I SIGNIFICANT RECENT CASES
The following noteworthy cases have recently been dealt with by the Austrian courts.
i Decision of the Austrian Constitutional Court upholding haircut on creditors of the nationalised bank, HETA Asset Resolution AG, secured by a provincial guarantee
In March 2018, the Austrian Constitutional Court confirmed a federal legislative act (Section 2(a) of the Financial Market Stability Act),2 which had laid the ground for a general settlement offer proposed to the holders of outstanding claims against the former Hypo Alpe Adria banking group in autumn 2016 totalling claims of approximately €11 billion. The bank was subsequently nationalised under the name of HETA Asset Resolution AG (HETA) and is currently being liquidated under the bank recovery and resolution directive regime.3 The claims were secured by a statutory guarantee of the Austrian province of Carinthia and reached levels that were claimed by many politicians as endangering the economic survival of the province. The settlement offer was widely accepted by the creditors given the uncertainties of litigation against HETA and the province of Carinthia. Several holdout creditors challenged the underlying act before the Austrian Constitutional Court based on several breaches of the fundamental right to property and non-discrimination.4 However, the Constitutional Court confirmed the act thus providing backing to the proponents of the haircut. Currently, several civil lawsuits filed by holdout creditors are pending.
ii Notifications to customers via e-banking: decision of the European Court of Justice of 25 January 20175 and of the Austrian Supreme Court of 28 September 20176
In this case, the Austrian Consumer Association (VKI) filed a representative action against an Austrian bank concerning a clause in the bank’s general terms regarding notifications to customers via e-banking.
The respective section in the credit institution’s standard general terms set forth that notices and statements (in particular account information, account statements, credit card statements and notices of changes) that the bank has to transmit to its customers or make available to them shall, where a customer has agreed to e-banking, be received by him or her by post, electronically (by making them retrievable) or transmitting them by means of e-banking.
Subsequently, the Supreme Court had to set up criteria under which notifications via e-banking may be considered as communicated on a ‘durable medium’.7 As in the Supreme Court’s view, this was a question of interpretation of Article 41, Paragraph 1 and Article 44, Paragraph 1 of Directive 2007/64/EC on payment services in the internal market.8 The Court presented the case to the European Court of Justice (ECJ) for a preliminary ruling.
The ECJ ruled that two conditions have to be met in order to fulfil the required standards:
- the (e-banking) website has to allow the user to store information addressed to him or her personally in such a way that he or she may access it and reproduce it unchanged for an adequate period, without any unilateral modification of its content by that service provider or by another professional being possible; and
- if the payment service user is obliged to consult that website in order to become aware of that information, the transmission of that information is accompanied by active behaviour on the part of the provider aimed at drawing the user’s attention to the existence and availability of the information on the website.
In summary, if a credit institution wants to transmit information via e-banking, the bank has to make sure that the information transmitted is made available at any time for a reasonable period of time. Further, the bank has to draw the customer’s attention to the existence and availability of the information on the website, otherwise it may not rely on the information afterwards. In other words, the bank must actively inform the customer that there is information deposited in the e-banking system. On 28 September 2017, the Supreme Court eventually rendered its decision. Based on the preliminary ruling by the ECJ, the litigious clause was found impermissible.
iii Negative interest: decision of the Supreme Court of 21 March 20179
This decision was triggered by way of a representative action for injunctive relief filed by the VKI against an Austrian bank. The credit institution had entered into foreign currency loan agreements – in this case Swiss francs – with consumers. The interest rate consisted of a fixed rate and a variable interest rate that was linked to the London Interbank Offered Rate (LIBOR). In 2014, the Swiss franc LIBOR rate became negative. This posed the risk that the total interest rate due (including the agreed fixed rate) would become negative. Consequently, the Austrian bank announced that it would freeze the interest rate at zero per cent in that scenario. The bank, however, did not intend to pay negative interest to its customers.
