbitral proceedings were stayed pursuant to Section 7 Bankruptcy Act.
In the two cases where the bankruptcy proceedings commenced only after the request to the OGH, the OGH held that the proceedings for the appointment an arbitrator by the court were also stayed upon the commencement of the bankruptcy proceedings.
In the remaining case, where the bankruptcy proceedings were commenced on the same day as the request to the OGH was made, the OGH rejected the claimant’s request for it to appoint an arbitrator, as it was initiated at a time when the underlying arbitration was already stayed.
B.4 Arbitration Agreement in an Exchange of Faxes
In its decision of 23 June 2015,8 the OGH held that the exchange of a contract containing an arbitration clause via fax and signed by only one of the parties is sufficient to conclude a formally valid arbitration agreement.
After the parties had already, in the course of negotiations, orally agreed to conclude a consultancy agreement that contained an arbitration agreement, the consultancy agreement was sent by one party to the other party via fax. Only an accompanying letter, but not the agreement itself had been signed. The transmitted agreement was then signed by the other party and returned via fax. The respondent objected to the jurisdiction of the arbitral tribunal. The arbitral tribunal rendered an award on jurisdiction holding that the arbitration agreement was validly concluded and that it had jurisdiction to decide on the dispute arising out of the consultancy agreement. The respondent filed an action with the OGH to set aside the award pursuant to Section 611 (2) no. 1 ACCP.
Section 583 (1) ACCP provides that an arbitration agreement must be contained either in a written document signed by the parties or in an exchange of letters, faxes, emails or other means of transmitting messages that provides a record of the agreement. The OGH held that Section 583 (1) ACCP provides two equal alternatives to fulfill the form requirements of an arbitration agreement. Only the first alternative requires the parties to the agreement to sign the document. The parties do not have to sign the exchanged documents to fulfill the form requirements of the second alternative. Therefore, the OGH held that the parties validly concluded an arbitration agreement, and confirmed the award.
C. Costs in International Arbitration
C.1 Allocation of Costs
The allocation of costs in arbitrations is governed by Section 609 (1) ACCP. It states that an arbitral tribunal is to decide upon the obligation to reimburse the costs of the proceedings, provided that the parties have not agreed otherwise, and that an arbitral tribunal must, in exercise of its discretion, take into account the circumstances of the case, in particular the outcome of the proceedings.
Pursuant to Section 609 (1) ACCP, an arbitral tribunal enjoys broad discretion when deciding on the allocation of costs. Although Section 609 (1) ACCP refers to the cost-follows-the-event rule, this rule is not the only guideline that an arbitral tribunal may consider when deciding on the allocation of costs. An arbitral tribunal should equally take into account the conduct of the arbitral proceedings, such as unreasonably high expenses (submitting unnecessary expert opinions or evidence, hiring of multiple law firms, etc.) and dilatory tactics.9
Although the general rules and the criteria laid down in Section 41 et seqq. ACCP that apply to state court proceedings and provide that the prevailing party is reimbursed for the legal costs in proportion to the prevailing in the proceedings are not applicable, let alone mandatory, for arbitral tribunals, it can be assumed that an arbitral tribunal seated in Austria or arbitrators with an Austrian legal background may seek guidance from those rules.10
In addition, Section 609 (3) ACCP provides for the arbitral tribunal’s duty to fix the concrete amount to be reimbursed (and not just the allocation), which naturally depends on the actual possibility of determining the costs and on the costs’ not being set off against each other.
C.2 Security for Costs
Austrian arbitration law does not contain a provision expressly dealing with the question whether an arbitral tribunal may order a party to provide security for the other party’s costs. However, parties are free to agree on an obligation to do so either in their arbitration agreement or at a later stage. In the absence of such an agreement, an arbitral tribunal arguably has the discretion to order a party to provide security for the other party’s costs.11
C.3 Recovery of Costs
The parties may also agree on the recovery of costs. In the absence of such an agreement, Section 609 (1) ACCP provides that the obligation to reimburse may include any and all reasonable costs appropriate for bringing the action or defense. Section 609 (1) ACCP does not contain categories of recoverable costs, but rather only refers to reasonable costs. Based on this provision, an arbitral tribunal enjoys broad discretion in determining recoverable costs.
