Arbitrate or litigate?

If a contract does not contain a dispute resolution clause and the parties do not reach a settlement through negotiations or other alternative dispute resolution (ADR) methods, the plaintiff will have to decide whether to pursue litigation or try to reach an agreement to submit the dispute to arbitration. The defendant will have to decide whether to agree to arbitration or not. There is a long list of variables for both parties to consider when deciding whether arbitration or litigation is preferrable. Some of these variables are:

 

• Discovery/disclosure: The extent of discovery has increased in international arbitration. However, the impact of this on a party’s decision whether to pursue arbitration or litigation will vary depending on national procedural rules and the party’s preference. Litigation-style depositions and written interrogations, as seen in many common law jurisdictions, remain comparatively rare in arbitration. If a party pursuing legal action in the US, for example, wishes to avoid full-scale discovery, arbitration may be preferable. In civil law systems, on the other hand, subject to the applicable procedural rules, arbitration may enable wider-ranging discovery/disclosure requirements than domestic courts.
• Enforcement of awards: Largely due to the impact of the New York Convention (see section vii(b) below), arbitral awards are usually easier to enforce across national borders than court judgments. As seen in greater detail below, instances of successfully blocking enforcement are rare.
• Interim measures of protection: Parties who need to obtain fast interim relief at the outset of the dispute and prior to the establishment of the arbitral tribunal may be better off seeking relief from the judiciary. While some arbitral tribunals have procedures in place to obtain pre-arbitral relief, these may take some time. Most jurisdictions do not consider the seeking of quick protection from domestic courts at the outset of the dispute to be inconsistent with an obligation to arbitrate.
• Additional factors to consider include costs, speed, convenience and flexibility, privacy and confidentiality, and the finality of decisions, discussed further below (see section ii(b) below). The impact of these factors varies from jurisdiction to jurisdiction and should be regarded in the context of the claim.

 

What is arbitration?

General

Arbitration is a dispute resolution method in which parties agree to submit a dispute to an individual or a body of individuals known as the arbitrator(s)/the arbitral tribunal. The arbitral tribunal adjudicates the dispute and renders a final, binding award.

 

Advantages of arbitration

Party autonomy and flexibility

Party autonomy is the cornerstone of arbitration, allowing proceedings to be tailored to the wants and needs of both parties. Party autonomy refers to the autonomy of parties to an international commercial arbitration to decide on all aspects of the procedure – such as the seat and venue of arbitration, the arbitrator(s), and the procedural and substantive laws – subject only to the limitations of mandatory law.

 

Neutrality

Parties to an international contract usually come from different countries. Bringing a dispute before the national courts of either party means that this court will be a foreign court for the other party. Arbitration allows disputes to be settled in a neutral place before a neutral tribunal selected by both parties. This can negate potential advantages of litigating the dispute in the home state of one of the parties.

 

Enforceability

An arbitral award is generally easier to enforce in a foreign country than a domestic court judgment. This is in large part due to the New York Convention, an international agreement to which most states worldwide are parties (see section vii(b) below).

 

Speed

Arbitration is generally considered quicker than litigation. In fact, various institutional rules or arbitral legislations impose time limits on arbitration.

 

Privacy/Confidentiality

Strictly speaking, privacy and confidentiality are two different concepts. While litigation in state courts is public, arbitration hearings are generally conducted in private (in camera). The situation regarding confidentiality is not as straightforward, but parties to an arbitration have different options to keep maintain confidentiality (see section v(d) below).

 

Subject matter expertise

Parties to an arbitration can appoint an arbitrator/arbitrators with expertise in the subject matter of the dispute. This may be especially advantageous in complex international disputes, for example involving large construction projects, oil and gas exploration, or intellectual property. Litigation in national courts is unlikely to be presided over by a judge with extensive technical expertise.

 

Types of arbitration

Broadly speaking, there are three types of arbitration.

 

Commercial arbitration

Commercial arbitration is arbitration between two or more parties to a commercial contract. This is the most common type of arbitration.

 

Investor-state arbitration

Investor-state arbitration is arbitration between a foreign investor and a sovereign host state arising either out of an investment contract or a bilateral or multilateral investment treaty.

