In a recently rendered decision (18 OCg 5/19p), the Austrian Supreme Court departed from its previous practice of setting aside arbitral awards on grounds of arbitrator bias only in particularly glaring cases. As a consequence, future challenges no longer need to meet this high threshold. However, the Court refused to set aside the award since the applicant had failed to raise a timely objection during the arbitral proceedings.
Contributor: Ivan Prandzhev
In a recently rendered decision (18 OCg 5/19p), the Austrian Supreme Court (hereinafter the “Supreme Court” or the “Court”) departed from its previous practice of setting aside arbitral awards on grounds of arbitrator bias only in particularly glaring cases. As a consequence, future challenges no longer need to meet this high threshold. However, the Court refused to set aside the award since the applicant had failed to raise a timely objection during the arbitral proceedings.
The Supreme Court was requested to set aside an arbitral award rendered by a five-members tribunal. Its jurisdiction was based on an arbitration clause included in the statute of an Austrian cooperative society (“Genossenschaft”), the respondent in the arbitration (hereinafter the “Cooperative Society” or the “respondent”). The challenge against the award was brought by the claimant in the arbitral proceedings (hereinafter the “claimant”). He had commenced the arbitration seeking to reverse the Cooperative Society’s decision to discontinue his membership.
The Alleged Manifestation of Bias During the Arbitral Proceedings
Before the Court, the claimant brought forward, i.a., that the president and another member of the Arbitral Tribunal had a close personal relationship with the management of the Cooperative Society. Moreover, the claimant asserted that their lack of impartiality and independence manifested itself during the proceedings. In particular, claimant’s children issued a witness statement indicating that the president and another member of the Arbitral Tribunal had advised them to exert influence on their father to accept a settlement.
The Previous Jurisprudence of the Austrian Supreme Court
In its previous jurisprudence, the Supreme Court had repeatedly ruled that the setting aside of an arbitral award may not be based on arbitrator bias, unless the particular circumstances are considered glaring, i.e. unless they resemble circumstances that, under the laws applicable to court litigation, would justify removing a judge from a court case. (Cf 2 Ob 112/12b and 2 Ob 155/13b). According to the Court, this restriction was meant to enhance legal certainty. After all, even in civil court litigation, one would require circumstances of such particularly glaring nature in order to annul a judgment rendered by a biased judge.
The New Threshold
However, as the Court itself points out in this most recent decision, drawing such a comparison with the procedures applicable to the annulment of judgments in state court litigation is not convincing. The annulment of judgments differs from the setting aside of arbitral awards in an important way, namely the very narrow scope of review that arbitral awards are subject to. This particular aspect of arbitration makes the independence and impartiality of arbitrators all the more significant. Therefore, it also justifies removing the threshold for setting-aside of arbitral awards on the ground of arbitrator bias. Hence, according to the Court, arbitrator bias in itself represents a flaw in the composition of the arbitral tribunal and makes the award susceptible to challenges.
The Court emphasised that removing this restriction will not be detrimental to legal certainty since arbitral awards may be challenged only within a three-months period. In doing so, the Court concurred with the criticism of its previous jurisprudence voiced by scholars and practitioners alike. In particular, its previous restrictive approach had been criticised as detrimental to legal certainty, the very concept the Court was seeking to preserve with this approach. Scholars argued that it required a difficult case-by-case evaluation as to whether the lack of independence or impartiality in the particular case meets the aforementioned high, yet vague, threshold (Cf inter alia Rechberger/Hofstätter in Rechberger/Klicka, ZPO5 Section 611 para 13).
Ultimately, however, the Court emphasised that parties to arbitral proceedings may not simply “reserve” their concerns as to the impartiality and independence of an arbitrator for the setting-aside proceedings. Instead, parties are required to raise timely objections. The claimant had failed to do so and, therefore, was precluded from challenging the award on the ground of arbitrator bias.
The Supreme Court could have based its rejection of the claimant’s challenge against the award merely on this final point, namely that he was precluded. However, it did not shy away from the opportunity to correct what it had identified as its mistake and to reverse its position. In this decision, we see a Supreme Court that is open to criticism, ready to acknowledge a misconception, and seeking to improve its jurisprudence.