When exercising its discretion, an arbitral tribunal must determine which costs were “appropriate” for bringing the action or defense. The term “appropriate” should be understood to go beyond the scope of costs recoverable in state court proceedings. Examples of costs that directly relate to arbitral proceedings and thus may qualify as potentially recoverable costs are legal fees, internal costs (e.g., costs of a legal department), cash expenditures, witnesses’ and experts’ fees, expenses and costs of taking evidence, administrative fees, and advances on costs.12
When it comes to the fees of the parties’ counsel, it is generally accepted that fees calculated on the basis of a statutory tariff or based on hourly rates that are customary in international practice qualify as reasonable costs.13 In practice, this means that hourly rates charged by a law firm are justified as long as they are reasonable. Generally, an indicator that the reasonableness standard is met would be that the amounts of both parties’ costs are similar.
In contrast, if a party has to resort to a state court for arbitration-related proceedings such as challenging an arbitral award, counsel’s costs are calculated on the basis of the Austrian Lawyers’ Fees Act, and the allocation is subject to the general rules of civil proceedings provided for in the ACCP.
Notably, Section 609 ACCP does not empower arbitrators to determine their own fees themselves (or to create an execution title in this respect). In order to recover their fees, arbitrators need to file an action regarding their outstanding fees; of course, provided that such fees have not yet been covered by advance on costs or have not been paid by the parties. Hence, an award may oblige the losing party to reimburse fees or costs that the prevailing party has already paid by way of advance on costs.
To sum up: the abovementioned lack of competence of the arbitral tribunal to decide on its own fees and costs does not cover instances where one party has already paid such fees or costs and is now applying for reimbursement from the other party. For such decisions, effectively dealing with the allocation of costs, the arbitral tribunal is of course competent.14
Austrian arbitration law does not contain a provision that regulates whether a party simply has to state the amount of costs incurred or whether it also needs to produce respective evidence (e.g., invoices etc.). In the absence of a party agreement, it is within the arbitral tribunal’s discretion to decide whether and how parties have to prove their costs.
- Stefan Riegler is a partner in Baker & McKenzie’s Vienna office. He has significant experience in representing clients before state courts and arbitral tribunals. In addition, he sits as an arbitrator.
- Alexander Zollner is a junior associate in Baker & McKenzie’s Vienna office. He focuses his practice on international arbitration and commercial litigation.
- OGH, 13 November 2014, 18 ONc 5/14a.
- OGH, 18 February 2015, 2 Ob 22/14w.
- OGH, 23 February 1998, 3 Ob 115/95.
- OGH, 17 March 2015,18 ONc 6/14y; OGH, 17 March 2015,18 ONc 7/14w; OGH, 17 March 2015,18 ONc 1/15i.
- OGH, 23 June 2015, 18 OCg 1/15v.
- Riegler in Riegler/Petsche/Fremuth-Wolf/Platte/Liebscher, Arbitration Law of Austria (2007), Section 609, mn 14.
- Riegler in Riegler/Petsche/Fremuth-Wolf/Platte/Liebscher, Arbitration Law of Austria (2007), Section 609, mn 15.
- Hausmaninger in Fasching/Konecny2 Section 609, mns 90 et seqq.
- Riegler in Riegler/Petsche/Fremuth-Wolf/Platte/Liebscher, Arbitration Law of Austria (2007), Section 609, mn 18.
- Hausmaninger in Fasching/Konecny2 Section 609, mn 64.
- Riegler in Riegler/Petsche/Fremuth-Wolf/Platte/Liebscher, Arbitration Law of Austria (2007), Section 609, mn 23.