 

Inter-state arbitration

Inter-state arbitration is arbitration between two sovereign states arising out of a convention (e.g. UNCLOS Annex VII) or a post-dispute submission agreement (e.g. Iron Rhine arbitration)

 

Commercial arbitration

Ad hoc arbitration

An ad hoc arbitration is an arbitration proceeding which is not administered by an arbitration institution. Often, parties will designate an established procedural rule system rather than try to design their own ad hoc procedural system. An example would be the UNCITRAL Arbitration Rules, as they are not linked to a particular institution.

 

Institutional arbitration

Institutional arbitration is an arbitration proceeding that is administered by an arbitration institution. Institutions have their own set of procedural rules and assist the administration of the process.

 

Arbitration institution

An arbitration institution is a specialized institution that hosts arbitration proceedings and provides administration services aimed at facilitating arbitration disputes. Examples include the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), and the Vienna International Arbitral Centre (VIAC).

 

What disputes can be referred to commercial arbitration?

As the phrase suggests, all commercial disputes can be referred to arbitration. By extension, private law disputes are generally considered arbitrable. By the recent pro-arbitration approach of various courts throughout the world, public law disputes such as competition law matters may also be arbitrable.  Generally, however, countries impose limits on the types of disputes that are arbitrable, so it is important to consult national legislation on this topic. Common examples of areas in which arbitrability is either questioned or prohibited are the granting or validity of patents and trademarks, insolvency, and securities transactions.

 

Actors in commercial arbitration

Claimant

The party initiating arbitration proceedings.

 

Respondent

The party against whom arbitration proceedings have been initiated.

The respondent can also raise counterclaims in arbitration and then can be referred to as the counterclaimant.

 

Arbitrator and Arbitral Tribunal

The arbitrator is an individual (usually an attorney or expert in a relevant field) selected to hear and settle an arbitration dispute.

The arbitral tribunal is a panel of individuals appointed to facilitate and issue a binding decision in arbitration proceedings.

 

Independence and impartiality

Arbitrators and arbitral tribunals are always required to act in an independent and impartial manner. If they do not, they are liable to be challenged and removed. The arbitral award of an arbitral tribunal which is not independent and impartial is liable to be annulled and unenforceable.

 

Arbitration Agreements

General

An arbitration agreement is an agreement between two or more parties to submit a dispute to be resolved by arbitration. An arbitration agreement can either be a pre-dispute agreement or a post-dispute submission agreement. When drafting an arbitration agreement, care must be taken to avoid any risk of ambiguity in order to preclude future uncertainty that could delay, hinder, or compromise the dispute resolution process.

 

Underlying principle: Separability

An arbitration agreement is considered separable from the main contract to prevent invalidity of the main contract from impacting the validity of the arbitration agreement. Hence, even if the main contract were invalid, the arbitration agreement can still be valid.

 

Asymmetrical clauses

It is generally understood that either party can initiate arbitration. However, parties can add a certain clause to their arbitration agreement, where only one party (e.g. seller, contractor, sub-contractor) can initiate arbitration. Such clauses have been found lawful in several jurisdictions.

 

Key elements

Scope: which disputes are covered?

An arbitration agreement must prescribe the disputes that can be subject to arbitration. Parties can limit arbitration agreements to only a certain class of disputes arising under the agreement by using language like “Disputes exclusively relating to the interpretation of this contract shall be resolved by arbitration,” or they can include a wide scope like “All disputes arising out of this agreement shall be resolved through arbitration.” Care should be taken that the agreement clearly specifies which potential disputes are subject to arbitration.

 

Seat of arbitration

The seat of arbitration is the location selected by the parties as the legal place of arbitration. This affects several factors, such as the appropriate court to approach for support of the arbitration, annulment of the award, and the law applicable to the arbitration. Hence, the specification of the seat in the arbitration agreement is paramount.  It is also important to keep in mind the distinction between the seat of arbitration and the venue of arbitration, the latter being the location where the hearings take place.

 

Choice of arbitrators

Number of arbitrators

Parties are free to choose the number of arbitrators to preside over their dispute. In commercial arbitrations, the number tends to be either one or three, in order to avoid a deadlock. Subject to the applicable law, parties may have an even number of arbitrators, although many jurisdictions, including Austria, do not permit this.

