AUSTRIA: An Introduction to Dispute Resolution

Overview Dispute Resolution 

As ever, Austria remains highly attractive to business with its reputation as a “gateway to Eastern Europe” and its private investor support of start-ups. The very high entrance bar to law practice is a distinct peculiarity of Austria, making it advisable for international firms and companies with disputes to engage skilled and specialised Austrian legal counsel.

Litigation in Austria 

Structure of Civil Proceedings 

Austrian civil proceedings are designed to be adversarial, with inquisitorial elements. The judge is, to a large extent, bound by the arguments advanced by parties, but is not a passive “referee.” The judge is the primary interrogator of parties and witnesses. Only after the judge has finished his examination, may the parties directly examine the witnesses.

Pre-trial  

Pre-trial discovery only takes place to a very minimal extent and is limited to documents that are already known to the opposing party. The parties may submit arguments and proffer evidence to the court in written briefs before the first hearing.

Oral Hearings 

After the first hearing, arguments are made orally in court by qualified Austrian counsel. The oral hearing is obligatory, accessible to the public and the touchstone of proceedings. Written witness statements or affidavits are – with some exceptions – not permitted. The courts of first instance are generally not permitted to reach decisions based solely upon written submissions.

In the hearing, the judge will determine all relevant facts, examine the parties and witnesses and, as necessary, appoint and hear expert witnesses.

Due to the COVID crisis, new rules for online hearings were implemented (see below).

Court System 

Austrian civil courts are organised on three levels; District/Regional Courts, Higher Regional Courts and the Supreme Court, with some specialised courts e.g., for commercial matters. Judgments are generally appealable to at least one level, depending on the amount in dispute and whether the issues are of broader relevance. In certain cases, a further appeal to the Austrian Supreme Court is possible.

Costs of Litigation 

Legal costs are recoverable to a certain extent. Every party is required to pay its own costs, including court, lawyers’, experts’ and translators’ fees during proceedings. At the conclusion of the proceedings, the court will make a decision on costs, generally ordering the losing party to compensate the winner. Reimbursable lawyers’ fees are established by tariff, depending on the amount in dispute and the procedural steps taken. The actual lawyers’ fees charged by counsel often exceed the tariff. Consequently, a winning party may still end up having to bear expenses that exceed the reimbursement awarded.

Arbitration in Austria 

General Overview 

Austria is one of the world’s leading seats of arbitration. It offers a transparent, predictable legal framework with a modern, arbitration-friendly law, largely based on the UNCITRAL Model Law 1985. Vienna is a popular, neutral jurisdiction and a convenient location for hearings, offering user-friendly infrastructure and arbitration facilities. The Vienna International Arbitral Centre (“VIAC”), one of Europe’s leading arbitral institutions, has its headquarters in Vienna.

The Austrian court system is arbitration-friendly and experienced in arbitration matters. The Austrian Supreme Court has exclusive jurisdiction in most arbitration-related matters, providing for a specialised forum and rapid decisions in a single instance. Practice has shown that a well-reasoned decision will be rendered within six to eight months on average.

The Austrian arbitration law is found in the Fourth Chapter of the Austrian Code of Civil Procedure in sections 577 to 618. It applies to all domestic and international arbitration proceedings seated in Austria. With the Arbitration Law Reform Acts of 2006 and 2013, Austria tailored the arbitration provisions of the ACCP to the requirements of a modern arbitration law, underscoring the importance of party autonomy by giving parties wide-ranging flexibility for designing the arbitral process according to their preferences and needs. This flexibility is limited by only a few mandatory provisions.

Austria has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) and the European Convention on International Commercial Arbitration (“European Convention”).

The Arbitration Agreement 

Austrian arbitration law determines that the arbitration agreement needs to be in writing, either in a document signed by the parties or in written exchange of communications (letters, faxes, emails or other means of communication) which provides a record of the agreement. The conclusion of an arbitration agreement by reference is also permissible, if the reference is such that it incorporates the arbitration agreement in the contract by reference, i.e. if it is determined to be an integral part of the contract.

In terms of content, the arbitration agreement must identify the parties and the legal relationship to which it applies and must express the parties’ intention to submit disputes to arbitration. The Austrian Supreme Court has consistently adopted a robust pro-arbitration (“in favorem validatis”) approach when determining the validity and the scope of arbitration agreements.

Overall, both Austrian legislation and courts are arbitration-friendly in enforcing arbitration agreements.

Special rules apply to consumer and employment-related matters. Among others, arbitration agreements can only be concluded after a dispute has arisen. An arbitration agreement with consumers or employees must be contained in a separate document. In arbitration-related court proceedings dealing with consumer and employment disputes, the Austrian Supreme Court does not have exclusive jurisdiction.