In its decision the Supreme Court set forth that loan agreements by their nature are agreements in return of payment. A loan agreement is a contract in which a bank arranges to lend a customer a certain amount of money for a specified amount of time. In return the customer must pay a certain interest rate to the credit institution. For that reason, it contradicts the nature of the contract if the creditor becomes obligated to pay interest to the credit user for providing the agreed amount. In the Court’s view this would also be covered by the parties’ will. Under normal circumstances no credit user would expect to receive interest for being provided with a loan. Consequently, the Supreme Court dismissed the representative action by the VKI. It pointed out, however, that in some cases the parties might agree on an interest rate agreement that could foresee an obligation for the creditor to pay negative interest. Such an interpretation would depend on the case. The Court took a similar approach in a case in April 2017.10
iv Negative interest: decision of the Supreme Court of 3 May 201711
In this recent decision of the Supreme Court, the financial institution argued that the customer would at least have to pay the fixed rate if the variable rates became negative (in this case the consumer entered into two credit agreements). The Supreme Court ruled that the wording of the credit agreement was sufficiently accurate and consequently there would be no possibility of coming to a conclusion as claimed by the bank (in the Court’s view the legal question was a question of interpretation of the credit agreement). Further, the bank’s argument contradicted provisions implemented in the Austrian Consumer Protection Act (ACPA) (see Section 6, Paragraph, 1, No. 5).12 Therefore, a creditor cannot, in fact, be compelled to pay negative interest to a credit user. A credit user, on the other hand, is – at least concerning this case – not obliged to pay the fixed rate in case of a negative variable rate. The outcome of this case may lead to recovery claims of customers against banks that used to charge at least the fixed rate even in times of negative interest rates.
v Negative interest: further decisions by the Supreme Court
The Supreme Court confirmed its approach in its decision of 30 May 2017,13 which was based on a representative action by the VKI.
Subsequently, further decisions were rendered on 13 June 2017,14 28 June 2017,15 29 August 201716 and 30 August 2017,17 confirming the Supreme Court’s prevailing opinion on this topic. The legal situation on negative interests seems now to be sufficiently clarified. A different approach is, thus, not to be expected in the near future. Owing to the referenced case law, comparable cases would not yet constitute a significant legal issue that sets a precondition for access to the Supreme Court. However, all of the aforementioned decisions concern claims filed on behalf of consumers versus banks. There does not seem to be any case law on disputes initiated by corporate customers and the existing case law cannot automatically be applied to cases outside of business-to-business relationships.
vi Case law regarding the international jurisdiction of EU Member State’s courts for consumer claims based on prospectus liability and related claims
In July 2017, the Supreme Court issued a decision on the international jurisdiction of the Austrian courts for damage claims owing to investments in certain capital market products. Inter alia, the court decision deals with the difficulties identifying ‘the place of the damaging event’ for the purposes of Article 7(2) of the Brussels Ia Regulation18 in cases of pure monetary damages. The Supreme Court held that, in cases of prospectus liability claims, the place of the damaging event is the place where the wrongful information in the prospectus was published. In the case at hand it remained open, whether a notification of a prospectus into another EU Member State (‘passporting’) would have any impact on the determination of the place of the damaging event. Further, the court held that the place of the occurrence of the damage was not located in Austria either, because the plaintiff had purchased the financial instruments in Germany, which is also where the global certificate was deposited. The Court did not have to deal with the difficult questions of identifying the place of the damaging event in cases of international money transfers financing the harmful investment because there were no such money transfers in the case at issue. Particularly with respect to such money transfers and whether they provide claimants a place of jurisdiction based on Article 7(2) of the Brussels Ia Regulation typically close to their home country, the ECJ has not yet found satisfactory solutions.19 Currently, another preliminary ruling is pending with the ECJ under case C-304/17 (Löber),20 which may help clarify the current uncertainties.
II RECENT LEGISLATIVE DEVELOPMENTS
i Beneficial Owner Register Act
The Beneficial Owner Register Act (BORA) was introduced in Austria by way of implementation of Articles 30 and 31 of Directive (EU) 2015/84921 into national law and provides for a register of ultimate beneficial owners (UBOs) of all legal entities listed in Section 1 of the BORA (see below).22 Reportable entities must notify their beneficial owners to a register, observe various due diligence requirements and, in the case of violations, face strict sanctions. The register aims to support those professional groups that are subject to stringent anti-money laundering and terrorist financing rules (i.e., financial institutions).23 The BORA entered into force on 15 January 2018.
In general, all relevant company structures with their registered seat in Austria are required to register their UBO. Reportable entities include unlimited liability partnerships, limited liability partnerships, limited liability companies, public limited companies and societas Europaea, etc. In addition, trusts managed in Austria and trust-like agreements are also included.