 

Qualifications of arbitrators

Parties can specify the qualifications of the arbitrators in the arbitration agreement. This allows parties to choose subject-matter and/or legal experts to decide upon their dispute.

 

Additional elements

Parties may wish to exclude some of the elements listed above, or to include additional ones. Optional supplementary clauses may stipulate the language(s) to be used in the arbitral proceedings, the scope of arbitrators’ confidentiality and its extension to the parties, representatives and experts, or a waiver if parties wish to exclude the possibility of recourse against an arbitral award.

 

Form

All international conventions, as well as the UNCITRAL Model Law, require an arbitration agreement to be in writing. Article II(2) of the New York Convention defines ‘agreement in writing’ as ‘an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.’ In Austria, according to Section 583 of the Austrian Arbitration Act, the arbitration agreement must be contained either in a written document that is signed by the parties or in letters, fax, emails, or other means which provide a record of the agreement. If a contract complies with these form requirements and references a document containing an arbitration agreement, this amounts to a valid arbitration agreement, as long as the reference makes the arbitration agreement part of that contract.

 

Model arbitration clauses

Many institutions and bodies publicly provide model/standard arbitration clauses for parties to incorporate into their contracts. A few examples of such model arbitration clauses are listed below.

 

ICC

“All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”

 

UNCITRAL

“Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules.”

VIAC

“All disputes or claims arising out of or in connection with this contract, including disputes relating to its validity, breach, termination or nullity, shall be finally settled under the Rules of Arbitration (Vienna Rules) of the Vienna International Arbitral Centre (VIAC) of the Austrian Federal Economic Chamber by one or three arbitrators appointed in accordance with the said Rules.”

 

Applicable Law

The lex arbitri

The lex arbitri is the law governing the arbitration itself. It applies to the relationship between the arbitral tribunal and the courts and law of the seat. It extends to issues including inter alia whether a dispute is arbitrable, the constitution of the arbitral tribunal and grounds for challenging the tribunal, equal treatment of parties, the freedom to agree upon detailed rules of procedure, interim measures of protection, the form and validity of the arbitration award, and the finality of the award. As such, the lex arbitri entails mandatory rules that represent the basic structure and public policy of a jurisdiction’s legal system and with which the arbitral procedure must comply.

 

Procedural rules

While the procedure needs to conform to the applicable lex arbitri, the parties will need to agree on detailed internal rules of procedure pursuant to which to conduct the arbitration. Detailed procedural rules will govern a wide range of matters such as timetables, confidentiality, party submissions, and evidence of witnesses. It is generally advisable for the parties and the tribunal to agree to such rules at the outset of the arbitration.

 

Substantive law

The actual dispute of the parties, as long as it falls within the terms of the arbitration clause, will have to be resolved in light of the applicable substantive law. This is the law that will be applied to issues such as the interpretation and validity of the contract and the rights and obligations of the parties. Typically, parties will have included their choice of law in the agreement. With few exceptions, a choice of law clause will be accepted in all major national legal systems on the basis of the principle of party autonomy. This principle is reflected in the Austrian Arbitration Act and in the Vienna Rules.

 

Alternatively, subject to express authorization by the parties, the arbitrator may decide ex aequo et bono or as an amiable compositeur. This means that the arbitrator will decide the dispute on the basis of equity and good conscience.

 

If the parties have not expressly chosen the applicable substantive law, the tribunal will investigate whether a choice of law has been implied. The tribunal will try to ascertain the intention of the parties by looking at the terms of the contract and the surrounding circumstances. For instance, if the parties have chosen to arbitrate in Austria, this may be inferred as the parties choosing Austrian law to govern the substantive issues. However, arbitrators should not infer a choice where the parties were lacking a clear intention to make such a choice. Alternatively, the tribunal may choose to apply the conflict of law rules at the seat of arbitration.

 

Law governing the arbitration agreement

Questions as to the validity, scope, or interpretation of the arbitration agreement can arise at the time of enforcement of the agreement, where a challenge to the arbitrator’s jurisdiction is made, where an application is made to set aside an award, and where enforcement of an award is sought. Thus, the law governing the arbitration agreement itself may be of significance in international commercial arbitration. In line with the principle of party autonomy, effect will be given to the choice of law by the parties. Absent an express choice, the applicable law will be the law of the place of arbitration or the law governing the substantive issues.

