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22 March 2007
In 1997 T Ltd and A GmbH (a limited liability company under Austrian law) concluded a consortium agreement for the development and construction of a power plant. In the agreement the parties included an arbitration clause pertaining to dispute resolution, determining the place of arbitration to be in Switzerland.
Subsequently, A GmbH transferred the assets relevant to the consortium agreement to AE GmbH. The underlying spin-off and asset transfer came into effect through its entry in the Commercial Register at the beginning of 1999. Furthermore, in 2005 T Ltd assigned its claims under the consortium agreement to T GmbH.
T GmbH claimed payment from A GmbH for T Ltd's performance of work orders under the consortium agreement, arguing that A GmbH was liable as the transferring company of the spin-off on the basis of a spin-off provision regulating the protection of creditors. This provision, Section 15(1) of the Spin-Off Act, provides that, to a certain extent, the companies participating in the spin-off are jointly and severally liable for obligations of the transferring company created prior to entry of the spin-off.
Notwithstanding the arbitration clause incorporated in the consortium agreement, T GmbH sued A GmbH for payment before the Austrian state courts. It alleged that from the spin-off and transfer of the relevant assets in 1999, A GmbH was no longer a party to the consortium agreement. Given that the arbitration clause extended only to contractual claims in connection with the consortium agreement, T GmbH argued that an arbitral tribunal established on the basis of the respective arbitration clause would not have jurisdiction in this matter. In T GmbH's view, Section 15 of the act allowed a statutory damage claim to which the arbitration clause did not apply.
A GmbH objected to the state court's jurisdiction on the grounds that the arbitration clause covers all disputes in relation to the consortium agreement - not only claims arising directly from the consortium agreement, but also claims linked to the consortium agreement. A GmbH argued that the work orders that were the subject of the dispute were rooted in the consortium agreement and, therefore, were sufficiently linked to it. Furthermore, it argued that Section 15 of the act did not establish a statutory damages claim, but rather preserved A GmbH's general position as debtor at the time of the spin-off, to the extent that obligations had been created before the spin-off. A GmbH argued that arbitration had been agreed upon for precisely such claims.
The first instance court followed A GmbH's position and rejected T GmbH's complaint, declaring that it had no jurisdiction to hear the dispute because of the arbitration clause. In its reasoning, the court held that on the one hand T GmbH, as the singular successor upon assignment by T Ltd, was bound by the arbitration clause in the consortium agreement. However, it held that liability on the basis of Section 15 of the act constituted primary joint and several liability of the companies participating in the spin-off, but did not form the basis for a statutory damage claim. To resolve the question of whether A GmbH was bound by the arbitration clause following the spin-off, the first-instance court applied the principle that in case of collateral assumption of an obligation, both the original and the new debtor are bound by the arbitration clause.
T GmbH appealed the first-instance decision, alleging that: (i) the arbitration clause provided only for an alternative jurisdiction, which need not be followed; and (ii) A GmbH, as the transferring company in the spin-off, was no longer bound by the arbitration clause as the relevant assets had been transferred to AE GmbH.
In its appellate decision the Higher Regional Court of Vienna held that an arbitration agreement is a procedural contract for whose interpretation procedural law is to be consulted in the first instance. This view, however, further allows the consideration of both the parties' joint intentions when concluding the arbitration agreement and the principles of fair dealing. On this basis, the use of the word 'shall' (ie, "disputes shall be resolved by arbitration") in the arbitration clause was not intended to indicate an alternative jurisdiction but, in this context, should be interpreted as an imperative reference to resort to arbitration. In addition, the Supreme Court had previously held that, in case of doubt, an arbitration agreement does not create only an alternative jurisdiction (Case 3 Ob 609/89). Referring to this decision, the court reasoned that if the parties had intended to agree on arbitration as an alternative jurisdiction, they would have had to do so in a way that excluded any doubt as to this intent.
The court observed that the assets relevant to the payment claimed had been transferred by way of spin-off to AE GmbH as the respective partial universal successor. However, concerning the grounds of liability invoked by T GmbH, the court saw Section 15 simply as a collateral assumption of liability for the sake of creditors' protection. In the eyes of the court this assumption did not change the quality, continuity or legal nature of the obligations that had been transferred to AE GmbH. Therefore, T GmbH's claims directed against A GmbH on the basis of Section 15 were held to be not statutory damage claims, but rather simple claims for contractual performance.
Considering the possible future treatment of T GmbH's claims by a Swiss arbitral tribunal, the court found that A GmbH would be unable to free itself from liability under the act. Pursuant to the Act on Private International Law, a spin-off by a company having its seat in Austria (as in the case at hand) and its consequences are to be judged on the basis of the act alone, even though the arbitral tribunal would be sitting in Switzerland. Confirming the validity of the arbitration clause with respect to A GmbH, the court gave credit to the fact that A GmbH was the initial contractual partner of T GmbH, although the respective legal relationship had been transferred to another company as partial universal successor by spin-off.
Comparing the facts of this case to third-party beneficiaries and their ties to arbitration clauses concluded between the main parties to the contract, the court found that the debtor's right to rely on an arbitration clause towards a third-party beneficiary that makes direct contractual demands on the debtor (Case SZ 68/112 of June 13 1995) may be used as a model for the present case, thereby confirming A GmbH's objection to state court jurisdiction as valid.
The court concluded by stating that any other resolution of the present case would lead to the uneconomical result that, on the one hand, claims against the company taking over would have to be asserted before an arbitral tribunal and, on the other hand, identical claims against further companies participating in the spin-off that were jointly and severally liable pursuant to Section 15 would have to be brought before the state courts.
Since no Supreme Court precedent yet exists on the legal implications involved in this matter, the court permitted an ordinary appeal to the Supreme Court based on questions of law. However, T GmbH did not lodge an appeal and the court's judgment became final.
The Higher Regional Court of Vienna's introductory remarks on the nature and interpretation of arbitration clauses reflect longstanding Austrian case law. Case law since 1936 confirms the assignee's ties to an arbitration clause that had originally been entered into by the assignor. If this principle is not respected, debtors risk incurring impairment in relation to jurisdiction. However, impairment with regard to the assigned claims is prohibited by the Law of Obligations. Under Austrian law, an arbitration clause thus remains valid for the singular (as well as for the universal) successor. In relation to the assumption of debts, the courts have already held that the party taking over shall accept the existing legal position and the contractual arrangements made for its enforcement.
However, the facts underlying the Vienna court's judgment are not in line with those in previous decisons. The dispute relating to a spin-off, along with the related asset transfer and liability of the transferring party for obligations created prior to the spin-off taking effect, was resolved in favour of arbitration. Even upon spin-off, the transferring party must still respect an arbitration clause. As far as liabilities are involved that were created prior to a spin-off, the parties may not get rid of an arbitration clause to which they have previously consented, even though the business relevant to the asserted claim has since been transferred to another company.
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 (firstname.lastname@example.org or email@example.com).
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