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08 September 2005
The Supreme Court recently ruled (January 26 2005, 3 Ob 221/04b) on the enforceability of an arbitral award that had been rendered in Serbia and Montenegro in order to resolve a dispute arising from a purchase contract. The award ordered the Austrian buyer to pay the Serbian vendor the remaining purchase price along with interest amounting to an annual percentage rate of 107.35 %. The vendor, its assignee respectively, sought to enforce the award in Austria.
The Supreme Court held that, in the event of there being several relevant enforcement treaties that do not derogate from each other and exist in parallel, the creditor may invoke any of these treaties to support enforcement of the award. The court held that the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention), the European Convention on International Commercial Arbitration 1961 (the European Convention) and the bilateral enforcement treaty signed between Austria and Serbia and Montenegro (Federal Law Gazette 115/1961) all co-exist, and it considered them all in this case. However, the court made it clear that, in line with previous case law, the debtor may avoid enforcement only if the grounds for refusal are given on the basis of each co-existing enforcement treaty.
Applying this principle, the Supreme Court granted enforcement of the part of the arbitral award regarding the payment of the remaining purchase price on the basis of the European Convention. It stated that:
Therefore, objections to the jurisdiction of the arbitral tribunal may not be invoked at the enforcement stage if the debtor was able to participate in the arbitration proceedings and his or her right to be heard was preserved. Although the New York Convention and the bilateral enforcement treaty generally allow arguments that an arbitration clause is non-binding, even at the enforcement stage of proceedings, this could not prevent enforcement in the present case.
"entering the merits of the dispute without having previously objected to the validity of the arbitration clause cures the defective arbitration clause in accordance with Article V(1) and (2) of the European Convention."
Examining the debtor's further argument to resist enforcement, the Supreme Court held that the mere suggestion of false witness in arbitration proceedings does not constitute a reason to refuse enforcement on the basis of public policy pursuant to Article V(2)(b) of the New York Convention and Article 2(e) of the bilateral enforcement treaty. The Supreme Court justified this approach by explaining that otherwise, enforcement proceedings for arbitral awards could lead to inadmissible verification of the arbitral tribunal's consideration of evidence and would violate the prohibition of revision au fond (revision of the merits of the case).
Regarding the interest awarded, the Supreme Court held that an interest rate of more than 100% per year not only is contrary to good morals but also conflicts with public order, which hinders the enforcement of the arbitral award to the extent that such interest is concerned.
For further information on this topic please contact Gerold Zeiler and 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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