AUSTRIA

Désirée Prantl

A. LEGISLATION AND RULES

A.1       Legislation

International arbitration in Austria continues to be governed by Section four (sections 577 to 618) of the Austrian Code of Civil Procedure (ZPO), to which no legislative amendment has been made since 2013.

There have been recent discussions regarding changes to section 617 ZPO. This provision determines that an agreement between an entrepreneur and a consumer may only be validly concluded for disputes that have already arisen. The Austrian Supreme Court (OGH) has applied section 617 ZPO also to corporate disputes. This case law raises issues for arbitration clauses with private foundations, which may qualify as consumers under Austrian law. In order to strengthen Austria as a place of arbitration the proposed amendments of section 617 ZPO comprise to exclude corporate law as well as natural persons who formally act as consumers, though functionally as entrepreneurs, from the special protections of section 617 ZPO.

A.2       Institutions, Rules and Infrastructure

The Vienna International Arbitral Centre (VIAC) became operational on 1 January 1975 and is the leading Austrian arbitration institution founded as part of the Austrian Federal Economic Chamber.

The latest version of the VIAC Rules of Arbitration and Mediation came into force on 1 January 2018 (“Vienna Rules”) and apply to all arbitration proceedings that commenced after 31 December 2017.

The Vienna Rules have three parts: Rules of Arbitration (part I), Rules of Mediation (part II) and Annexes (part III). By equating the position of arbitration and mediation in the Vienna Rules, VIAC now supports a wider range of alternative dispute resolutions. Registration fees and administrative fees for proceedings pursuant to the Rules of Mediation have been aligned with those of the Rules of Arbitration. The combination of arbitration and mediation at VIAC provides cost advantages for the parties.

In response to COVID-19 VIAC has introduced measures for parties to navigate through these difficult times: “The Vienna Protocol – A Practical Checklist for Remote Hearings” provides guidance for parties, counsel and arbitrators when holding hearings and can be used for arbitration proceedings administered by any institution. Moreover, VIAC launched a “Mediation Initiative” to restore business relationships in an amicable way after COVID-19.

B. CASES

The Austrian Supreme Court is the only (first and final) instance in setting aside proceedings of an arbitral award. This generally allows for swift decisions in setting aside proceedings. A specific senate at the Supreme Court deals exclusively with arbitration matters, which ensures that the decisions are well reasoned. Among the cases decided by the OGH in setting aside proceedings in 2020, two decisions are of particular practical relevance: First, the OGH confirmed an arbitral tribunal’s ruling to hold a virtual hearing despite one party’s objection (B.1). Second, the OGH declined the challenge of an arbitrator, who was a member of the VIAC board together with a lawyer from one of the counsels’ law firms (B.2).

B.1       Confirmation of an arbitral tribunal’s ruling to hold virtual hearing despite one party’s objection

The decision of the OGH of 23 July 2020[1] dealt with the following facts:

The arbitration proceedings at issue had been pending before VIAC since August 2017. The arbitral tribunal consisted of three arbitrators. On 15 January 2020, following a request by the plaintiffs, the arbitral tribunal postponed a hearing originally scheduled for March to 15 April 2020, with a starting time at 10:00 a.m. Vienna time. On 19 March 2020, a conference call was held to discuss the impact of COVID-19-related travel restrictions on an in-person hearing in April.

In a submission dated 2 April 2020, the defendants argued against a hearing via videoconference and requested an in-person hearing at a later date. However, on 8 April 2020, i.e. seven days before the hearing, the arbitral tribunal dismissed the request and ordered that the hearing would be held via videoconference, but changed the starting time to 3:00 p.m. Vienna time. This change was necessary because the defendants’ counsel and one of their witnesses were seated in Los Angeles, California. Thus, the virtual hearing started at 3:00 p.m. in Vienna and at 6:00 a.m. in Los Angeles. Thereby, the arbitral tribunal tried to choose a suitable time for all participants. For its decision, the arbitral tribunal relied on the specified procedural rules, which expressly provided for the examination of witnesses by electronic means of communication and on the discretion given by the Vienna Rules.

After the hearing was held via videoconference, the defendants filed a challenge against the entire arbitral tribunal and alternatively against one of the arbitrators to the VIAC Board. The VIAC dismissed the challenge. Subsequently, the defendants filed the same challenge of the entire arbitral tribunal and alternatively of one arbitrator with the OGH and repeated the following arguments:

1. The early starting time constituted a major disadvantage to the defendants’ counsel seated in Los Angeles. Additionally, the arbitral tribunal dismissed the defendants’ request for postponement just before the Easter weekend and did not give the defendants sufficient time to prepare.
2. The conduct of the hearing via videoconference, particularly against the defendants’ objection, did not comply with the principles of a fair trial and therefore violated article 6 ECHR. Moreover, during a virtual hearing, it can neither be monitored which documents witnesses will use, nor whether they will be influenced by third parties, e.g. by other people in the room or via text messages.
3. “Eye-rolling” by one arbitrator during the pleadings of the defendants was not only inappropriate, but actually revealed the bias of said arbitrator. According to the defendants, such behaviour constituted a violation of the principle of a fair trial.

