14
Thu, Dec
44 New Articles

Invalidity of an Arbitration Agreement Due to a Possible Violation of the EU Directive on Self-Employed Commercial Agents

Invalidity of an Arbitration Agreement Due to a Possible Violation of the EU Directive on Self-Employed Commercial Agents

Austria
Typography

The Parties’ Positions

In state court proceedings, Claimant requested indemnity pursuant to Section 24 of the Austrian Commercial Agents Act, basing the Austrian court’s jurisdiction on Section 99 of the Law on Court Jurisdiction, pursuant to which a person who does not have a forum generale in Austria may nevertheless be sued in Austrian courts if he or she has assets within the district of an Austrian court. Claimant argued that Respondent had assets in Austria as it had an outstanding claim against it.

Respondent objected to the Austrian court’s jurisdiction, arguing that it was not competent at all and that the Parties had agreed on arbitration; and that arbitration had already been initiated by Respondent against Claimant before a tribunal in New York. This arbitral tribunal had rendered a partial award, turning the matter into res judicata. With regard to Section 99 of the Law on Court Jurisdiction, Respondent argued that the outstanding claim on which Claimant based the Austrian court’s jurisdiction had been extinguished due to Claimant’s set-off declaration in the arbitration.

The Supreme Court’s Decision

The lower courts rejected the claim for lack of jurisdiction. The Supreme Court overturned those decisions in March 2017 for the following reasons:

First, the Supreme Court stated with regard to Section 99 of the Law on Court Jurisdiction that the value of assets on which jurisdiction is based has to reach at least 20% of the amount in dispute, and that an outstanding claim may be included in the calculation of assets. To determine whether the outstanding claim of Respondent against Claimant had been extinguished by means of a set-off declaration in the arbitration, the Supreme Court first clarified relevant conflict of law questions. It ruled that the procedural admissibility and the procedural effects of a set-off declaration are determined by the law applicable to the arbitral proceedings, which, pursuant to Article V (1) lit d New York Convention, primarily follows the parties’ choice. The prerequisites and the substantive effects of a set-off declaration are determined by the law applicable to the merits of the dispute. In the matter before it, the Supreme Court concluded that New York law was applicable to both of those aspects. As under New York law Respondent’s claim against Claimant could not have been extinguished by Claimant alleging claims against Respondent in the arbitration, Claimant could therefore rely on Section 99 of the Law on Court Jurisdiction.

Second, the Supreme Court dealt with Respondent’s objections related to the Agency Agreement’s arbitration clause. Pursuant to Article II (3) of the New York Convention, a court must refer parties to arbitration if the matter is subject to an arbitration agreement unless the arbitration agreement is null and void, inoperative, or incapable of being performed. A court may fully review the validity and effectiveness of an arbitration agreement and is not limited to a prima facie review. The corresponding Austrian law provision (Section 584 (1) second sentence of the Austrian Code of Civil Procedure) orders that a claim may not be rejected if, inter alia, the court finds that the alleged arbitration agreement is ineffective. An arbitration agreement may be considered ineffective if the parties’ intention was to exclude the application of mandatory procedural or substantive provisions.

Third, the Supreme Court referred to the European Court of Justice’s (ECJ) case law according to which apparent violations against fundamental EU law provisions constitute an ordre public violation. The ECJ in Ingmar ruled that the EU Directive on self-employed commercial agents (which is implemented by the Austrian Commercial Agents Act) is applicable irrespective of the parties’ choice of law if the underlying facts have a strong EU connection. It is generally understood that the ECJ classifies claims of a commercial agent as provisions with an internationally mandatory character. Such provisions cannot be derogated by party agreement and are applicable even if the conflict of law rules refer to some other national law. Also the German Federal Court held that the provisions on indemnity for commercial agents cannot be overruled by a party agreement in a jurisdiction served by courts which do not respect those provisions.

Based on its findings, the Supreme Court held that Claimant had a mandatory claim for indemnity which would not be recognized due to the Parties’ agreement on arbitration and the application of substantive New York law. Thus, the Supreme Court declared the arbitration agreement ineffective and admitted Claimant’s claim before Austrian courts.

By Filip Boras, Partner, and Alexander Zollner, Junior Associate, Baker McKenzie Austria

This Article was originally published in Issue 4.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Our Latest Issue