This is the first part of a two-part series on arbitrators’ liability. As is suggested in the title, this first part deals with the Austrian perspective and the second part will present the Slovak view.
I. Legal Basis
Austrian law contains one provision regarding the liability of arbitrators: Sec 594 (4) Austrian Code of Civil Procedure (ACCP). However, this provision stipulates only that arbitrators are liable for non-fulfillment or delayed fulfillment of arbitrators’ obligations. It does not, however, refer to improper fulfillment thereof, such as rendering a faulty arbitral award.
Already in 1928 the Austrian Supreme Court (OGH) extended the arbitrators’ liability to such cases (OGH 17.10.1928, 3 Ob 573/28). However, at the same time the OGH restricted this newly established extension and tied it to the setting aside of the allegedly faulty arbitral award before a successful claim for arbitrators’ liability can be invoked. The OGH justified this legal view by referring to the possible set-aside grounds, deriving therefrom that only in such scenarios can arbitrators be held liable.
The obligation to initiate set-aside proceedings was based on the party’s duty to mitigate damages. An omission to initiate these proceedings would result in the party’s inability to claim damages from the arbitrators.
The OGH subsequently upheld this decision and reasoning. In 2003, it further established that arbitrators cannot be held liable for severe procedural errors not constituting grounds for set aside of arbitral awards (OGH 06.06.2005, 9 Ob 126/04a).
II. Set-Aside Proceedings Not Necessary in Case of Intent?
A new attempt to challenge the OGH’s reasoning was undertaken not a long time ago (OGH 22.03.2016, 5 Ob 30/16x [note: the author of this blog was involved as counsel to one of the parties in these proceedings]). In essence, the question arose whether the need to have arbitral awards set aside is also given if the arbitrators acted with intent.
This argument was brought forward in a dispute in which the presiding arbitrator of an ad hoc tribunal was successfully challenged due to the appearance of bias. A new presiding arbitrator was appointed and, in accordance with Art 22 (2) of the Vienna Rules (applicable to the arbitral proceedings), the newly composed arbitral tribunal continued the arbitral proceedings without repeating its previous stages and subsequently rendered an arbitral award. The claimant of the subsequent liability proceedings considered this award to be manipulated to its detriment. The arbitrators’ contract provided for arbitrators’ liability only in cases in which the arbitral award in question had been set aside and the arbitrators acted in gross negligence.
The claimant argued that in case of intent, the arbitrators’ liability ‘exclusion’ as established by the OGH and as provided for in the arbitrators’ contract was not applicable. It referred to case law by the OGH to be applied per analogiam, according to which liability cannot be excluded (contractually) in events of intent as such exclusion would constitute a violation of moral principles of law.
However, the OGH rejected the claimant’s argument. The OGH referred to its established practice as described above. According to the OGH, a “duplication” of proceedings – liability and set-aside proceedings – must be prevented. The claimant would otherwise be able to claim the arbitrators’ liability on the same grounds, which form the basis of set-side proceedings.
The OGH did not address the claimant’s argument that due to the arbitrators’ intentional conduct the contractual exclusion (and the arbitrators’ liability privilege as established by the OGH) was not valid. The OGH merely stated that since the arbitrators’ contract did not exclude liability in case of intent, no reason for the contract’s invalidity existed.
III. Personal Remarks
The OGH’s view that no abuse of law was present, as neither the contractual liability exclusion nor the liability privilege established by the OGH exclude arbitrators’ liability in case of intent – one should add: once intent has been established in prior setting aside proceedings – seems to miss claimant’s argument. Claimant’s argument was not that the arbitrators’ contract was not valid but that due to the intentional conduct by the arbitrators such liability privilege/contractual exclusion thereof was not applicable, as liability for intentional misconduct cannot be restricted.
However, upon further consideration it becomes evident that rather than missing claimant’s point, the OGH simply did not see any reason to further elaborate thereon. Contrary to the claimant’s statements that the arbitrators had acted with intent, such statements were, however, only an assertion on which claimant based its case. Following claimant’s line of argumentation would require that arbitrators’ intent had either already been established by a court/tribunal – which was not the case – or that courts competent for the liability proceedings would be competent to rule on the conduct of the arbitrators as well – which is neither the case, as this is exactly that sort of blending of proceedings that the OGH seeked to prevent. Indeed, why should it be possible to circumvent the separation of such proceedings by simply asserting intentional misconduct by the arbitrators?
The OGH evidently refrained from engaging in such discussion. One might have hoped for clearer statements by the OGH but there can be no doubt left that being entitled to damage due to arbitrators having rendered a faulty arbitral award requires the setting aside thereof, regardless of the scale of fault. Irrelevant of whether one considers such principle to be correct, the OGH’s decision is to be welcomed as consequent and conclusive, confirming case-law established for many decades.
written by Oliver Loksa