A. LEGISLATION AND RULES
A.1 Legislation
In Austria, the rules on arbitration proceedings are contained in the Code of Civil Procedure (ZPO) (sections 577-618 ZPO). This legal framework does not differentiate between domestic and international arbitral proceedings and applies to disputes in commercial and non-commercial matters. Since the implementation of the UNCITRAL Model Law in 2006, the Austrian legislator has made few changes. The most significant change came in 2013, when the Austrian Supreme Court (OGH) became the sole authority to set aside awards (section 615 ZPO). This single-instance approach benefits parties by obtaining a binding decision more quickly than in court proceedings with multiple appellate instances. Moreover, the grounds for annulment of an arbitral award are very limited (section 611 ZPO) and the OGH has shown a tendency to uphold arbitral awards. Consequently, Austria is perceived as an arbitration-friendly jurisdiction.
There are some particularities in Austria regarding arbitration, which have been criticized as negatively impacting Austria’s attractiveness as seat of arbitration. The long-discussed amendments are ultimately expected to enter into force in 2025.
Section 617 ZPO imposes wide-ranging limitations on entering into arbitration agreements with consumers. This includes that consumers can only validly conclude arbitration agreements after a dispute has arisen. As a result, arbitration agreements with consumers are rarely valid.
In practice, this has caused significant issues with arbitration agreements included in a company’s articles of association that bind shareholders to arbitrate their disputes. Under Austrian law, shareholders of companies may, under certain circumstances, qualify as consumers under section 1, paragraph 1 cif 1 of the Austrian Consumer Protection Act (KSchG), even though they arguably do not need the same protection as conventional consumers. Consequently, arbitration agreements including shareholders were often inoperable, which has been criticized by scholars and legal practice for years.
To remedy this, the Austrian legislator is currently considering a proposal to exempt shareholders from the restrictions of section 617 ZPO if they are not merely providing financial means (so-called Publikumsgesellschaft) but may actively invoke their shareholder rights. This amendment would positively impact arbitration agreements with cooperations and private foundations, where it is currently often unclear whether they fall under the scope of section 617 ZPO.
Another amendment concerns lifting the requirement of a special power of attorney in writing for a representative to conclude an arbitration agreement under section 1008 of the Austrian Civil Code (ABGB).[1] However, since any authorization under the Austrian Commercial Code includes the right to conclude arbitration agreements,[2] the practical impact of this amendment is more limited.
A.2 Institutions, rules and infrastructure
The local arbitration institution in Austria is the Vienna International Arbitral Centre (VIAC), which is considered the most important arbitration institution in Central and Eastern Europe. This is reflected in the origin of the parties with 36% being from Central and Eastern Europe and South Eastern European countries. VIAC’s caseload has steadily increased over the past years with 72 pending cases in 2023, an increase of 32% compared to the prior year. With the latest update of the Vienna Arbitration and Mediation Rules in 2021, the Vienna Investment Arbitration Rules were introduced as a new set of rules. Both rules apply to proceedings initiated after 30 June 2021.
In light of a prominent recent OGH decision (see section B.1 below), stipulating new prerequisites for arbitration clauses concerning shareholder agreements, VIAC formed a specialized working group and will release a new model clause shortly on its website.[3]
B. CASES
In 2024, the number of arbitration-related cases handled by the OGH increased significantly compared to previous years (only one case in 2023, compared to nine cases in 2024). From the most recent decisions, the three described below (in sections B.1 – B.3) stand out:
The first case is a landmark decision: the OGH set aside an award for lack of objective arbitrability because the arbitration agreement did not provide for certain participation rights of the shareholders (see B.1). The second case confirms the OGH’s arbitration-friendly stance: the OGH interpreted an arbitration agreement broadly so that the claim was within its scope; on the basis of a thus valid arbitration agreement, the OGH upheld the requested appointment of an arbitrator by the court (see B.2). In the third case, the OGH ruled for the first time on the question of whether a declaratory judgment regarding the validity of an arbitration agreement can be sought by state courts in a pending arbitration. The OGH concluded that Austrian arbitration law lacks a legal basis for such a request (see B.3).
B.1 Swarovski – OGH set aside award because of insufficient arbitration clause in shareholder agreements
On 3 April 2024, the OGH orally delivered a landmark decision that has necessitated the revision of arbitration agreements in shareholder agreements to ensure their validity and also earned significant criticism. The decision is based on the following facts:[4]
Swarovski, a renowned manufacturer of crystals (the respondent in the arbitration proceedings and the plaintiff in the subsequent setting aside proceedings before the OGH), was incorporated as a limited partnership (KG). In an extraordinary shareholders’ meeting held on 30 October 2020, the liable capital (Haftkapital) was increased from EUR 50 million to EUR 400 million and the accession of a new limited partner was approved. However, the board of directors excluded the shareholders’ right to subscribe for the new shares created by the capital increase in proportion to their previous shareholdings (Bezugsrecht). Consequently, 19 shareholders initiated arbitration proceedings against Swarovski, challenging the validity of these resolutions. In an award of 21 September 2022, the arbitral tribunal declared the resolutions null and void.