The Arbitral Proceedings 

As a general rule, the parties are free to determine the procedure by establishing their own rules or by referring to arbitration rules, unless their agreement is incompatible with relevant mandatory provisions. The agreement on institutional arbitration rules amounts to a complete exclusion of the non-mandatory procedural rules of Austrian arbitration law. In the absence of a party agreement, the arbitral procedure is governed by the provisions of Austrian arbitration law. If a procedural question is neither determined by a party agreement nor by the provisions of Austrian arbitration law, the procedure may be determined by the arbitrators pursuant to their procedural discretion. In all cases, the parties must be treated fairly and every party’s right to be heard must be observed. Arbitrators are independent and impartial.

Interim Measures 

Austrian arbitration law empowers an arbitral tribunal to issue such interim measures it deems necessary in respect of the subject matter in dispute, if the enforcement of the claim would otherwise be frustrated or significantly impeded, or if there was a risk of irreparable harm. The arbitral tribunal’s power to issue interim measures may be excluded by a party agreement. Interim measures may only be granted upon the request of a party and after hearing the other party. An arbitral tribunal may thus not issue ex parte measures.

The arbitrators’ powers to issue interim measures do not exclude the competence of the courts to issue interim measures. A court may, at the request of a party, grant interim or protective measures before – and even during – pending arbitration proceedings. Contrary to arbitral tribunals, the courts may issue ex parte measures. The competence of the courts to issue interim measures may not be excluded by a party agreement.

The Arbitral Award 

Under Austrian arbitration law, an arbitral award must be rendered in writing and signed by all arbitrators to be valid. Unless otherwise agreed, the signatures by the majority of the arbitrators are sufficient, provided that one of the signing arbitrators records on the award the reason for the omitted signature.

Within three months after the service of the arbitral award, a party is entitled to file an action to set it aside on an enumerated list of grounds. In addition to the grounds of the New York Convention for the refusal of enforcement, an award may be set aside if certain conditions for re-opening court proceedings are met, such as in cases of document forgery, perjury or fraud. The arbitrators’ refusal of jurisdiction may also be subject to annulment. An arbitral award may only be set aside when arbitral proceedings have been conducted in a manner that conflicts with the fundamental values of the Austrian legal system (“ordre public”). The conduct of the proceedings contrary to the agreement of the parties or a mandatory provision of the arbitration law is not per se a ground for annulment.

Enforcement 

Austrian arbitration law differentiates between the enforcement of domestic and foreign awards. A domestic award that is confirmed by the arbitral tribunal as final, binding and enforceable is deemed to have the same effect as final and binding court judgments, thus constituting a readily enforceable title. Foreign awards must be formally recognised and declared enforceable by the competent Austrian court (“exequatur”), which requires an application by the award creditor (or their legal successor). The requirements for the recognition of foreign awards are modelled on the requirements stipulated in the New York Convention and other relevant international treaties to which Austria is a party.

Austria has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards without reservation, the 1961 European Convention on International Commercial Arbitration, the ICSID Convention and several Bilateral Investment Treaties.

Current Developments and Trends (Litigation)

Online hearings 

Since May 2020 (after the first hard lockdown in Austria, during which most court hearings were suspended), new rules on the use of video conferencing in hearings have been in place. They permit entire hearings to be conducted via video conference, including the taking of evidence, provided that all parties agree in advance. Consent of the parties is an important principle. There are exceptions, such as enforcement and insolvency proceedings in which the court can conduct its hearings via video conference without the consent of the parties, provided that they have the necessary technical means to participate. Parties, witnesses and other participants (e.g., experts, interpreters) may request a video conference if they belong to a group that is particularly at risk if exposed to COVID-19 or are in necessary (professional or private) contact with someone at risk.

The use of video conferencing is not entirely new in Austrian Civil Procedure. In the past, it had been possible to examine witnesses or parties via video conference. However, it was previously not possible to conduct the entire oral hearing via video conference. Video hearings are called at the courtroom, which, itself is accessible to the public, provided attendees comply with the public health rules (physical spacing rules, masks, etc.). It is not expected that video conferences will be made available online to the public.

Experience with video conferencing shows the following:

One of the biggest challenges for video hearings results from not all courts yet having been fully equipped for oral hearings, and not all judges having access to a video conference system.

A central challenge for lawyers in a video hearing, besides the intrinsic challenge of pleading persuasively, is the impaired ability to communicate confidentially with the client during the hearing. When physically attending a hearing at court, the lawyer and client seated next to each other can exchange information in whispers, and even non-verbally. This is difficult in video hearings, where every word and every facial expression is heard and seen by everyone (or nobody).

On a positive note, courts will probably be better equipped as a result of the pandemic and it is anticipated that judges will continue to make more use of video conferencing, if only to hear witnesses and parties who would otherwise be required to travel by air.

Class Actions and Third Party Funding 

A recent development is an increase in both governmental and (more so) new private enforcement and class actions, to counter harm to markets through illegal cartels.

