Global Development

Introduction

Under Austrian arbitration law, an arbitral award rendered by an arbitral tribunal seated in Austria must state the reasons on which it is based unless the parties have agreed otherwise.¹ This requirement also applies to awards on agreed terms, although in this case the reasoning may consist of a mere reference to the parties’ settlement agreement.² In cases that do not result in an award on agreed terms, however, the standard for reasonings to be provided by arbitral tribunals remains somewhat elusive.

The Austrian Civil Procedural Code (‘ACPC’) sets out the required content for the reasoning in state court judgments (i.e. the main arguments and requests of the parties, non-contentious facts, the facts as established by the court, the assessment of evidence and, finally, the legal evaluation).³ It does not, however, stipulate minimum requirements for reasoning contained in arbitral awards. While this distinction indicates that arbitrators are not bound by the comparably strict structural requirements applicable to reasoning provided by state courts,⁴ it fails to offer further guidance on any standards applicable to reasoning in arbitral awards. In the setting of proceedings to set aside an award, however, the Austrian Supreme Court has specified basic requirements applicable to arbitrators’ reasoning.⁵ This article summarizes these guidelines and provides practical advice for both arbitrators and counsel.

The starting point is Section 611(2)(5) ACPC, which stipulates that an arbitral award shall be set aside if the arbitration proceedings were conducted in a way that violates Austrian ordre public. By relying on this provision, a party to an arbitration can challenge an award if the conduct of the underlying arbitration proceedings contradicts the foundational principles of Austrian civil procedural law. According to the Austrian Supreme Court, Section 611(2)(2) ACPC, which entitles a party to challenge an award based on a violation of the right to be heard, is merely a specific manifestation of this general rule.⁶ Section 611(2) ACPC provides:

An arbitral award shall be set aside if

…

(2) a party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present its case;

…

(5) the arbitration proceedings were conducted in a way so as to violate the Austrian ordre public.

In several recent decisions, the Austrian Supreme Court has clarified that deficient reasoning of an arbitral award can potentially amount to a violation of procedural ordre public and may therefore entitle parties to challenge arbitral awards on these grounds.

Deficient reasoning may constitute a violation of procedural ordre public

A primary reference point for determining whether the conduct of the arbitration violated procedural ordre public can be found in the grounds for annulment of state court judgments, as stipulated in Section 477 ACPC.⁷ According to the Austrian Supreme Court, only a procedural defect of the arbitration proceedings that is equivalent to these grounds can justify the setting aside of the resulting arbitral award.⁸ In this regard, Section 477(1)(9) ACPC expressly stipulates that a judgment is null and void if it does not contain reasoning at all or if the reasoning is defective in a sense that it does not allow for legal review. Merely flawed reasoning, on the other hand, does not result in the annulment of the judgment.⁹ This makes sense in the context of state court judgments as those are subject to an appeal mechanism which allows the appellate court(s) to supplement or rewrite a decision based on flawed reasoning.

However, the same does not hold true for arbitral awards, which can be reviewed only within the very narrow boundaries set by Section 611 ACPC. Consequently, according to the Supreme Court, the formal quality of reasoning contained in an arbitral award is all the more important. By referring to German jurisprudence and literature the Court found that, while the actual content of the reasoning is not to be reviewed in setting aside proceedings, the reasoning must still include the arbitral tribunal’s essential considerations on which the award is based. Mere ‘empty phrases’ (‘inhaltsleere Floskeln’) that do not reflect the arbitral tribunal’s actual reasoning do not meet this requirement.¹⁰

In the most recent decision relating to reasoning standards in arbitral awards, the Austrian Supreme Court found that the party requesting an arbitral award to be set aside on the basis of deficient reasoning must not only submit that the arbitral tribunal has failed to provide proper reasoning with regard to a specific issue but must also demonstrate why the issue was decisive for the case. In general, this requires that the party seeking annulment of the award has already raised the relevant issue in the previous arbitration proceedings.¹¹

Standards for reasoning

Apart from confirming that insufficient reasoning can amount to a violation of procedural ordre public, the Austrian Supreme Court has also provided some basic guidance on minimum standards.

If the arbitral tribunal follows the arguments raised by one of the parties in its decision, a mere reference to the party’s respective submission can suffice. Also, if the arbitral tribunal has previously discussed the crucial factual and legal issues during the arbitration proceedings, it may be sufficient to refer to these discussions in the award if the parties are able to comprehend the reasoning in the award just by reference to earlier discussion.¹² On the other hand, if the arbitral tribunal bases its decision on considerations that have not been previously argued or discussed in detail, it will have to provide a more extensive reasoning.¹³

Notably, the Supreme Court also referred to Section 610(1)(2) ACCP, which provides that the arbitral tribunal must explain specific (ambiguous) parts of an award if the parties have agreed on such competence/obligation¹⁴ of the tribunal (opting-in mechanism). The Court expressly noted that in case the parties have agreed on this option, they can only challenge the award based on deficient reasoning (amounting to a violation of the procedural ordre public) if they have indeed requested an explanation from the arbitral tribunal prior to initiating setting aside proceedings (and if a subsequent explanation has failed to clarify the ambiguities).¹⁵ The reason for this is that pursuant to Section 579 ACPC, parties must raise objections to deviations from dispositive procedural rules immediately after becoming aware of them. Otherwise, parties are precluded from raising such procedural violations in subsequent setting aside proceedings.¹⁶

In this context it is worth noting that Article 36(2) of the ICC Rules of Arbitration 2021 allows the parties to apply for an interpretation of the award. Therefore, by agreeing to arbitration under the ICC Rules of Arbitration 2021, parties also trigger the applicability of Section 610(1)(2) ACPC, which means that they must request an interpretation before challenging the award on the basis of deficient reasoning.¹⁷

Moreover, since Section 606(2) ACPC entitles the parties to agree that an arbitral award shall not state the reasons on which it is based such agreement – unsurprisingly – also prevents the parties from challenging an unreasoned award. In all other cases, awards must contain appropriate reasoning.

Conclusion and practical considerations

To ensure the overall quality of arbitration proceedings, arbitrators are well advised to provide conclusive reasoning in arbitral awards, although under specific circumstances it can be sufficient to refer to the parties’ submissions or to discussions held in the course of the arbitration. Parties should make sure to raise all legal and factual arguments in ongoing arbitration proceedings. In case a party subsequently challenges an award on the basis of deficient reasoning or a complete lack of reasoning on a specific point, it must demonstrate that it has raised the point in the previous arbitration proceedings, and additionally explain why the point was decisive for the case.

Further, if a party considers the arbitral tribunal’s reasoning to be deficient, it must request the arbitral tribunal to provide an explanation of specific ambiguous parts of the award, provided the parties have agreed on such competence before or after the award has been rendered.

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