Subsequently, Swarovski initiated setting aside proceedings under section 611 ZPO, applying to the OGH to annul the award, specifically invoking that the subject matter of the legal dispute would not be objectively arbitrable because, in the present case, not all shareholders were granted sufficient participation rights in the arbitral proceedings.
In a public hearing on 3 April 2024, the OGH orally delivered its decision: it set aside the award due to a lack of objective arbitrability pursuant to section 611 paragraph 2 cif 7 ZPO.
In the following written decision, the OGH pointed out that the principles of a fair trial within the meaning of Article 6 of the European Convention of Human Rights apply to arbitration proceedings and set out minimum requirements for an arbitration agreement contained in a company’s articles of association: (i) all shareholders must be parties to the arbitration agreement, (ii) all shareholders must be informed of the arbitral proceedings and be able to participate in the proceedings, and (iii) all shareholders must have the right to participate in the composition of the arbitral tribunal. The OGH held that if an arbitration agreement is not drafted in accordance with these minimum requirements, the claim is not objectively arbitrable. As this was not the case, the OGH annulled the award.
In practice, this decision has a vast impact because it requires the review and potentially revision of arbitration clauses in existing shareholder agreements to ensure that future awards may not be successfully challenged for the same reasons.
Critical voices claimed that the OGH imposed impractical requirements on the parties. For instance, the participation of all parties in the composition of the tribunal is viewed as excessive because equal treatment would also be guaranteed if the arbitrators were appointed by a neutral third party, such as an arbitral institution. Moreover, the current view of the OGH requires setting aside an award if the arbitration agreement lacks necessary participation rights, even if those rights were actually granted during the proceedings. Furthermore, the OGH has been criticized because the content of the arbitration agreement should not influence objective arbitrability.[5]
B.2 OGH interpreted an arbitration clause broadly to cover the claim
On 6 August 2024, the OGH rendered an arbitration-friendly decision, which is based on the following facts:[6]
The parties of the proceedings had jointly founded a limited liability company in 2010. Later, in 2015, they also concluded an arbitration agreement. After the claimants left the company, they sought repayment of financial contributions, compensation for their shares, management fees and profit distribution. The partnership agreement contained an ad-hoc arbitration clause with a three-member tribunal of attorneys. Accordingly, the claimants initiated an ad hoc arbitration in 2023, nominated an arbitrator and requested the respondents to do the same. However, the respondents refused to nominate an arbitrator, arguing that the arbitration clause would not apply to the raised claims in connection with the exit of the company. Because of the respondents’ default, the claimants sought the appointment of an arbitrator by court (section 587 paragraph 2 cif 4 ZPO).
The OGH followed the request and appointed an arbitrator for the respondents. Thereby, the OGH pointed out that the court appointment of an arbitrator requires a valid arbitration agreement (section 587 ZPO). With regard to the scope of the arbitration clause, the OGH stated (in line with its constant jurisprudence) that if the wording allows for two equivalent interpretations, the interpretation that favors the validity of the arbitration clause shall prevail. The OGH concluded that the arbitration clause was validly included in the statute of the company and the broad terminology of the arbitration clause shall encompass claims in connection with the previous partnership, even if claims arising out of a potential exit are not explicitly mentioned.
B.3 Declaratory action to determine the validity of an arbitration agreement before Austrian state courts not admissible
In a decision dated 24 June 2024, the OGH clarified the limited power of state courts to intervene in arbitration proceedings. The decision is based on the following facts:[7]
The plaintiff sought a declaratory judgment from a state court that an arbitration agreement contained in a contract is invalid. According to the plaintiff, there should be a judicial mechanism to declare the invalidity of an arbitration agreement, especially in cases where the agreement might be based on significant defects or willful misconduct. The defendant contended that Austrian law does not permit such declaratory actions since any issues related to the validity of an arbitration agreement should be resolved within the arbitration proceeding itself.
The state court of first instance shared the defendant’s view and dismissed the claim. The appellate court followed the court of first instance but granted the plaintiff the possibility to file an ordinary appeal to the OGH because the OGH has not ruled on the question at stake since the entering into force of the Arbitration Amendment Act 2006.
In line with the decisions of the lower instances, the OGH held that an action to determine the existence or non-existence of an arbitration agreement is not admissible before a state court. The OGH thereby confirmed the prevailing opinion in legal literature.
In its reasoning, the OGH explicitly pointed out that the competences of state courts in relation to arbitration proceedings are regulated in an exhaustive manner in Austrian arbitration law (sections 577-618 ZPO) to ensure the independence of arbitration proceedings. The OGH concluded that there is thus no legal basis to file a declaratory action regarding the existence or non-existence of an arbitration agreement before Austrian states courts.
[1] Hartlieb/Zollner in Rummel/Lukas/Geroldinger, ABGB4 section 1008, paragraph 45.
[2] Hartlieb/Zollner in Rummel/Lukas/Geroldinger, ABGB4 section 1008, paragraph 46.
[3] https://www.viac.eu/en/model-clauses.
[4] OGH, 3 April 2024, docket no. 18 OCg 3/22y.
[5] See Trenker, Schiedsfähigkeit von Beschlussmängelstreitigkeiten nach 18 OCg 3/22y, NZ 2024/87.
[6] Docket no. 18 ONc 1/24b.
[7] Docket no. 4 Ob 46/24d.
