Setting Aside Arbitral Awards in Austria: Dismissal for Failure to State a Valid Ground for Challenge

Disclaimer: OBLIN Attorneys at Law was involved in the proceedings described below, in which it successfully represented the appellee in obtaining a positive award on jurisdiction and then resisting the challenge of this award.

Introduction

On 11 January 2023, the Austrian Supreme Court (Oberster Gerichtshof, OGH) handed down an order [1] in which it dealt with the procedural aspects of challenging arbitral awards. The OGH clarified that whether the challenge states a valid claim is to be assessed at every stage of the proceedings. If the challenge does not state a valid claim, it is to be rejected by the court, even if the appellee has already filed an answer to the challenge.

Facts

The underlying dispute concerned the purchase and sale of face masks. The appellee (Claimant in the arbitration), a company located in England, had purchased one million face masks from an intermediary in the United States. The intermediary, in turn, purchased the masks from the appellant (Respondent in the arbitration), an Austrian company. The contract between the appellant and the American intermediary contained an arbitration agreement.

When the wrong masks were delivered, the appellee commenced VIAC arbitration against the appellant, based on the arbitration agreement in the contract between the appellant and the American intermediary. The appellee argued that it was bound by this arbitration agreement as a non-signatory because it had assumed the debt of the American intermediary vis-à-vis the appellant. The VIAC arbitral tribunal followed this argumentation and affirmed its jurisdiction in a separate award.

The appellant brought an action to set aside this separate award on jurisdiction before the OGH.

Decision

Pursuant to Section 538 of the Austrian Code of Civil Procedure (ACCP), in domestic litigation, courts must examine whether an action for annulment is based on a statutory ground for challenge before scheduling a hearing. In other words, the action for annulment must state a valid claim (in German: Schlüssigkeit). If this requirement is not met, courts must dismiss the action as unsuitable for a hearing. The test for whether a valid claim is stated must be conducted at every stage of the proceedings.

The OGH repeated its long-standing case law that Section 538 ACCP also applies by analogy to actions for setting aside an arbitral award. Again with analogy to the rules of domestic litigation, the OGH then clarified that the test for whether a valid claim is stated must be conducted at every stage of the set-aside proceedings. The fact that an appellee has been ordered by the OGH to submit a reply to the action, and has already done so, does not stand in the way of a dismissal for failure to state a claim.

In the present case, the appellee had, upon request by the OGH, submitted a reply to the action for setting aside, in which it showed that the action did not state a valid claim. The OGH agreed that the appellant had not managed to conclusively assert the existence of a valid ground to set aside an arbitral award. The action for setting aside was therefore dismissed.

Comment

In Austrian arbitration law, when the OGH receives an action to set aside an arbitral award, it examines the action’s compliance with formal and substantive requirements. One of these substantive requirements is the assertion of a valid ground to set aside the challenged award by the appellant. Only after the court has performed this examination and determined that the form and substance requirements are met, is the action served on the appellee along with the request to submit a reply. A hearing will then follow.

If an action for setting aside does not pass this initial test, it will not be served on the appellee for a reply. However, it follows from the OGH’s decision in the present case that merely the fact that the action has been served on the appellee along with a request to submit a reply does not mean that full set-aside proceedings, including a hearing, will follow. Rather, the appellee can show in its reply that the action does not state a valid claim which, if followed by the OGH, will lead to the dismissal of the action.

While the relevance of the present decision is restricted to a finer procedural point of Austrian arbitration law, the OGH’s decision is nevertheless to be welcomed. By submitting a reply that demonstrates an action’s failure to state a claim, which was perhaps not immediately visible to the OGH in its initial examination, the appellee may be spared from having to conduct full, and potentially cost-intensive, annulment proceedings.

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[1] Docket no. 18 OCg 2/22a