So you want to challenge? The right to be heard as a path to challenging arbitration awards through the courts in Austria

Neva Cirkveni

Oblin Rechstanwalte, Wien

neva.cirkveni@oblin.at

Introduction

Unlike litigation, the arbitration process usually offers no clear-cut route to review or to appeal against an arbitration award. It is often difficult for the dissatisfied party in an international arbitration to make a successful challenge to the award. 

The New York Convention is the central instrument when discussing the recognition and enforcement of foreign arbitral awards. Given the large number of state parties to the Convention (166), there is significant harmonisation of arbitration rules in common and civil law countries. Generally, courts in common law and civil law jurisdictions have a pro-enforcement bias, meaning the grounds for refusing enforcement are applied narrowly.

In Austria, there are a number of grounds under which an award may be challenged through the courts. These include but are not limited to:

• violations of public policy;
• violations of the right to be heard;
• invalidity of the arbitration clause;
• bias; and
• others.

This article focuses on violations of the right to be heard as a path to challenging arbitral awards with the best possible outcome.

The right to be heard

There is an essential difference between state courts on the one hand, which are bound by strict procedural rules and whose decisions are usually subject to appeal, and arbitral tribunals on the other hand, against whose decisions an ordinary appeal is not admissible and which can proceed much more freely than state courts with regard to the organisation of the proceedings. Only in the case of very gross violations of fundamental principles of an orderly procedure is it possible to challenge the arbitral award.

The right to be heard is enshrined within Section 611(2)(2) ZPO (Zivilprozessordnung), which states that a party may challenge an arbitral award in a court action to set it aside if ‘a party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was unable for other reasons to present his means of attack and defense.’

The following circumstances show when an infringement of the right to be heard has been accepted:[1]

• in the event of a failure to comply with a request to hold an oral hearing pursuant to section 598(2) ZPO;
• if an oral hearing is held with the unexcused absence of the respondent to the arbitration;
• if the opponent is not given notice of a change in the facts of the case and is not given the opportunity to comment thereon;
• if arguments of a party to arbitration are not disclosed to the other party, so that the latter cannot comment on them in a proper manner;
• if an arbitral tribunal bases its decision on facts which – obviously to it – are not correct, or if it uncritically adopts the incorrect assessment of a party;
• if the arbitral tribunal deviates from an already-expressed or otherwise made apparent legal opinion and the parties have refrained from further submissions in reliance on this opinion, thus disappointing the legitimate expectations of the parties; or
• if a submission is rejected by the arbitral tribunal as late, although the time limit set for it was too short or the delay is excused.[2]​​​​​​​

The arbitral award can only be challenged on the basis of a violation of the right to be heard if the complaining party was not granted the right to be heard at all. A merely incomplete determination of the facts or a defective discussion of legally relevant facts will not allow an arbitral award to be set aside.[3] Simply put, the award is not invalid just because the arbitral tribunal ignores or rejects requests for evidence or because it otherwise incompletely determines the facts. Such a defect is not to be equated with a failure to grant the right to be heard. The following cases will better demonstrate what fact pattern is necessary for a challenge based on the violation of a right to be heard to be successful.

In OGH 4 Ob 185/12b, it was held that the right to be heard had not been violated because the tribunal had not considered its submissions requesting an extension of the counterclaim after the expiration of the submission period. It further mentioned that albeit the tribunal did not expressly mention the claimant’s submissions, it did make findings regarding these and thus, the right to be heard had not been violated.

3Ob122/10b showed that a claimant’s lack of attendance at the oral hearing will not constitute a violation of the right to be heard if the circumstances causing such attendance were within the power of claimant.

The decisive criterion for assessing whether there has been a violation of the right to be heard pursuant to section 611(2)(2) ZPO is the weight attached to a violation of the right to be heard in the state proceedings. The practice set by domestic courts regarding the right to be heard and the violations of the same will be the practice looked at in assessing whether that same right to be heard was violated in arbitral proceedings. Only if the violation of the right to be heard in the state proceedings would be punished with nullity or present a ground for nullity, then the ground for setting aside would also be fulfilled.[4] Put simply, the same standard is applied to domestic court decisions that are being appealed on the basis of a violation of a right to be heard, as well as to arbitral awards being challenged on the same basis.

The principle of the right to be heard is undermined if the opponent is not informed of a change in the facts and not given the opportunity to make a statement on those facts.[5] 6 Ob 572/90 confirmed as much by stating that ‘a party may not generally be denied the opportunity to make factual and legal submissions […].’. It is sufficient to give the party the opportunity to present the facts of the case, including motions and evidence. The claimant requested the examination of witnesses at the occasion of the second oral hearing which was not allowed and then asserted a violation of the right to be heard. This, however, was not sufficient. The challenge was not allowed due to the fact that the claimant was given sufficient opportunity to present his point of view in writing and in the course of two oral hearings.

OGH 3 Ob 1091/91 confirmed that facts and evidence on which the parties have not been able to comment may not be used as a basis for the arbitral award. In the aforementioned case, however, the challenge was denied based on the fact that the plaintiff claimed her submissions were not considered sufficiently, rather than at all, albeit they were considered and referred to in the award. The fundamental principle of the right to be heard also requires in arbitral proceedings that the opponent be informed of any change in the facts and be given the opportunity to comment. Moreover, OGH 24.9.1981, 7 Ob 623/81 concerned a case in which the arbitrator did not pass on documents he had received from one party to the other. It was considered that the documents, if shared, could have impacted on the position taken by the other party. The main test is whether the denied submission, or whether the non-shared documents in this case, would have impacted the position taken by the other party and to what extent. If the impact was a material one, the chance of the award being set aside is greater.

Conclusion

It is important to remember that the right to be heard is only violated if the party was prevented from asserting its means of attack or defence. As such, the following can be concluded and should be taken into account:

• The tribunal does not expressly have to mention various submissions, as long as it makes findings upon them no violation will have occurred.
• The denial of a simple extension of already asserted facts will not be enough to prove a violation of the right to be heard.
• Lack of attendance will be a violation of the right to be heard, only if the circumstances of such a lack of attendance were not within the party’s power.
• If a party had sufficient chances to fully present its facts, mere denials of further witness examinations will not suffice, but if the party did not have such a chance to present its case, file a motion or assert new facts, a violation of the right to be heard is likely to be found.
• Only a complete lack of consideration towards a submission will suffice; inadequate consideration will not.
• Facts and evidence that parties did not have a chance to comment on may not be used as evidence. For example, if a party makes a submission during the arbitration proceedings which is then denied by the tribunal, but the facts of such a submission are relied upon in the award, then a violation has likely occurred.
• Opponents must be given a chance to comment on a change in facts, otherwise a violation of a right has likely occurred.
• If there are documents submitted that could change a party’s position, then such documents must be presented to the other party as well.

The above points are useful guidance where a court is determining whether there has been a violation of a right to be heard in order to set aside an arbitral award in Austria. Although arbitration is seen as a ‘one-stop shop’ without appeals, there are circumstances under which motions to set aside should be allowed in order to safeguard the parties' procedural rights.