UBOs are all natural persons who own or control a registering entity (irrespective of the domicile of such entity). UBOs can be divided into three groups (capital ownership percentage, voting interest and factual control) on the basis of which ownership and control is determined. In general, the Act distinguishes between three types of economic owners:
- direct economic owners: these are natural persons who:
• hold 25 per cent plus one share, or more than a 25 per cent participation of the registering entity or the respective votes; or
• exercise control over the management of the registering entity, whereby ‘control’ is defined as holding – either directly or indirectly – 50 per cent in shares plus one share, or more than a 50 per cent participation of the registering entity or the respective votes. Control is further assumed under the circumstances applicable for drawing up consolidated annual financial statements pursuant to Section 244, Paragraph 2 of the Austrian Enterprise Act;24
- indirect economic owners as UBOs: these are natural persons who ‘control’ (see above) an entity that directly or indirectly holds 25 per cent plus one share, or more than a 25 per cent participation in the registering entity or the respective votes. If more than one registering entity is controlled by the same natural person or the same natural persons, either directly or indirectly, and cumulatively exceed the thresholds of 25 per cent plus one share, or more than a 25 per cent participation in another entity, then such natural person shall be regarded as the economic owner of such entity; and
- ex lege economic owner: if no economic owner can be determined according to the above framework (i.e., the top entity is a listed company with widely held stock), the management of the registering entity is determined as the UBO by operation of law.25
Special provisions apply for partnerships, cooperatives, (foreign) trusts and foundations.
In certain cases, exceptions from mandatory registration apply. This is the case for partnerships and limited liability companies, for example, if the personally liable direct partners or shareholders consist only of natural persons and, thus, the relevant data for the register can easily be taken from the commercial register. However, these exemptions only apply if no person other than the legally registered person exercises direct or indirect control over the management of the legal entity.
According to Section 3 of the BORA, an entity subject to mandatory registration has to ascertain and verify the identity of its ultimate beneficial owners at least once a year. Therefore, there is the requirement for entities to undertake regular investigations and to store the relevant corresponding documentation. In order to fulfil this due diligence duty, all necessary measures to understand the ownership and control structure need to be taken by the registering entity. As indicated above, the UBO can, in any case, only be a natural person.26
Right to inspect the register
Unlike the commercial register, the UBO register is not publicly available. Section 9 of the BORA provides for a list of entities that are granted a right to inspection. Besides certain authorities, this list, inter alia, includes the following persons and organisations: financial institutions, attorneys at law and public notaries. However, inspections are only permissible in the context of applying due diligence to prevent money laundering and terrorist financing in relation to customers or to advise clients on the identification, verification and reporting of their UBOs.
Violations of the mandatory registration or incorrect reports are considered financial offences and can lead to a fine of up to €200,000 (for intent) or €100,000 (for gross negligence). For unauthorised inspections of the register, a fine of up to €100,000 may be imposed in the case of deliberate conduct.
Deadline for registration
Initial filings have to be made before 15 August 2018. This deadline, originally proclaimed for 1 June 2018, was extended by decree of the Federal Ministry of Finance owing to the high number of registrations.
ii The Financial Market Money Laundering Act
By way of the Financial Market Money Laundering Act (FMMLA), Austria implemented Directive (EU) 2015/849 (see Section II.i, above). The new legislation entered into force on 1 January 2017 and introduced consolidation of money laundering provisions for banks in Austria (which can now mainly be found in the FMMLA). Several innovations were included,27 as outlined below.
Enhancement of the risk-based approach
According to the new Act, the risks of money laundering and terrorist financing, as well as data protection problems, must be detected, analysed and reduced. The mandatory risk assessment has to be recorded and updated regularly, and must take place on a national level,28 as well as on a company level (i.e., for obligated institutions; see Section 4 of the FMMLA).29
As previously implemented in the Austrian Banking Act and the Austrian Insurance Supervision Act, the FMMLA provides for provisions on due diligence on customers. Financial institutions are required to obtain and hold adequate, accurate and current information on the beneficial ownership of their customers, including the details of the beneficial interests held, their customers’ identity, the purpose of the intended business relationship, the origin of funds and the identity of possible trustees. In general, natural persons have to prove their identity by means of official photo identification. However, according to new provisions in the FMMLA, online identification (using video-supported technology) is possible in cases where – within the scope of the normal customer due diligence provisions – the risk can be considered minor because the customer is not present.30 The general scope of due diligence provisions has, however, remained unchanged.