 

One important caveat applies when it comes to the recognition and enforcement of an award. Under the New York Convention, if parties have not made a choice, questions on the validity of the arbitration agreement are resolved by application of the law of the place where the award was made.

 

Law of the place of enforcement

The law of the place of enforcement is greatly important in international arbitrations. If a party seeks to enforce its award at the seat of arbitration, the domestic law of the seat will apply. When enforcing an award in a foreign country, the New York Convention will apply in almost all international arbitrations. Enforceability of arbitral awards under the New York Convention is discussed in further detail below (see section vii(b) below).

 

Institutional rules

Institutional rules are the rules of the procedure published by an arbitration institution which apply to proceedings administered by it. Each arbitral institution has its own set of rules that provide a framework for the procedure and administration of a dispute. Examples of institutional rules are the ICC Arbitration Rules, the Vienna Rules (VIAC), and the SIAC Arbitration Rules.

 

Soft law instruments

There are various authoritative soft-law instruments that assist and guide practitioners and arbitrators. Soft law instruments come in many forms, including as guidelines, rules, codes, and recommendations. A few examples include:

 

IBA Rules on Conflicts of Interest

The IBA Rules on Conflicts of Interest specify various possible degrees of relationships between the parties and the arbitrators/tribunal. The Rules categorize myriad relationships into red, orange, yellow and green lists, each mandating or recommending disclosures.

 

IBA Guidelines on Party Representation in International Arbitration

The IBA Guidelines on Party Representation in International Arbitration provide practical assistance and set out best practices in dealing with common ethical questions arising in international arbitration. They address issues relating to conflicts of interests, ex parte communications with arbitrators, misleading submissions to the arbitral tribunal, improper information exchange and disclosure, and assistance to witnesses and experts.

 

IBA Rules on the Taking of Evidence in International Arbitration

The IBA Rules on the Taking of Evidence in International Arbitration are a carefully drafted combination of common law and civil law rules for taking the evidence in international arbitration. The Rules address issues related to inter alia document production, the taking of witness and expert evidence, and the Tribunal’s fact-finding powers, and are often looked to by practitioners and arbitrators.

The Arbitral Procedure

Emergency arbitrator

An emergency arbitrator is an arbitrator that is appointed together with or before the notice of arbitration to decide upon urgent matters. This procedure is akin to provisional/interim measures (see section v(c) below).

 

Control of the proceedings

In the arbitral process, the control over the proceedings shifts depending on the constitution of the tribunal. Before the constitution, particularly in ad hoc arbitration, the parties are in control of the process. In fact, parties can create sets of procedural rules to govern the way in which the proceedings are to be conducted. On the other hand, in the case of institutional arbitration, the procedural framework is provided by the institution’s rules. After the constitution of the tribunal, the control of the proceedings shifts into the hands of the tribunal.

 

Major procedural steps

Notice of Arbitration/Request for Arbitration

The Notice of Arbitration, also known as the Request for Arbitration, will generally be the first procedural step in an arbitration proceeding. The claimant will send a notice/request to the arbitral institution and the respondent informing them about its intention to arbitrate and requesting the constitution of the tribunal. Article 3 of the 2013 UNCITRAL Rules illustrate the information that generally must be contained in a Notice of Arbitration:

1. A demand that the dispute be referred to arbitration
2. The names and contact details of the parties;
3. Identification of the arbitration agreement that is invoked;
4. Identification of any contract or other legal instrument out of or in relation to which the dispute arises or, in the absence of such contract or instrument, a brief description of the relevant relationship;
5. A brief description of the claim and an indication of the amount involved, if any;
6. The relief or remedy sought;
7. A proposal as to the number of arbitrators, language and place of arbitration, if the parties have not previously agreed thereon.

 

It is not uncommon for a Notice of Arbitration to be succinct as, depending on the applicable rules, the claimant will have an opportunity to submit a Statement of Claim subsequently. Certain arbitration rules, such as the ICC Rules, however, do require a Request for Arbitration to contain more elaborate treatment of the claim and requested relief.

