On 15 January 2020the Austrian Supreme Court considered whether a final arbitral award on its merits violated Austrian public policy (Case: OGH 18 OCg 9/19a). The underlying arbitration was conducted under the rules of the Vienna International Arbitral Centre (VIAC) with seat in Vienna. The respondent was unsuccessful in the tribunal’s award of 17 May 2019 (Case: AZ SCH-5533) and sought to annul the award by requesting the Austrian Supreme Court to set it aside on two separate grounds, namely: (1) a violation of its right to be heard; and (2) a breach of formal Austrian public policy.
The respondent’s claim of defect in the underlying VIAC arbitration award was based on the non-inclusion of evidence and the cancellation of a scheduled oral hearing on the merits.
In a conference call on 17 September 2018, the parties had agreed to hold an oral hearing between 7 and 10 January 2019 with the presence of witnesses. The conference call formed the agreed procedural timetable and laid the foundation of the arbitral tribunal’s first procedural order. The respondent (the ’plaintiff‘ in the Supreme Court proceedings) named two witnesses on 4 October 2018 but did not submit their written witness statements. The submission of a written witness statement was – in accordance with the first procedural order –a pre-requisite to hearing potential witnesses at an oral hearing. The arbitral tribunal informed the parties on 19 October 2018 that it would hold a two-day hearing within the agreed timeframe, and subsequently announced on 3 December 2018 that the hearing would take place on 9 and 10 January 2019. On 14 December 2018, the respondent announced that it would not be able to attend the hearing due to other business obligations and thus requested that the hearing be rescheduled. On 15 December 2018, the arbitral tribunal denied the respondent’s request to adjourn the hearing on the ground that therespondent’s request had been submitted ‘too late’. In an email dated 21 December 2018, the respondent requested again that the hearing be rescheduled so that its witnesses could be heard.
On 2 January 2019, the arbitral tribunal decided to cancel the hearing scheduled for 9 and 10 January 2019 and to determine the merits of the case on the basis of the previously submitted written pleadings. In this regard, the arbitral tribunal held that a hearing was unnecessary as the respondent had not submitted any written witness statements and had also refused to appear on the agreed date. The arbitral tribunal thereafter issued its award on 17 May 2019 without conducting an oral hearing.
The plaintiff sought to annul the award and relied upon § 611 Paras. 2 (2) and (5) of the Austrian Code of Civil Procedure (‘Zivilprozessordnung‘ or ’ZPO‘) in claiming a violation of its right to be heard and of formal Austrian public policy.
The Supreme Court dismissed the claim, holding that there was no violation of Austrian public policy based on the facts presented by the plaintiff. The Court stated that the grounds for annulment are only fulfilled if the fundamental values of the Austrian legal system, including the principles of an orderly procedure, have been breached. In this respect, decisive is the result of the arbitral award and not the reasoning of the arbitral tribunal. In its decision, the Court considered two points: (1) the cancellation of the hearing; and (2) the non-inclusion of evidence/witnesses.
With respect to the hearing, the Court reaffirmed settled case law and held that only a complete lack of arbitration equates to a violation of the right to be heard. The date set by the arbitral tribunal was within the timeframe agreed by the parties, and both parties had sufficient time to object to the scheduling of the hearing. Referring to the factual circumstances at hand, the Court held that the arbitral tribunal’s decision to dismiss the plaintiff’s request to adjourn and subsequently cancel the hearing did not violate the basic principles of Austrian procedural law and the right to be heard under § 611 para. 2 (2) ZPO.
With respect to non-inclusion of the witnesses, the Court once again referred to settled case law and held that the non-inclusion of requested evidence does not in itself lead to the annulment of an arbitral award. The fundamental values of procedural law would have been breached only if the arbitral tribunal had acted arbitrarily. The Court further held that due to the lack of written witness statements, it was reasonable for the arbitral tribunal to assume that witness evidence would not be presented, and that the tribunal thus did not act arbitrarily in determining that an oral hearing was unnecessary.
The Court did, however, refer to § 598 ZPO which states that: ‘[u]nless the parties have agreed otherwise, the arbitral tribunal shall decide whether to hold oral hearings or whether the proceedings shall be conducted in writing. Where the parties have not excluded an oral hearing, the arbitral tribunal shall hold such hearing at an appropriate stage of the proceedings if so requested by a party.’ In other words, since an oral hearing was not explicitly excluded by the parties, and since the plaintiff did in fact submit a request for an oral hearing, then the arbitral tribunal should in theory have held an oral hearing. In this regard, the Court also recalled a previous decision to confirm that a failure to hold an oral hearing could be considered a violation of fundamental Austrian procedural law leading to annulment of an arbitral award.
Nevertheless, the Court held that a breach of the principle enshrined under § 598 ZPO only resulted in a ’regular‘ as opposed to a “mandatory” breach of formal Austrian public policy in this case, the latter being required to set aside an award. Decisive in this assessment was the fact that the plaintiff’s request for an oral hearing was submitted after the agreed procedural deadline. Interestingly, the Court did note that under Austrian procedural law, if a state court were faced with the same factual circumstances, then the respective state court would, by contrast, be obligated to hold an oral hearing, even if it was of the view that such hearing was unnecessary.
In conclusion, the Supreme Court held that the arbitral award did not violate the respondent’s right to be heard (§ 611 para. 2 (2) ZPO) or fundamental values of the Austrian legal system (§ 611 para. 2 (5) ZPO) and thus dismissed the plaintiff’s request to set aside the arbitral award.
The Supreme Court has once again determined that the public policy exception may only be used in the most extraordinary cases. This decision by the Supreme Court further adds to the long list of cases wherein a request to set aside an arbitral award has been denied, and acts as a reminder of the Austrian Supreme Court’s high threshold for determining potential violations of Austrian public policy.
Interesting in this particular case, however, is the Austrian Supreme Court’s approach in assessing the conduct of an arbitral tribunal compared to that of a state court. As noted, the Supreme Court found that if the factual circumstances of this case were applied to state proceedings, then a violation of Austrian public policy would have occurred. It could therefore be argued that the Supreme Court’s decision in this respect was contradictory while simultaneously raising the question of whether and to what extent the conduct of arbitral tribunals and state courts should be assessed on the same standards.