OGH: Arbitration clause binds third parties benefiting from contract

Jun 9, 2021 Benn-Ibler Rechtsanwälte

The Austrian Supreme Court (Oberster Gerichtshof, OGH) has ruled that an arbitration clause in a contract with protective effect in favor of third parties is also binding for the beneficiary third party.

In the present proceedings, the universal successor of a bidding company sued the Republic and the Province of Carinthia for damages arising from the sale of the Federal Government's shares in the Federal Housing Companies (Bundeswohnbaugesellschaften). The plaintiff relies in particular on the breach of a confidentiality agreement between the Province of Carinthia and the bank which carried out the sale on behalf of the Republic. This agreement contained a clause according to which all claims arising from this agreement were to be settled before a court of arbitration of the Chamber of Commerce.

The plaintiff finally brought an action before the Vienna Regional Court (Landesgericht Wien).

In the opinion of the Province of Carinthia, the Vienna Regional Court did not have jurisdiction as to the merits of the case, as the plaintiff was basing its claims on the agreement (a contract with protective effect in favor of third parties) and was therefore also bound by the arbitration agreement.

While the court of first instance rejected the pleas in their entirety, the court of appeal dismissed the action for lack of jurisdiction. The OGH confirmed this:

So far, case law had already clarified that an arbitration agreement in a genuine contract in favor of third parties also binds the beneficiary third party. He must accept the right granted to him with all its contractual characteristics. According to the Supreme Court, the same applies to a mere contract with protective effect in favor of third parties.

This is because the third party takes over a right that was created without his intervention, as agreed by the contracting parties. He cannot, on the one hand, accept the granting of rights and, on the other hand, reject the arbitration clause. Moreover, an arbitration clause does not worsen the legal position of the third party, as it is still open to him to assert a tort claim for damages. The contract with protective effect in favor of third parties only extends the legal position.

OGH 4 Ob 36/21d (20.04.2021)