 

Answer to the Request for Arbitration

The Answer to the Request for Arbitration will be the respondent’s first written submission in an arbitration proceeding. Depending on the applicable rules, it will generally lay out the preliminary contours of the respondent’s defense that will be developed throughout the proceedings. National laws and institution rules may require certain mandatory information to be contained in the Answer to the Request for Arbitration. The 2013 UNCITRAL Rules, for instance, state that an Answer to the Request for Arbitration should contain:

1. The name and contact details of each respondent; and
2. a response to the information set forth in the notice of arbitration.

 

As with a Request for Arbitration, certain arbitration rules, such as the ICC Rules, may require an Answer to the Request for Arbitration to be more detailed and contain more mandatory information.

 

Potential counterclaim

The respondent’s possibility to assert a counterclaim depends on the applicable rules governing the arbitral procedure. Various leges arbtri (e.g. the Austrian Code of Civil Procedure) do not state procedures for filing a counterclaim in an arbitration. Hence, the onus to provide a procedural framework for counterclaims falls upon the parties’ arbitration agreement and the institutional rules. Under several institutional rules, the respondent may submit counterclaims in its Answer to the Request for Arbitration. The admissibility of counterclaims is an incidental step.

 

Subsequent written submissions

Virtually all international arbitrations entail a Request for Arbitration and an Answer to the Request for Arbitration. During the course of most proceedings, however, the parties will have the opportunity to file additional written submission. Examples of subsequent written submissions that may be filed are:

 

Statement of claim

Unless the claimant’s statement of claim is contained in its Request for Arbitration, a statement of claim will generally be submitted within a period of time determined by the arbitral tribunal. Depending on the applicable rules, a statement of claim generally includes the factual and material circumstances relied upon by the claimant, the documents on which the claimant relies, and the specific relief sought.

 

Statement of defense

Upon receiving the statement of claim, the respondent will submit its statement of defense within the agreed upon timeline. Depending on the applicable rules, a statement of defense will generally include any objections to the existence, validity, or applicability of the arbitration agreement; a statement either admitting or denying the relief sought by the claimant; the material circumstances relied upon by the respondent; and any counterclaims or set-offs.

 

Post-hearing briefs

In many international arbitrations, the parties will submit post-hearing briefs after the conclusion of the oral hearing and the circulation of the hearing transcript. In their post-hearing briefs, each party will generally provide a final summation of its position.

 

Advance on costs

An advance on costs is a portion of the costs of arbitration calculated by the arbitral institution to be paid as a security before the constitution of the tribunal in order to go ahead with the arbitration. The timing of the advance on costs differs may differ between arbitral institutions. Various institutions, such as the ICC, LCIA, HKIAC, and SIAC, charge a non-refundable filing or registration fee which is credited towards a party’s advance on costs.

 

Constitution of tribunal

After the nominations are received, the institution appoints the tribunal, and the tribunal is constituted. In case of ad hoc arbitration, the tribunal is constituted after the appointment of the chairperson of the tribunal or appointment of the sole arbitrator.

 

Method of selection

Party-appointed arbitrators

Party-appointed arbitrators are considered to be one of the intrinsic characteristics of arbitration. Parties can appoint the arbitrators before whom they wish their dispute to be arbitrated. In this type of appointment, parties appoint the co-arbitrators as well as the presiding arbitrator. Alternatively, parties may appoint the co-arbitrators, who in turn appoint the presiding arbitrator. Frequently, this is the procedure used when three arbitrators are presiding over the dispute. It is important to note that party-appointed arbitrators are not party representatives. They are bound by duties of independence and impartiality.

 

Party-nominated arbitrators

Another method of appointment is for the parties to nominate the arbitrators. Here, the parties nominate the arbitrators, but the appointment is completed by an appointing authority or an arbitral institution.

 

Institutional appointments

If parties opt for institutional rules and do not decide upon a method of appointment, the rules of various arbitration institutions have mechanisms to make appointments. Several institutions maintain a roll or a panel of arbitrators and choose the most appropriate arbitrators. Frequently, if a sole arbitrator is to preside over the dispute and the parties fail to reach an agreement on who the this should be, the institution will appoint a sole arbitrator.