Enhanced customer due diligence measures in respect of politically exposed persons
According to the new Article 11 of the FMMLA, a higher standard for due diligence measures is applicable with regard to persons who are politically exposed. In addition to the above-mentioned principles on due diligence (Article 6 of the FMMLA), credit and financial institutions have to implement appropriate risk management systems to determine (1) whether a politically exposed person is involved in a business relationship with the institution, and (2) the origin of funds that are involved in transactions or throughout the business relationship. Further continuous monitoring of the business relationship is required and the management of the financial institution has to give its consent prior to the involvement of a politically exposed person.
Harsher penalties for financial institutions
The FMMLA foresees administrative penalties by the Austrian Financial Market Authority (Article 35 of the FMMLA) of up to €5 million or 10 per cent of the financial institution’s yearly turnover. However, the essential penalty depends on the severity of the infringement. Owing to the principle of proportionality, the Authority may also entirely refrain from imposing a penalty (see Section 35, Paragraph 4 of the FMMLA).31
In June 2018, the Fifth Money Laundering Directive,32 amending Directive (EU) 2015/849, was enacted, and this must be implemented by EU Member States by 10 January 2020. In essence, the new Directive aims to increase transparency for e-money products by way of (1) reduced thresholds requiring customer identification and stricter KYC rules; (2) bringing virtual currency platforms into the scope of Directive (EU) 2015/849; (3) increased duties of care towards high-risk countries; (4) expansion of the competencies of financial intelligence units and improvement of their cooperation; and (5) increased transparency regarding beneficial owners.
iii Possible class action provisions
It seems that the Ministry of Justice has abandoned its plans to implement real class action provisions in Austria.33 In contrast, the European Commission presented a draft proposal for its ‘New Deal for Consumers’ in April 2018, aiming to strengthen citizens’ rights by allowing the filing of class-action suits. The European Commission is working on rules for two categories of lawsuits: one for situations in which a limited group of people suffered comparable harm and would collectively sue the defendant; and the other for low-value cases in which many consumers only suffered a small loss. In the latter case, the benefit would go to a public cause benefiting consumers. Separately, the European Union is proposing harsh fines of up to 4 per cent of a company’s annual turnover for firms found guilty of widespread infringements. The latest initiative of the European Commission is perceived as a consequence of the diesel scandal, which may not – according to some – be adequately addressed within the European Union.34
III INTERIM MEASURES
In Austria, it is possible to request a preliminary injunction to secure a monetary claim in cases of subjective endangerment in the course of pending civil proceedings or before filing a claim. The relevant provisions are regulated within the Austrian Enforcement Act (AEA).35 The precondition for such a preliminary injunction is the existence of subjective endangerment respective to the recovery of the claim. A case of subjective endangerment may be argued successfully if it is obvious that without a preliminary injunction the opposing (and likely to be liable) party will make it difficult for the other party to pursue its claim, for example, by damaging, destroying, hiding or moving away assets36 (see Section 379, Paragraph 2, No. 1 of the AEA).
With regard to banking litigation, the abusive demand of bank guarantees is a very common ground to file a request for a preliminary injunction. In such cases, the bank, which issued the guarantee, is prohibited from paying a debt to the opposing party by court order. If a bank violates the court order, it becomes liable for damages.37 To secure monetary claims, the court is limited to specific measures depending on the respective object. The following measures are regulated in the AEA (Section 379, Paragraph 3):
- A prohibition addressed to third-party debtors not to pay a debt to the opposing party. This is a frequently used method to secure funds. For example, the bank holding an account for the opposing party is prohibited by way of court order to make any payment upon the opposing party’s instruction or to make payments owing to an abusive demand of a bank guarantee.
- Movable objects including money: if it is possible to put the object into judicial custody, or administration or management, the court may further render an order to the opposing party to refrain from giving away, selling or pawning the movable object.
