1. Introduction
While shareholder disputes are generally arbitrable under Austrian law, this is currently severely limited by Section 617 of the Austrian Code of Civil Procedure (“ACCP”).[1] The existing provision, Sec 617 ACCP[2] stipulates a very high threshold as to the validity of arbitration clauses concerning consumers. These restrictions—without exception—also apply to shareholders if they are considered consumers under Austrian law (“Consumer-Shareholders”).[3] The broad definition of “consumer” has, in practice, rendered arbitration with a seat in Austria in the area of corporate law nearly impossible. As one scholar has succinctly put it, arbitration involving shareholder disputes is “practically dead” when a Shareholder-Consumer is involved.[4]
To address this issue, a recent law proposal, identified as 3826/A[5] (“Draft Legislation”), has been under discussion in Austrian arbitration law. This paper aims to analyze how the Draft Legislation seeks to resolve the challenges posed by the current legal framework.
The Draft Legislation also includes an amendment concerning the special power of attorney required for the conclusion of arbitration clauses. This issue—while significant for the validity of arbitration clauses under Austrian law—is not the primary focus of this paper.
2. Current Framework of Sec 617 ACCP
The ACCP imposes significant restrictions on the validity of arbitration agreements involving consumers. Pursuant to Sec 617 of the ACCP, which is mandatory,[6] additional conditions must be met for an arbitration agreement to be valid when a consumer is involved. These conditions include: (i) the arbitration agreement must be concluded after the dispute has arisen (para 1); (ii) arbitration agreements cannot be embedded within other documents and must instead be executed as standalone contracts (para 2); and (iii) written information must be provided to the consumers outlining the key differences between proceedings in state courts and arbitral tribunals prior to consenting to arbitration (para 3).
It is important to point out that Sec 617 ACCP applies to all arbitration proceedings seated in Austria and, therefore, also applies if only foreign parties are involved.[7] The restrictive nature of Sec 617 ACCP is quite unique as the provision has no parallel provision in the UNCITRAL-Model Law,[8] and as far as can be determined, stands out for its particularly extensive restrictions in comparison to other European jurisdictions.[9] The Austrian legislator justified the imposition of these strict requirements by emphasizing that, unlike Austrian arbitration law, the UNCITRAL-Model Law is designed exclusively for commercial disputes. As a result, the legislator deemed it necessary to ensure that mandatory rights, such as those of consumers, are not undermined through arbitral proceedings.[10]
3. Obstacles to Arbitration Concerning Corporate Disputes under Sec 617 ACCP
In general, the strict requirements regarding the validity of arbitration agreements with consumers are not subject to critique in this analysis. However, the current wording of Sec 617 ACCP remains highly problematic, as discussed below.
The Austrian Supreme Court has held that the restrictions set out in Sec 617 ACCP fully apply to shareholders if they are deemed consumers pursuant to the Austrian Consumer Protection Act (“ACA”).[11] According to the Austrian Supreme Court, the determination of whether a shareholder qualifies as a consumer is based on an economically-oriented perspective, with the most significant factor being the extent of the shareholder’s influence on the company’s management.[12] While some case law provides guidance on this assessment,[13] a high degree of legal uncertainty persists, as the evaluation largely depends on the specific circumstances of each case.[14] These circumstances—typical in corporate law—are subject to change, for instance, due to alterations in the composition of the corporate structure, shifts in shareholdings, or fluctuations in the value of shares.
In addition to the ambiguity about whether a shareholder meets the criteria of a Consumer-Shareholder, it is clear that the strict requirements outlined in Sec 617 ACCP are so cumbersome that arbitral proceedings involving Consumer-Shareholders based in Austria are, in reality, almost impossible, rendering such proceedings uncommon, if not entirely non-existent.[15] The current provision of Sec 617 ACCP leads, e.g., to(i) uncertainty regarding the validity of arbitration agreements, (ii) potential jurisdictional conflicts between state courts and arbitral tribunals, and (iii) ultimately limiting Consumer-Shareholder access to arbitration.
