Frequently, a claimant may be well advised to ensure the eventual enforceability of an award he hopes will be rendered in his favour already in the course of, or even before, initiating arbitral proceedings.
For this purpose, a claimant will primarily consider obtaining an interim measure freezing the respondent's assets. Especially when raising claims against multinational corporations the claimant will detect such assets in various jurisdictions – some apparently more attractive in this respect than others.
Under Austrian law, a claimant in a pending or upcoming arbitration can request interim measures from state courts or, alternatively, from the arbitral tribunal.1
Whenever Austrian state courts are called upon to grant interim measures to secure the enforceability of an upcoming arbitral award, their jurisdiction will be based on section 387(2) Austrian Enforcement Act (EA). Accordingly, the court in whose jurisdictions the respondent is domiciled or has its seat will have jurisdiction to issue interim measures. If the respondent happens to be neither seated nor domiciled in Austria, in particular the location of the asset to be frozen will be determinative.
The EA provides for the issue of preliminary measures to secure the enforceability of monetary claims in two cases, presupposing either a subjective or an objective threat to the prospective enforcement.
First, interim measures may be granted if it is probable that without the requested measure respondent would impede or considerably exacerbate the enforcement of a monetary claim2 e.g. by damaging, destroying or relocating assets etc. In practice, establishing that the respondent is likely to take specific acts to impede the enforcement of the award is difficult.
Consequently, applicants will likely base their application (also) on section 379(2)(2), according to which preliminary measures may be granted if a judgment would have to be enforced in a state in which Regulation 44/20013 does not apply or which is not a party to the Lugano Convention of 1988, if it were not for the interim measure which would ensure the enforceability against assets located in Austria. Here, the applicant must only make a credible case that the respondent will have no assets on Austrian territory by the time the award can be enforced, not that the respondent will take actions by which assets will be removed from Austrian territory.
The rationale of this provision is to protect applicant from having to enforce a judgment outside Austria which the Austrian legislator considers more burdensome than enforcement in Austria.
Application to awards rendered outside of Austria
The wording of section 379(2)(2) EA suggests that an applicant may apply for an interim measure to ensure the enforcement also of an arbitral award rendered outside of Austria. The Austrian Supreme Court has, however, in a consistent line of jurisprudence, held that section 379(2)(2) EA is limited to situations in which an award will be rendered in Austria.4 The court has reasoned that the Austrian legislator intended to protect only applicants who would have to enforce their awards outside Austria but for the requested interim measure. Consequently, section 379(2)(2) EA was accordingly not intended to protect applicants who would have to enforce their award abroad in any event because it was rendered outside Austria.
This reasoning of the Supreme Court may be convincing in a constellation in which an award rendered abroad can be enforced in the same country in which it was rendered. This is also the only constellation which has been addressed be the Supreme Court so far. In arbitral practice, however, parties invariably will have chosen the seat of arbitration in a neutral country with which neither of the parties will have any affiliation and in which they do not have any assets against which the award could be enforced. This constellation has not been addresses explicitly be the Supreme Court as of yet.
In this case, the applicant will have to enforce the award in a state other than the one in which it was rendered in any event. Despite the wording of the Supreme Court's jurisprudence, there is no reason why section 379(2)(2) EA should not be invoked to relieve an applicant from the burden of having to enforce an award in a country in which the enforcement procedures are far more cumbersome than in Austria. Due to broad reception of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards,5 which largely levels the legal requirements for the enforcement of foreign awards in its member states, the criteria for assessing the increased burden are not legal barriers to the enforcement but practical ones. It is notorious that the enforcement of awards in many states can be factually more burdensome than in Austria. This is due, eg, to the preferential treatment of nationals against whom an award is to be enforced, the length of time and complexity of the enforcement proceedings and, more generally, the poor state of the administration of justice.
In light of such prospects, the enforcement against assets located in Austria may seem advantageous. It is therefore arguable that in cases in which the applicant can establish that he faces a more cumbersome enforcement of a foreign award in a third state than in Austria, section 379(2)(2) EA can be invoked as a basis for granting an interim measure by an Austrian court.
1. Sections 585 and 593 of the Austrian Act on Civil Procedure.
2. Section 379(2)(1) EA.
3. EC-Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters.
4. Most recently in its judgment of 27 January 2010, docket no 7 Ob 255/09i.
5. The New York Convention currently has 145 state parties, www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html .
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.