Party autonomy is an integral part and defining feature of arbitration. The freedom to consensually execute arbitration agreements undoubtedly constitutes one of the most attractive reasons for choosing it as a dispute resolution mechanism. Yet, it is particularly in contexts of conflicting arbitration and forum selection clauses that controversies may arise. Thus far, courts have taken diverging approaches in this regard with some ascribing superiority to arbitration clauses and others applying a differentiated approach in an effort to ascertain the relationship and scope of the contradictory clauses considered.
In Austria, the Supreme Court recently assessed the validity of an arbitration agreement, containing two co-existing, yet conflicting forum selection clauses (3 Ob 127/20b).
The case centred on a Claimant’s request for 1) declaratory judgment regarding a purchase agreement concluded in 2015 and 2) repayment of a partial purchase price already paid. The contract concerned, included both an arbitration clause as well as an agreement on the place of jurisdiction related to a Moscow state court.
When a dispute in relation to the purchase agreement arose, the Claimant chose not to pursue arbitral proceedings and, other than provided for by the jurisdiction clause, brought legal action at the Defendant’s seat (Vienna, Austria) pursuant to statutory law. Despite neither of the clauses being exclusive, the Claimant submitted that their contradicting nature rendered them ineffective and that bringing the claim in a third forum did not constitute a violation of the contractual provisions.
The courts of first and second-instance dismissed the Claimant’s claim, holding that the action could not be pursued in Austria based on the lack of subject matter jurisdiction.
Both courts acknowledged that the existence of two conflicting clauses did not necessarily undermine the validity of the arbitration agreement. Since neither provided for the exclusive jurisdiction of state courts, they are to be treated as legitimate co-existing clauses. As such, the Claimant’s right to choose between two fora was answered to the affirmative.
Nevertheless, it was also held that jurisdiction had to be declined since the contract did provide for the dispute being resolved either by resorting to arbitration or referral to a Moscow state court. Further, the courts established that an assessment pertaining to jurisdiction required arbitration agreements to be considered ex officio.
The Claimant contested the legal opinion of the lower courts in both respects.
Issue and Supreme Court Ruling
The central argument of the Claimants’ submissions relates to the wording of the contractual provisions. By providing for two inconsistent forum clauses, the parties had arguably agreed that conflicting laws ought to apply. According to the Claimant, the parties’ intention could not be unequivocally inferred from the agreement, thus both clauses had to be regarded as invalid and statutory rules ought to apply.
The Austrian Supreme Court held that the legal opinion of the lower courts had to be upheld for the following reasons:
- The existence of contradictory jurisdiction clauses and arbitration agreements contained in the same document did not invalidate the arbitration agreement;
- Co-existence is to be denied provided the agreement stipulates that a state court ought to have exclusive jurisdiction irrespective of the arbitration clause;
- When assessing jurisdiction, the wording of the arbitration clause must therefore be carefully examined. The fact that neither of the two clauses were drafted as exclusive, the Claimant had a right to vote and elect either one of the two forums agreed to by way of contract;
- The selection of different substantive laws did not undermine the validity of the contract, since multiple governing laws may apply alternatively or cumulatively to the same question of law or factual circumstances;
- Valid arbitration agreements are to be given effect ex officio.
This case presents a peculiar, yet reoccurring issue that arises when contracts contain an arbitration clause, yet also provide for a forum selection clause. Seeking to reconcile this tension, confronts tribunals with a need to apply principles of contract interpretation carefully and in a way that gives expression to as well as recognizes the eminence of the parties’ intentions.
The Austrian Supreme Court decision makes clear that while there may be a general inclination to give preference to choice-of-law agreements, the existence of a conflicting forum clause does not lead to its invalidity. Rather, provided no exclusive jurisdiction of state courts is envisioned, both clauses may co-exist.
When confronted with conflicting jurisdiction clauses, practitioners are well advised to adopt a contextual approach in determining what the presumed and reasonable intention of the parties may have been, thus looking beyond the wording of the contract but taking into account the circumstances as they existed at the time of drafting. Controversy is easily avoided by the inclusion of provisions detailing unequivocally which clause is to take preference in case of conflict and to minimize the applicability of the forum selection clause to a designated number of disputes under local jurisdiction.
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