Among all the restrictions set forth in Sec 617 ACCP, the most adverse for arbitration of shareholder disputes is para 1 leg cit, which stipulates that arbitration agreements involving Consumer-Shareholders can only be validly concluded after a dispute has arisen.[16] This provision renders agreements to arbitrate future disputes—which are a cornerstone of typical arbitration clauses in shareholder agreements— invalid. The practical challenge of this restriction is evident: in the event of a dispute, it is highly unlikely that all shareholders—often numerous—would be able to reach a consensus on any issue, let alone agree to arbitration instead of litigation.[17] This inherent impracticality emphasizes the significant constraints set by existing regulations, resulting in arbitration with Consumer-Shareholders rarely occurring in practice.[18]
Further, as noted above, para 2 leg cit stipulates that the arbitration agreement must be contained in a separate contract, encompassing only the arbitration agreement itself.[19] This requirement is not only impractical but also highly problematic due to its unilateral effect. An arbitration clause must have omnilateral effect, meaning it should be valid for all shareholders and, therefore, should logically be included in the articles of association rather than in a standalone agreement.[20]
Consequently, when a Consumer-Shareholder is involved in a shareholder dispute, the arbitration agreement is often found to be invalid because the restrictions imposed by paras 1 and 2 leg cit are not met. This creates a risk of split jurisdiction between state courts and arbitral tribunals because the Consumer-Shareholder, not being bound by the arbitration agreement, can only seek remedies in state courts. At the same time, the other shareholders remain bound by the arbitration agreement and, pursuant to Section 584 ACCP, are precluded from initiating proceedings in state courts.[21] This results in a deadlock situation of split jurisdiction. Such a scenario is particularly problematic in challenges to shareholder resolutions, as these challenges are intended to have effect on all shareholders.[22]
Moreover, the restrictions imposed by Sec 617 ACCP negatively impact Austria’s attractiveness as a seat of arbitration.[23] Legal advisors and contract drafters often recommend against choosing Austria as the place of arbitration, primarily due to the overarching and restrictive effect of Sec 617 ACCP. [24] This result clearly contrasts with the purpose of the 2013 amendment to Austria’s arbitration law, which sought to strengthen Austria’s standing as a competitive arbitration hub.[25]
4. Comparative Analysis of Corporate Disputes Involving Consumers in Neighboring Jurisdictions
A comparison with neighboring countries highlights the need to exclude Consumer-Shareholders from the strict restrictions of Sec 617 ACCP. Liechtenstein has already sought to capitalize on Austria’s stringent regime of Sec 617 ACCP. Liechtenstein, which had initially modeled its arbitration law on the Austrian one, recognized the detrimental effects of a provision analogous to Section 617 ACCP—Sec 634 of the Liechtenstein Code of Civil Procedure (“LCCP”).[26] In response, Liechtenstein amended its law to exclude corporate disputes from Sec 634 LCCP. Liechtenstein justified this amendment, amongst others, with the expectation that parties would increasingly select Liechtenstein over Austria as the seat of arbitration to avoid the limitations imposed by Austrian arbitration law on company-related disputes.[27]
Similarly, Germany’s Sec 1031 para 5 of the German Code of Civil Procedure, allows exceptions for notarized arbitration clauses in company agreements,[28] while Switzerland imposes no special restrictions on arbitration agreements involving consumers, proving consumer protection can be ensured without overly stringent limitations.[29]
5. Draft Legislation: Proposed Exception Clause
To address these challenges, scholars pleaded for a purpose-based reduction (teleologische Reduktion) of Sec 617 ACCP, excluding corporate disputes from its scope.[30] However, the Austrian Supreme Court had already clearly rejected this approach by holding that a purpose-based reduction of Sec 617 ACCP is not permitted.[31]
In light of this, legislative amendment is required. The proposed Draft Legislation introduces an exemption clause aimed at excluding corporate disputes from the restrictive provisions of Sec 617 ACCP. Specifically, the Draft Legislation proposes the addition of two new paragraphs—paras 12 and 13—to Sec 617 ACCP. Para 12 stipulates that Sec 617 ACCP does not apply to disputes arising from a corporate relationship and concerning the acquisition of shares in a company that is not a public company (Publikumsgesellschaft). Para 13 further clarifies the definition of a Publikumsgesellschaft, which is defined as a company whose shares have been offered in an offer requiring a prospectus in accordance with the Austrian Capital Market Act or the Austrian Alternative Financing Act.[32]
6. Status Quo of the Legislative Process
The Draft Legislation was debated by the Austrian Justice Committee (Justizausschuss) but was postponed in May 2024.[33] The Austrian parliamentary elections in fall 2024 brought the legislative process to a premature end. Under Austria’s discontinuity principle, all legislative proposals that have not been passed and are still under committee consideration at the end of a legislative period are not carried over into the next term.[34] However, this does not mark the definitive end of the Draft Legislation. In Austrian parliamentary practice, it is customary (parlamentarischer Usus) to reintroduce draft laws that remain relevant and up-to-date in subsequent sessions. This clearly applies in this case, making it highly likely that the draft will be reintroduced.
