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06 July 2006
For the purpose of an arbitral tribunal's ruling on jurisdiction, Article 16(1) of the United Nations Commission on International Trade Law (UNCITRAL) Model Law provides that an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. As further provided by Article 16, a decision by the arbitral tribunal finding the contract null and void shall not automatically entail the invalidity of the arbitration clause. This update sets out the recognized principle of the separability of an arbitration clause from the remaining contract.
Although it adopted the UNCITRAL Model Law in January 2006, with the new Arbitration Law entering into force on July 1 2006 (for further details please see the Overview (March 2006)), the Austrian legislature did not explicitly accept the concept of separability by simply implementing Article 16. In fact, the new Arbitration Law does not deal with this principle in any of its rather detailed provisions. Thus, to a foreign user, the question may arise of whether the concept of separability is accepted by Austrian law and, if so, what exactly is understood by the term 'separability'.
Austrian case law recognizes the principle that the fate of the arbitration clause may differ from that of the remainder of the contract. Whether the arbitration clause embedded in a main contract remains in force generally depends on the basis of the contract's termination. In this respect, the Supreme Court distinguishes the effects of the following incidents on the arbitration clause:
There is a general rule that the validity of an arbitration clause is assessed either by application of the law chosen for this purpose or, lacking a respective choice of law clause, on the basis of the law of the country.
In a dispute regarding the joint termination of a franchise contract and claims related to this termination, the Supreme Court decided against the validity of the arbitration clause incorporated in the franchise contract. Due to the contract's joint termination by the parties, the Supreme Court found that the arbitration clause ceased to exist along with the remaining provisions of the franchise contract.
The arbitration clause provided that "all disputes arising out of or in relation to the present contract and its performance shall be decided by a sole arbitrator, excluding the ordinary courts". In the decision (Supreme Court, June 16 1982, No 1 Ob 628/82), the court reasoned that arbitration clauses may be regarded as subsidiary agreements which, in case of doubt, share the legal fate of the main contract. On this basis the arbitration clause ceases to apply if the contracting parties jointly terminate or rescind the main contract, or if they jointly assume the main contract's invalidity from the outset. In these cases, the Supreme Court held that it is not the scope of the arbitration clause which is to be examined, but rather its continued existence. Under the enumerated circumstances, the arbitration clause incorporated in the main contract may not hold good and shall be ineffective like the remaining contractual provisions.
If, however, the contracting parties, at the time of the joint termination of the contract, specifically declare that the arbitration clause shall remain in force, the arbitration clause can be saved.
In this decision, the Supreme Court further considered the following case. If the initial ineffectiveness (ie, nullity) of the main contract is argued by a party, in case of doubt the arbitration clause shall remain valid for disputes regarding the (unilateral) rescission of the contract, its termination or claims related thereto. This rule was found to apply in the event that the arbitration clause is sufficiently determined and if the formal requirements have been respected (Supreme Court, June 16 1982, No 1 Ob 628/82).
In a dispute about the termination of an association and a partner's related claim for realization of the association's assets, the Supreme Court was concerned with an arbitration clause included in the articles of association. The Supreme Court found that upon the ex nunc termination of the association (ie, a termination taking effect solely as from the date of termination, without retroactive effect), the arbitration clause remained valid.
The arbitration clause stipulated that "the contracting parties, for all disputes arising out of the association, shall submit to an arbitral tribunal".
Examining whether the arbitration clause should remain in force for the adjudication of claims following from the association's termination, the court confirmed that this question is to be resolved by having regard to the scope of the arbitration clause. The Supreme Court considered that the latter should be explored on a case-by-case basis by having recourse to the text of the arbitration clause and its reasonable and favourable interpretation, taking into account the parties' intention at the time they entered into the contract.
In its decision (Supreme Court, April 21 2004, No 9 Ob 39/04g; see also Supreme Court, April 17 1996, No 7 Ob 2097), the Supreme Court concluded that in the event the main contract has initially been valid and disputes arise out of the (unilateral) termination of the main contract, its immediate suspension for material grounds or rescission, an arbitration clause which was meant to cover "all disputes arising out of the contract" shall remain in force for the adjudication of related claims. In cases of doubt, where the parties' intention when entering into the agreement cannot be reasonably decided, the arbitration clause shall be held valid.
The same principle holds true if main contracts, including arbitration clauses, expire as initially foreseen. It also applies if the parties, only after the materialization of the facts which now give rise to a dispute, agree on the termination of the contractual relationship.
Clause remains in force
In all these cases the Supreme Court found that, pursuant to the parties' intention, it should be assumed that an arbitration clause concluded for contractual disputes should remain in force. To the extent disputes may still arise out of the existence or the alleged non-existence of the contract's underlying legal relationship, the parties, as a rule, may still rely on the jurisdiction agreed on for the respective dispute (Supreme Court, April 18 1985, Nos 7 Ob 551/85, 7 Ob 552/85). Thus, an arbitration clause may well be valid beyond the main contract's period of validity.
Under Austrian law, an arbitration clause is clearly distinguished from the provisions of the main agreement. An arbitration clause is not only considered as forming an independent procedural agreement (even if it is subject to certain provisions of substantive law, such as those on the construction of agreements) embedded in the otherwise substantive agreement. Rather, Austrian case law largely mirrors the internationally recognized concept of the arbitration clause surviving the main contract. Given that courts in numerous jurisdictions that acknowledge the principle of separability also doubt the validity of arbitration clauses if the main contract has been held to be invalid from the outset, the Supreme Court's understanding of the concept separability does not appear to be substantially different.
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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