The OGH rejected the defendants’ challenge on the following grounds:

With regards to the first argument, the OGH pointed to the arbitral tribunal’s broad discretionary power how to manage arbitral proceedings according to article 28 of the Vienna Rules. The OGH stated that the parties had known about the hearing date already for months, i.e. since 15 January 2020 and had sufficient time to prepare. Moreover, the OGH stressed that a party cannot assume that a request for postponement will be granted. Rather, it must take into account that the hearing will take place as planned. An arbitral tribunal’s refusal to postpone a hearing does not violate the principle of a fair trial in general, but has to be assessed for each case individually. In the case at hand, the defendants had no sufficient arguments for a postponement. The OGH also declared that the early starting time for the defendants’ counsel did not violate the defendants’ due process rights. Considering the different time zones, it is logical that the hearing must take place at an unusual time either for the participants based in the USA or the ones from Europe. Considering that the parties agreed on VIAC as the arbitral institution, the OGH found good reasons for the arbitral tribunal’s decision to start the hearing at 3 p.m. in Austria. By choosing VIAC, the defendants also indirectly agreed on potential disadvantages based on the geographical distance. The OGH also mentioned that defendants’ counsel would have suffered a much greater interference to its daily routine if it actually had to travel to Vienna.

With regard to the second argument, the OGH noted that videoconferences are an accepted and widespread tool to conduct both arbitral and state proceedings, particularly during a pandemic. Thus, holding a virtual hearing via videoconference against the objection of one party does not violate article 6 ECHR. According to the OGH, article 6 ECHR also includes the right to justice, which is closely linked to the right to effective legal protection. It must therefore be ensured that parties can effectively enforce their rights. Consequently, the OGH concluded that a virtual hearing held via videoconference could save costs and time, thus promoting law enforcement while at the same time ensuring a fair trial. Particularly in the event of an impending standstill of the administration of justice in the course of a pandemic, videoconference technology offers a possibility, covered by the rule of law, to harmoniously combine the parties’ right to effective law enforcement and the right to be heard.

Concerning the potential influence of witnesses, the OGH further stated that such an abuse cannot be completely eliminated, even for in-person hearings: On the contrary, virtual hearings via videoconference actually offer various monitoring options. For example, witnesses can be observed from close up and the hearing can be recorded. The OGH also suggested that if there is a risk of chat messages on the witness’ screen, the witness can be asked to look directly into the camera. The witness could also use the camera to show the entire room and / or keep their hands visible at all times in order to rule out interferences by third parties. In conclusion, the OGH confirmed that the conduct of hearings via videoconference, even against one party’s objection, is not sufficient to challenge an arbitrator, let alone the full arbitral tribunal. In addition, it does not violate the principles of a fair trial.

With regard to the third argument, the OGH clarified that “eye rolling” – even if interpreted as a negative reaction to an oral pleading – does not amount to a conflict of interest of an arbitrator.

B.2       No conflict of interest if counsel and arbitrator are both members of the VIAC Board

The decision of the OGH of 23 July 2020[2] dealt with the following facts:

The plaintiff sought to challenge the appointment of a co-arbitrator because he was a member of the VIAC board together with a non-participating lawyer from the defendant’s law firm. Thus, the plaintiff argued that this connection violated the requirement of an impartial and independent arbitrator.

The OGH dismissed the challenge.

The OGH stated that there can be justified doubt as to the impartiality or independence of an arbitrator in terms of relations with the counsel of one of the parties. However, these doubts are not justified if the relationship with the law firm of the counsel is of a peripheral nature and does not go beyond a professional nature.

According to the OGH, the contacts between people working in arbitration (in Austria) often arise from economic or professional circumstances. Therefore, this is not automatically a reason for a challenge of an arbitrator. The OGH relied on a previous decision and repeated that professional contacts with non-participating lawyers of one of the counsel’s law firm cannot justify such a challenge.

The OGH further stated that the facts of the case do not convey the appearance of familiarity. The established contacts between the challenged arbitrator and one of the counsel’s law firm do not go beyond a peripheral nature and are not unusual in the arbitration community.

The OGH also referenced the Green List of the IBA Guidelines and identified neither the appearance of a conflict of interest nor an actual conflict of interest in such a case. In particular, the cooperation in the VIAC board does not fulfill the meaning of item 3.3.3. of the “Orange List” of the IBA Guidelines. Even if item 3.3.3. of the “Orange List” of the IBA Guidelines can be applied on the “connection” between the counsel and the arbitrator, the individual case would be a situation, which gives no reason for justified doubts about the impartiality or independence of the arbitrator.

[1] OGH, 23 July 2020, docket no. 18 ONc 3/20s (published on 28 September 2020).

[2] OGH, 23 July 2020, docket no. 18 ONc 1/20x (published on 10 October 2020).