7. Analysis of the Draft Legislation
The Draft Legislation aims to facilitate arbitration for natural persons participating in corporations or acquiring shares while safeguarding consumer protection. In the author’s view, this balance is effectively achieved. The exemption of corporate disputes from the restrictions of Sec 617 ACCP creates a practical solution for resolving corporate disputes by arbitration while maintaining a high standard of consumer protection. Specifically, counter-exemption of public companies (Publikumsgesellschaft) ensures that consumers, particularly those acquiring shares for non-commercial purposes like savings or pensions, retain the right to resolve disputes through state courts, in line with consumer protection principles.
Additionally, consumer protection provisions such as Sec 6 para 2 lit 7 ACA remain unaffected by the Draft Legislation. This provision stipulates that arbitration clauses involving consumers must be individually negotiated and cannot be included in standard terms and conditions or standard contract forms.[35]
Further, exempting corporate disputes from Sec 617 ACCP eliminates potential jurisdictional conflicts between state courts and arbitral tribunals.
In conclusion, the proposed Draft Legislation provides for an elegant, straightforward, and arbitration-friendly solution to resolve the overarching effect of Sec 617 ACCP on corporate disputes. The Draft Legislation strengthens Austria’s position as an arbitration hub, aligning with the founding objectives of Austrian arbitration law.[36]
8. Conclusion
To summarize, the Draft Legislation represents a significant step toward modernizing Austrian arbitration law by carefully balancing the need for consumer protection with the efficiency demands of commercial arbitration. While the hopes of scholars and practitioners for the approval of the Draft Legislation in the last legislative period have been disappointed,[37] it is crucial that its importance is recognized in the new legislative period and that it is finally enacted.
In any case, it would be not only in the interests of legal certainty and clarity but also in the strengthening of Austria as a competitive arbitration hub.
***
Franziska Hauser is an Austrian lawyer pursuing her LL.M. at NYU. Before coming to New York, she worked as a senior associate in the arbitration department of a leading Austrian law firm, excelled in the Willem C. Vis International Moot Court—winning awards such as the Werner Melis Award—and passed the Austrian Bar Exam in 2023.
[1] See legal principle RS0045318, Austrian Supreme Court; Austrian Supreme Court, 16.12.2013, 6 Ob 43/13m.
[2] Sec 617 ACCP, available here (retrieved on 1.12.2024).
[3] Legal principle RS0129263, Austrian Supreme Court.
[4] Reiner, Schiedsverfahren und Gesellschaftsrecht, GesRZ 2007, 151, 168.
[5] 3826/A, 31.1.2024 (Draft of a federal law amending the ACCP, XXVII. GP), available at: https://www.parlament.gv.at/dokument/XXVII/A/3826/imfname_1607376.pdf (retrieved on 23.11.2024).
[6] Plavec in Kodek/Oberhammer, ZPO-ON § 617 ZPO para 1.
[7] Plavec in Kodek/Oberhammer, § 617 ZPO para 5.
[8] Nueber, Schiedsvereinbarungen mit Verbrauchern im GmbH-Recht, Zak 2010/70, 48; UNCITAL-Model Law, available at: https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-09955_e_ebook.pdf (retrieved on 26.11.2024).
[9] Plavec in Kodek/Oberhammer, § 617 ZPO para 2; Position Paper of VIAC, p 2, available at: https://www.parlament.gv.at/PtWeb/api/s3serv/file/0f9f818c-969c-42c4-ae9b-657c07bd8f51 (retrieved on 26.11.2024).
[10] Explanatory Notes (ErläutRV) 1158Annex to the National Council XXII GP, p 22, available at: https://www.parlament.gv.at/dokument/XXII/I/1158/fname_050764.pdf (retrieved on 26.11.2024).