 

Relevance of lex arbitri

The applicable lex arbtri may dictate qualifications required of the arbitrators. If such a provision is mandatory, it would override a party’s choice. For example, if national law states that former state court judges may not be appointed as arbitrators, parties would be barred from appointing former state court judges.

 

Challenge to arbitrators

All arbitrators are bound to act independently and impartially. If an arbitrator is not independent or impartial, she/he is liable to be challenged and disqualified from serving on the tribunal. The applicable challenge procedure is generally outlined under the lex arbitri and lex curiae (institutional rules).

 

Structure of the proceedings

Preliminary conference (Case management conference)

The preliminary conference or the case management conference (CMC) is a meeting which takes place shortly after the commencement of the arbitration. The purpose of the meeting is to set out a comprehensive plan for the arbitral proceedings and define the issues to be decided. The results of the CMC are laid down in Procedural Order No. 1 or the Terms of Reference.

 

Interim or provisional measures

An interim or provisional measure is a temporary order made by an arbitral tribunal against a party. Interim measures are an incidental proceeding and are often used before rendering a final arbitral award. Interim measures can be requested at any stage of the proceedings. Interim measures allow one party (Party 1) to restrict another party (Party 2) from doing something which would be detrimental to Party 1’s interest vis-a-vis the arbitral proceedings.

 

Preliminary determinations

Jurisdiction

Kompetenz-Kompetenz

Kompetenz-kompetenz (competence-competence) is the legal doctrine according to which an arbitral tribunal has competence or jurisdiction to assess and rule on the extent of its own jurisdiction over a matter. In other words, an arbitral tribunal may decide itself whether it has jurisdiction to resolve a given dispute. Kompetenz-kompetenz is a fundamental principle in international arbitration. As such, it is recognized in Section 16(1) of the UNCITRAL Model Law as well as in various domestic laws, such as Article 186(1) of the Swiss Private International Law Act and Section 592(1) of the Austrian Arbitration Act.

 

Procedural and substantive law of the arbitration

The procedural law of the arbitration proceedings and the substantive law pursuant to which the dispute should be decided are crucial preliminary determinations. These are discussed in detail in sections iv(b) and iv(c) above.

 

Time limit

One of the mean features of arbitration is the speed of the proceedings. The speed of arbitration can differ depending upon the complexity of the case. Nevertheless, the parties’ resolve to reach a decision as well as the time limits imposed by the lex arbitri and/or lex curiae play a significant role in regulating the speed of the arbitration. For example, the Indian Arbitration and Conciliation Act, 1996 states that arbitration shall be completed within a year of completion of pleadings. Certain institutional rules, such as the ICC Rules and the SCC Rules, prescribe a six-month deadline for the delivery of arbitral awards.

 

Amendment

At any time before the closing of the arbitral proceedings, any party may amend its claim or counterclaim provided that such an amendment is within the scope by the arbitration agreement. Such a request for amendment may be denied if the arbitral tribunal considers it inappropriate or prejudicing the other party. An example when a request for amendment may be denied is when the proceedings are at an advanced stage and admitting the amendment would significantly delay the proceedings.

 

Proving the facts and law

While arbitration is generally considered to be an efficient dispute resolution process, it is nonetheless a form adjudication that results in a binding award. Hence, in order to be successful in an arbitration, the parties will have to prove their case in facts and law. The onus of proving facts and law changes according to the case. The rule of thumb is summarized cogently in the Latin phrase “onus probandi”, which means that one who alleges something must prove it.

 

Bifurcation

Bifurcation is the act of separating ongoing arbitration proceedings into two or more separate parts. Bifurcation generally occurs in an arbitral proceeding when the jurisdictional issues are separated from the merits of the dispute. Sometimes, tribunals may also trifurcate the proceedings by splitting them into jurisdiction, merits and quantum.

 

Privacy/confidentiality

Strictly speaking, privacy and confidentiality are two different concepts.

It is universally recognized that arbitration hearings are generally conducted in private (in camera), and privacy is often implied in arbitration agreements. Indeed, the UNCITRAL Rules require arbitration hearings to be private unless the parties have agreed otherwise. Austrian statutory law does not contain an explicit provision on the privacy of arbitral proceedings, but Section 616(2) of the Austrian Arbitration Act states that the public may be excluded from state court proceedings concerning arbitration matters.

