Austria moves to shore up arbitration

Austria is looking to compete with its neighbours in the race to become an international arbitration centre by introducing a draft amendment to make the process easier. But its Supreme Court has something to say on the matter, reports Irene Welser.

Vienna is one of the top ten destinations for arbitration

Austria has always been a very arbitration-friendly country with a long tradition. Vienna, in particular, is shaped by its historical background and geographical location between East and West, making it very suitable as a  venue for international arbitration. Even though the CEE competence remains strong, Vienna, more recently, has also been discovered by purely “Western” parties and parties from the Far East. Indeed, Vienna is now among the ten most popular arbitration venues in the world.

Cheaper services

Situated in the heart of Europe, Vienna is easily accessible and, in comparison to cities such as New York, London or Paris, reasonably priced. Arbitration proceedings under the Vienna Rules, for instance, are significantly cheaper than with other arbitration institutions. There is no closed shop of arbitrators. And the variety of excellent restaurants, bars, hotels, museums, concerts, operas, and other facilities support a climate, in which amicable solutions in arbitration cases may be found more easily.

Introducing international standards

Following the UNCITRAL model law, the Austrian legislator has done its best to make the country as attractive as possible for international arbitration. This is, in principle, also true for annulment proceedings. Like in other countries, and also following the principles laid down in the New York Convention, an arbitral award can only be challenged and set aside for very few reasons: If a valid arbitration agreement does not exist, if the arbitral tribunal has wrongly denied its jurisdiction; if a party did not have the capacity to conclude a valid arbitration agreement, or it was not given proper notice of the arbitral proceedings or was unable to present its case for other reasons. Further reasons for setting aside an award arise if the dispute is not encompassed by the arbitration agreement, if the composition of the arbitral tribunal was not in accordance with the parties’ agreement or the Austrian arbitration provisions, or in case of infringement of public policy.

The annulment question

One question has, however, up to now, been of main concern for all arbitration practitioners. Unlike  many European countries, Austria still features three successive stages of appeal if an Award is challenged with the ordinary courts. However, efforts are currently made to correct this disadvantage.
In a recent draft of an amendment to the Arbitration Act, the Austrian legislator seeks to concentrate all annulment proceedings for commercial arbitration proceedings at one single, but highly competent body: the Supreme Court. A similar legal situation exists in Switzerland and Bulgaria unlike most other European countries such as Germany, Sweden or France where  there are two instances.  Others, such as Great Britain, Belgium or the Netherlands, have three.  Only in arbitration proceedings involving consumers, the existing three-instance system shall – according to the recent Austrian draft - be kept alive.

Lawyers welcomed the draft law

Thus, the new law would mean a veritable unique selling point for commercial arbitration in Austria making Austria a real alternative to other popular arbitration venues like London, Stockholm, Milan or Paris.  Despite the fact that under the existing challenging procedure, court decisions actually setting  aside an award are rare, parties are often not willing to take the theoretical risk of having to undergo a potential three-instance annulment procedure that might last for years.It is therefore not surprising that the draft of the new law was highly welcomed by attorneys, notaries, the industrial bodies and also doctrine as well as the Federal Chamber of Commerce and the Austrian provinces.

Opposition from the Supreme Court

Sadly, however, the Supreme Court has taken the opposite view. Obviously not taking into account the once-in-a-lifetime-chance that such a legal situation would create for arbitration in Austria, in an official statement during the legislation procedure, the Supreme Court clearly opposes the draft. Firstly, it argues that the distinction between arbitration involving consumers on one hand and arbitration between commercial entities on the other hand creates a “luxury solution” for commercial arbitration and therefore meets constitutional concerns. Bearing in mind that the vast majority of arbitration cases are purely commercial, and the exception for consumers was expressly demanded by consumer protection entities, this point is not really convincing. It goes without saying that international arbitration has reached a standard where a certain degree of specialization is a must. Therefore, it is highly unnecessary to have all regional courts of Austria dealing with these issues.  Secondly, the argument that the draft is the result of clear “lobbying activities by a small group of lawyers specialized in international arbitration” must be vigorously rejected.

The way forward

Both Austrian and international institutions have undertaken big efforts to make arbitration more attractive during the last years. The number of conferences on international arbitration and of arbitration specialists has multiplied, not only in Vienna. The regular moot court competitions attract more and more students and arbitrators. Competition between the various places of arbitration and the various arbitration rules has risen dramatically. In this context, Switzerland has, at a very early stage, obviously realized that it is a particular asset for a smaller, neutral state in the middle of Europe to offer a system where arbitration can be effective. Austria has now teamed up to meet this standard, and hopefully this initiative will not be frustrated – for the benefit of arbitration!

Irene Welser is managing partner of Austrian law firm  CHSH

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