[11] Austrian Supreme Court, 6 Ob 43/13m, para 6.1; Plavec in Kodek/Oberhammer, § 617 ZPO para 4.
[12] Austrian Supreme Court, 28.2.2018, 6 Ob 14/18d; Deixler-Hübner/Schauer, Schiedsgerichtsbarkeit: Reform in der 27. Gesetzgebungsperiode? ecolex 2020, 109, 111.
[13] See Austrian Supreme Court, 6 Ob 43/13m; Austrian Supreme Court, 6 Ob 14/18d.
[14] Legal principle RS0065238, T12, Austrian Supreme Court.
[15] Plavec in Kodek/Oberhammer, § 617 ZPO para 15; Czernich, Schiedsgerichtsbarkeit bei Gesellschafterstreitigkeiten unter Verbraucherbeteiligung: Gesetzesvorschlag zur Problemlösung, NZ 2021/182, 651.
[16] See also Reiner, GesRZ 2007, 168.
[17] See also Schifferl/Kraus, § 617 ZPO und Schiedsklauseln in Gesellschaftsverträgen, GesRz 2011, 341; Czernich, NZ 2021/182, 651.
[18] See also Hausmaninger in Fasching/Konecny3 IV/2 § 617 ZPO para 25.
[19] For further details, see infra Section 4.
[20] Czernich, NZ 2021/182, 651.
[21] See also id.
[22] Id.
[23] Austrian Supreme Court, 6 Ob 43/13m; VIAC Position Paper; Position Paper of ICC, available at: https://www.parlament.gv.at/gegenstand/XXVII/SN/277190/ (retrieved on 26.11.2024); Position Paper of Austrian Chamber of Notaries, available at: https://www.parlament.gv.at/PtWeb/api/s3serv/file/e38270ce-822c-4257-be82-407d42a95dd (retrieved on 26.11.2024).
[24] ICC Position Paper.
[25] Explanatory Notes (ErläutRV) 3222 Annex to the National Council XXIV GP, p 1, available at: https://www.parlament.gv.at/dokument/XXIV/I/2322/fname_303831.pdf (retrieved on 18.11.2024).
[26] BuA Liechtenstein 163/2016, p 7, available at: https://bua.regierung.li/BuA/default.aspx?nr=163&year=2016&erweitert=true (retrieved on 25.11.2024).
[27] Id, p 47.
[28] Münch in MünchKomm ZPO6, § 1031 Rz 68; Hausmaninger in Fasching/Konecny³, § 617 ZPO paras 15 et seqq.
[29] See Art. 353 et seqq. Swiss Code of Civil Procedure (SR 272); Art. 176 et seqq. Swiss Federal Act on Private International Law (SR 291); Hausmaninger in Fasching/Konecny³, § 617 ZPO para 16.
[30] See Öhlberger, Sind Schiedsklauseln in GmbH-Gesellschaftsverträgen noch möglich? ecolex 2008, 51; Terlitza/Weber, Zur Schiedsfähigkeit gesellschaftsrechtlicher Streitigkeiten nach dem SchiedsRÄG 2006, ÖJZ 2008, 1; Schifferl/Kraus, GesRZ 2011, 341; Trenker/Demetz, Schiedsfähigkeit von Beschlussmängeln in der GmbH, wbl 2013, 1; Nueber, Zak 2010, 48.
[31] Austrian Supreme Court, 6 Ob 43/13m, para 5.5.
[32] 3826/A, 31.1.2024.
[33] https://www.parlament.gv.at/gegenstand/XXVII/A/3826?selectedStage=100 (retrieved on 23.11.2024).
[34] Exceptions are in place for popular initiatives and citizens’ initiatives, see Art 28 (4) Federal Constitutional Act, English translation available at: https://www.ris.bka.gv.at/Dokumente/Erv/ERV_1930_1/ERV_1930_1.pdf (retrieved on 2.12.2024).
[35] Apathy/Frössel in Schwimann/Kodek (ed.), ABGB Praxiskommentar5 (2021) § 6 KSchG para 83.
[36] See Explanatory Notes 3222, XXIV GP, p 1.
[37] See Deixler-Hübner/Schauer, ecolex 2020, 111.