The situation regarding the confidentiality of arbitral documents, proceedings, and awards is not so clear. It is universally recognized that arbitrators have a duty of confidentiality, as is reflected in Section 16(2) Vienna Rules. In Austria, it can be argued that parties to an arbitral proceeding are subject to a duty of confidentiality based on Sections 172(3) and 616(2) Austrian Code of Civil Procedure (Zivilprozessordnung, ZPO). However, parties can and do influence the confidentiality of their arbitration when choosing institutional rules and arbitral law. Parties can also enter into additional confidentiality agreements.

Awards and Remedies

General

The binding decision made by a sole arbitrator or a panel of arbitrators in arbitration proceedings is presented in the form of an award.  Arbitral awards can take various forms.

 

Preliminary awards

A preliminary award is an award that disposes of one or more but not all of the claims. Generally, an arbitral tribunal has the power to render a preliminary award or awards prior to rendering its final award.

 

Consent awards

A consent award is an award issued by the arbitral tribunal on terms agreed by the parties.

 

Default awards

If a party is in default because it failed to appear at an arbitral hearing or fails to produce evidence, the arbitral tribunal may nonetheless continue the proceedings ex parte and make an award. This is permitted by the UNCITRAL Model Law, and default awards are enforceable under the New York Convention.

 

Final awards

A final award is a conclusive outcome of an arbitration proceeding. It results in the termination of the mandate of the arbitrator and disposes of all the issues in dispute. The final award is binding and enforceable. The only recourses against it are an application for setting aside the award or an application to resist enforcement of the award (see sections vii. and viii. below).

 

Remedies

Declarations

A tribunal may make a declaration of the rights and obligations of the parties. Parties may be especially inclined to seek a declaration where they have a continuing legal relationship that they wish to maintain. Declarations may be the sole basis for an award or combined with other remedies, such as monetary damages. They should have the same recognition in courts as the rest of an award does.

 

Monetary damages

Monetary damages are the most commonly awarded remedy and entail the payment of a sum of money by one party to the other. Depending on the governing substantive law and the terms of the contract, these damages may consist of compensation for losses suffered, liquidated damages, or money payable under the contract. Unless expressly stated in the agreement, damages are generally payable in the currency where the contract was formed or in the currency where the loss was suffered.

 

Punitive damages

Punitive damages are intended to punish defendants when their behavior is especially harmful. Austrian law does not recognize the concept of punitive damages. This remedy is also generally not available in international arbitration, as its relevance is limited to the United States.

 

Specific performance

If the arbitration agreement so provides or the substantive law permits, an arbitral tribunal may order specific performance of a contractual obligation. Specific performance as a remedy is not as common as monetary damages in international arbitration for two reasons: there is a conceptual divide regarding the understanding of ‘specific performance’ in common and civil law jurisdictions, and these awards may be harder to enforce in courts.

 

Injunctions

Where appropriate, an arbitral tribunal may award injunctive relief. Injunctive relief is an order by the tribunal to command or prohibit a specific action by a party. However, pending the outcome of the arbitration, a party may also seek injunctive relief from domestic courts. If permissible under domestic and institutional laws, parties often find it quicker and easier to obtain this remedy directly from the courts instead of seeking it from the tribunal and then enforcing it in the courts.

 

Interest

Considering the often-significant lapse in time between the original claim and the payment of damages, interest can constitute a significant portion of the total damages. Many arbitral rules, including the Vienna Rules 2018, are silent on the question of interest. Generally, however, tribunals are assumed to have the power to award interest payment in addition to monetary damages.

 

Costs

Costs include both the costs of the arbitration and the costs incurred by the parties. The costs of the arbitration generally include the arbitrators’ fees and expenses, administrative costs, and the fees of experts appointed by the tribunal. Costs incurred by the parties include legal costs and other costs incurred by the party to the arbitration in the preparation and presentation of their case, such as fees and expenses of party-appointed experts, witnesses, and translators. Tribunals are generally given discretion when it comes to allocating costs to the parties. This is reflected, for instance, in the Vienna Rules, which state in Article 38(2) that tribunals should decide on the allocation of costs according to their own discretion, unless the parties have agreed otherwise.