In the past, “Austrian-style” class actions have been facilitated by third-party litigation funders, including investor claims through filing mass actions at the Commercial Court of Vienna; for example, against AWD, AMIS, Meinl Bank, Immoeast-Immofinanz and, most recently, Volkswagen. Now, ongoing “Dieselgate” cases demonstrate the increasing self-sufficiency of consumers in collective lawsuits facilitated by cross-border dissemination of legal knowledge via internet platforms. In 2020, the ECJ affirmed the jurisdiction of Austrian courts over actions brought by Austrian vehicle owners in these cases. It is therefore to be expected that in 2021 many of these lawsuits (incl. “Austrian-style” class actions), which were interrupted in view of the referral to the ECJ, will be continued.

Data Protection 

A further trend in Austrian courts was induced by the EU General Data Protection Regulation (GDPR). Under a recent Austrian Supreme Court ruling, the GDPR takes priority over conflicting Austrian procedural rules, allowing enforcement of GDPR claims (damages, injunctive relief etc.), not only by regulatory authorities, but also – and in parallel – through civil courts.

Legal System Innovations 

Austria was the first country in the world to implement Electronic Legal Communication (ELC) for the electronic transmission of documents to and from courts. Continuing along an expansionary path towards e-Justice, the Austrian judicial system continues to invest into this venture, with the eventual aim of completely digital file management throughout the entire court system.

International Reputation and Influences 

Austria continues to enjoy a respected profile on the international scene owing to its transparent, effective and reliable legal system, fair trials, efficiency and enforcement of the rule of law. This exceptional reputation has been enhanced through ongoing processes of streamlining court proceedings, promoting settlements, halved court fees and encouraging mediation. Austria is a country where enforcement is effective and speedy when compared to other European jurisdictions, giving creditors ready access to the enforcement register to determine whether assets are available.

As a means of accelerating lengthy proceedings in white-collar crime cases previously sparking public resentment, Austrian public prosecutors further enable the freezing of accounts and assets as well as information sharing in the context of cross-border assets and criminal activity.

Current Developments and Trends (Arbitration)

Updated VIAC Rules of Arbitration and Mediation In 2020, VIAC responded to the COVID-19 pandemic by encouraging parties to submit all written submissions and any supporting documentation preferably by electronic means, in accordance with Article 12 (2) Vienna Rules. In addition, VIAC provided guidance to the conduct of online hearings with the “The Vienna Protocol – A Practical Checklist for Remote Hearings”.

A further response of VIAC to the pandemic has been to tailor offers that allow companies to take advantage of mediation at a fixed fee to resolve disputes that arise in the wake of COVID-19.

Overall, and especially since the amendment of the Vienna Rules, VIAC encourages arbitrators and counsel to conduct arbitration in an efficient manner. Arbitral tribunals may consider counsels’ contribution to the conduct of an efficient proceeding in decisions on costs. Similarly, the General Secretary of VIAC may adjust the arbitrator’s fees by 40% because of “inefficient” or “especially efficient” conduct of the arbitration.

Especially relevant in the current pandemic and its effect on the economy, VIAC Rules provide that arbitral tribunals have the power to issue an order for security for costs if the respondent shows that recovering a potential claim for costs is at risk with a “sufficient degree of probability”.

Austrian Supreme Court Decision on Online Hearings

Under Austrian arbitration law, the arbitral tribunal may, unless otherwise agreed by the parties, convene at any place it considers appropriate for conducting proceedings, especially for deliberation among its members, making decisions, conducting oral hearings and taking evidence. However, the admissibility or conditions for online hearings are not addressed.

In July 2020, the Austrian Supreme Court rendered a landmark decision clarifying that hearings may be conducted online even in case of an objection by a party. The reasoning of the decision finds that conducting a hearing via video conference does not per se violate the principles of fair treatment of the parties or the right to be heard as e.g. guaranteed by Article 6 of the European Convention on Human Rights (ECHR). Article 6 ECHR encompasses not only the right to be heard, but also the right to access to justice. Particularly in times of a pandemic, conducting proceedings via video conference allows to reconcile the right to be heard and the right to an effective access to justice. Online hearings are thus generally permissible.

Austrian Supreme Court Decision on Impartiality and Independence

Under Austrian arbitration law, an arbitrator may only be challenged if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not fulfil the conditions agreed to by the parties. The standard is objective. It is decisive whether circumstances exist that, from the point of view of a reasonable third party with knowledge of the relevant facts, could give rise to doubts as to the arbitrator’s independence or impartiality. The appearance of bias is sufficient. When assessing an arbitrator’s independence and impartiality, the Austrian Supreme Court applies a strict standard that is comparable to the standard applied by leading arbitral institutions such as the ICC.

In 2020, the Austrian Supreme Court rendered an important decision on the weight to be given to professional contacts between arbitrators and party representatives when assessing an arbitrator’s impartiality and independence. In the case decided by the Austrian Supreme Court, the arbitrator and party representatives that had nominated the arbitrator had several professional ties. Specifically, contacts had occurred in the course of the organisation of arbitration-related events and due to joint membership in arbitral institutions. The Austrian Supreme Court held that the usual involvement of arbitrators and counsel in professional circles does not in itself justify doubts regarding an arbitrator’s independence and impartiality.