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20 December 2007
Appointment of Sole Arbitrator
General Blanket Clause
Number of Arbitrators
Appointment of Three-Member Arbitral Tribunal
Parties Bound to Appoint Jointly
Appointment of Arbitral Tribunal Composed of More Than Three Arbitrators
Late Appointment of Arbitrators
As under the United Nations Commission on International Trade Law (UNCITRAL) Model Law (Article 11(2)), under Austrian law parties are free to agree on a procedure for the appointment of arbitrators (Section 587(1) of the Code on Civil Procedure). Therefore, parties may agree on an appointment procedure other than the one stipulated in Section 587(2).
In the absence of an agreement between the parties on the appointment procedure, Section 587(2)(1-5) of the Code on Civil Procedure – which is also supposed to regulate multi-party proceedings within its range of application – provides that:
"In an arbitration with a sole arbitrator, if the parties [ie, both sides of the proceedings] are unable to agree on the arbitrator within four weeks of receipt of a written request to do so, the sole arbitrator will be appointed, upon application of a party, by the court.”
Although Section 587(2)(1) mentions the “parties”/a “party”, this denomination does not refer only to the entities involved in the arbitration but - in multi-party arbitrations - also to the (claimant and respondent) side(s) of the proceedings. Thus, in case multiple parties have not agreed on an appointment procedure for the sole arbitrator, both sides of the proceedings together need to agree on the sole arbitrator within four weeks of receipt of the written request to do so. Failure to do so may lead to a state court being asked by a party of either side to substitute for this appointment. This situation is no different from an arbitration in which only one party takes part on each side of the proceedings. For multi-party proceedings, the appointment method could also be arrived at on the basis of Section 587(6) of the code.
The regulation of Section 587(6) of the code is not reflected in the UNCITRAL Model Law. The latter provision reads:
“If for other reasons the appointment of the arbitrator or arbitrators has not taken place within four weeks of receipt of a respective written communication by one of the parties from the other, or if the appointment procedure for securing the appointment does not lead to an appointment within a reasonable time, the court shall likewise appoint the arbitrator or arbitrators upon application of a party.”
Section 587(6) presents a general blanket clause covering various situations not otherwise provided for by Section 587 and in which the appointment of arbitrator(s) - for whatever reasons - could not take place within the four-week timeframe. According to the express intent of the legislature, this provision will allow for flexible solutions regarding the substitution of appointments in potentially unforeseeable situations during multi-party arbitrations.
The application of Section 587 implies that the number of arbitrators is determined. According to Section 586(1), the parties are free to determine the number of arbitrators appointed. However, the parties’ respective choice is limited where they agree on an even number of arbitrators. In this case, another person must be appointed as chairman of the arbitral tribunal. If the parties have not agreed on the number of arbitrators, three arbitrators are to be appointed (Section 586(2)).
Section 587(2)(2) states that:
“In an arbitration with three arbitrators, each party [side of the proceedings] shall appoint one arbitrator. The two arbitrators then appoint the third arbitrator who will act as chairman of the arbitral tribunal.”
While Section 587(2)(4) states that:
“If a party fails to appoint an arbitrator within four weeks of receipt of a written request to do so from the other party, the arbitrator will be appointed, upon application of a party, by the court.”
Since the landmark judgment in the Dutco Case, great attention is paid to the question of whether and in which event multiple parties on one side of the proceedings may be obliged to appoint an arbitrator jointly. In the absence of any agreement between the parties on the appointment procedure, Section 587(2)(2) prescribes that at first, each side of the proceedings - potentially composed of more than one party - shall appoint one arbitrator. Thus, the issue is whether, pursuant to Section 587(2)(2), each side must jointly appoint one arbitrator. If a side composed of multiple parties must jointly appoint one arbitrator pursuant to Section 587(2)(2), equal treatment of the parties would be at stake since the multiple parties on one side of the proceedings would be limited in their respective free choice of an arbitrator without the other side (potentially not being composed of multiple parties) facing the same problem. If the multiple parties on one side failed to agree on the arbitrator, pursuant to Section 587(2)(4), their arbitrator would be appointed by the court.
Section 587(5), another addition to the basic appointing method foreseen by the UNCITRAL Model Law, regulates situations in which multiple parties are bound to appoint one or more arbitrators jointly. If such multiple parties cannot agree within four weeks of receipt of a respective written communication, only their arbitrator(s), upon application of a party, will be appointed by a court, provided that the agreement on the appointment procedure provides no other means of securing the appointment. However, Section 587(5) does not determine a situation in which multiple parties are bound to appoint one or more arbitrators jointly. The following method of resolution appears appropriate: if parties, in legal proceedings that have already occurred, agree that multiple parties on one side of the proceedings shall be bound to appoint jointly, or if parties, prior to the occurrence of legal proceedings, anticipate this set of problems and likewise agree that one side shall appoint jointly, they are indeed validly bound to appoint their respective arbitrator(s) jointly. However, if agreement by the parties to this effect is lacking, it is doubtful whether multiple parties on one side of the proceedings may ever be bound to appoint an arbitrator jointly.
In the event that the multiple parties on one side of the proceedings are not bound to appoint an arbitrator jointly and effectively fail to do so, the entire arbitral tribunal must be appointed by the court pursuant to Section 587(6) of the Code on Civil Procedure (ie, the general blanket clause).
Section 587(2)(3) provides that:
"In an arbitration with more than three arbitrators, each party shall appoint an equal number of arbitrators. The arbitrators thus appointed shall appoint another arbitrator who will act as chairman of the arbitral tribunal.”
If a party fails to appoint an arbitrator within four weeks, Section 587(2)(4) applies.
According to the intent of the working group who established the draft for Section 587, Section 587(2)(3-4) are, among other things, intended to cover multi-party arbitration cases in which the number of arbitrators at least equals the number of parties (eg, if four parties are involved and the number of arbitrators is five). If there are parties which are bound to appoint an arbitrator jointly, Section 587(5) applies. If this is not the case and the number of parties exceeds the number of arbitrators, the flexible rule set forth by Section 587(6) again provides for the necessary substitute appointment(s) by the state courts.
As long as an appointment takes place prior to the first instance court’s decision and a party submits evidence for this, the court application for appointment of an arbitrator will be dismissed (Section 587(7)).
For further information on this topic please contact Gerold Zeiler or Barbara Steindl at Schönherr Rechtsanwälte by telephone (+43 1 53 43 70) or by fax (+43 1 53 43 76100) or by email (email@example.com or firstname.lastname@example.org).
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