The Enforceability / Recognition of Arbitral Awards

General

The recognition and/or enforcement of an arbitral award may be necessary if the award-debtor fails to voluntarily comply with the award rendered by the tribunal. Unlike court judgments, arbitral awards benefit from an international legal regime that provides for efficient and effective enforcement. This regime consists of a multitude of bilateral and multilateral treaties, the most prominent of which is undoubtedly the New York Convention (see section vii(b) below).

 

In Austria, pursuant to Section 607 Austrian Arbitration Act, an arbitral award rendered in Austria has, between the parties, the effect of a final and binding court judgment. Like any other civil judgment, therefore, awards can be enforced in Austria under Section 1(16) of the Austrian Enforcement Act. If the award is rendered in a foreign country, recognition and enforcement may be sought under the Austrian Enforcement Act subject to international treaties and legal instruments of the EU.

 

New York Convention

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, more commonly known as the New York Convention, was adopted by a United Nations diplomatic conference in June 1958 with the aim of ensuring the enforcement of foreign arbitral awards globally. The New York Convention renders the enforcement of arbitral awards possible in over 160 contracting states and is the primary legal basis for enforcing foreign awards in international commercial arbitration.

Grounds for refusal of enforcement

Article V of the New York Convention set forth limited grounds on which recognition and enforcement of a foreign arbitral award may be refused. This list is exhaustive and includes: incapacity of a party or invalidity of the arbitration agreement (V(1)(a)), the violation of due process (V(1)(b)), the arbitral tribunal exceeding its jurisdiction (V(1)(c)), defects in arbitral tribunal composition/procedure (V(1)(d)), or the award has not yet become binding or has been set aside or suspended in the country where, or under the law of which, the award was made (V(1)(e)). Further grounds for refusal of enforcement are if the subject matter is not arbitrable in the country where enforcement is sought (V(2)(a)), or if the recognition or enforcement of the award would be contrary to public policy (V(2)(b)).

Setting Aside an Arbitral Award

General

While arbitration is a private dispute resolution mechanism, it is not entirely free from judicial control. While it is accepted that arbitral awards shall be reviewed on their merits, there are certain procedural grounds which allow arbitral awards to be annulled (set aside).

 

Setting aside/annulment of an arbitral award is the process of nullifying the award rendered by the arbitral tribunal by the court of seat of arbitration. An award may be annulled in whole or in part.

 

An international arbitral award is subject to two levels of control. Primary control is exercised by the Courts of the seat of arbitration through the process of annulment of arbitral award. Secondary control is exercised by the courts of the enforcement destination of the arbitral award.

 

Section 611 of the Austrian Arbitration Act

Under Section 611 of the Austrian Arbitration Act, any action to set aside an arbitral award may be brought before the Austrian Supreme Court, which is the court of first and final instance (except in matters involving consumers and or employment law). Section 611(2) contains an exhaustive list of grounds based on which an award may be set aside. These grounds are:

 

1. A valid arbitration agreement does not exist/the arbitral tribunal denied its jurisdiction despite a valid arbitration agreement/lack of arbitrability ratione personae (capacity of parties to enter into an arbitration agreement);
2. A party was unable to present its case/violation of the right to be heard;
3. The award deals with a dispute not covered by the arbitration agreement, or contains decisions on matters beyond the scope of the arbitration agreement or the plea of the parties for legal protection;
4. There was a deficiency in the composition/constitution of the arbitral tribunal;
5. The arbitral proceedings were conducted in a manner that conflicts with the fundamental values of the Austrian legal system (ordre public);
6. The requirements for reopening of civil proceedings under Section 530(1) nos. 1-5 have been met;
7. The subject-matter of the dispute is not arbitrable under Austrian law;
8. The arbitral award conflicts with the fundamental values of the Austrian legal system (ordre public).

 

Grounds 7 and 8 – a lack of subject-matter jurisdiction and a conflict with the fundamental values of the Austrian legal system – are to be considered by the Court ex officio. The others (Section 611(2) nos. 1-6) are considered upon application of a party.