- Immovable objects: if it is possible to put the object into judicial custody, or administration or management, the court may further render an order to the opposing party to refrain from giving away, selling, hypothecating or registering any encumbrances in the Land Register.
ii Cross-border interim measures
It is also possible to enforce an external freezing order or an injunction in Austria. The enforceability and recognition of an external freezing order depends on whether the court decision was rendered in an EU Member State or in a non-EU or foreign country.
EU Member States
In general, the regime of the Brussels Ia Regulation38 is also applicable to freezing orders and requests for interim measures, such as injunctive relief. As a result, freezing orders and injunctive relief by another Member State’s court are automatically recognised and enforceable in Austria without any further procedure on recognition required.39 However, since recognition and enforcement can be rejected by other EU Member States if the opponent was not granted a hearing – ex parte injunctions are frequently not recognised and enforced – only those freezing orders and injunctions where the defendant has been granted a hearing in the Member State of origin can subsequently be recognised and enforced in another Member State.
With regard to bank accounts within the European Union (except Denmark and the United Kingdom), Regulation (EU) No. 655/201440 establishes a European Account Preservation Order procedure to facilitate cross-border debt recovery in civil and commercial matters.
Freezing orders and interim injunctions that have been rendered in a foreign country outside the European Economic Area (EEA) are enforceable in case bilateral or international treaties are in place, which foresee mutual recognition and enforcement. In principle, freezing orders or interim injunctions must be declared enforceable. The following general requirements for the issuance of a declaration of enforceability are set forth in Section 406 of the AEA:41 (1) a foreign judgment is enforceable in the state in which it was rendered; and (2) reciprocity with the state of origin is established by way of bilateral treaties or other instruments (actual reciprocity by way of judicial ‘practice’ does not suffice).
The party seeking to receive the declaration of enforceability needs to file such request to the competent Austrian court. According to the AEA the district court of the opposing party’s domicile has jurisdiction. In addition, the party is required to enclose certified copies of all relevant documents with such request. The application for enforcement may be combined with the request.
According to Section 408 of the AEA, the declaration of enforceability may be refused if:
- pursuant to Austrian rules on jurisdiction, the foreign court could not, under any circumstances, have jurisdiction over the legal matter;
- the opposing party was not properly served with the document that initiated the foreign proceeding;
- the opposing party could not properly participate in the foreign proceeding owing to irregularities in the proceeding; or
- the judgment violates basic principles of Austrian public policy.
In practice, interim relief is typically sought before the Austrian courts if Austrian assets will be secured. This is because most of the creditors want to make use of the surprise effect of ex parte injunctions, which are not recognised or enforceable if issued by a foreign court, since the defendant is not granted a prior hearing. Applications for enforcement of injunctions from non-EEA countries in Austria are extremely rare.
iii Procedure in Austria
With the request for a preliminary injunction, the applicant must provide available evidence, such as documentary evidence and affidavits that can be immediately examined by the court. Foreign-language documents should be presented with German translations. Generally, a decision on a request for a preliminary injunction is rendered within a seven-week period. Regarding appellate proceedings, a time frame of one to three months for the second instance proceeding and a further two to four months in third instance proceedings has to be expected.
IV LAWYER–CLIENT PRIVILEGE
Section 9, Paragraph 2 of the Austrian Lawyers Act (ALA) sets forth the lawyer’s duty of confidentiality regarding all matters that were disclosed to him or her in his or her function as counsel whose non-disclosure is in the interest of the client. Therefore, a lawyer has the right to deny testifying in court or before any other authority according to the respective procedural provisions. Section 9, Paragraph 3 of the ALA prohibits circumventing this principle by, for example, interrogation of employees of the lawyer or seizing communications. The procedural implementation of these principles has led to several not entirely identical provisions in the various codes of procedure.42
Regarding criminal proceedings, the attorney’s right to deny testifying as a witness is stated in Section 157 of the Austrian Code of Criminal Proceedings (ACCP).43 As mentioned above, owing to the prohibition on circumventing, seizing communications between attorneys and defendants is also prohibited. An amendment of the provision means that this is now also applicable in cases where these communications are located outside the attorney’s office (e.g., at the defendant’s apartment). However, there is the requirement that all documents and data must have been created either by the attorney or the defendant. Documents that have been created by another person (e.g., a legal expert) and later handed to the defendant or the attorney do not fall within the provision.
In addition to those already mentioned, similar provisions can be found in: Section 321 of the Code of Civil Procedure, Sections 89 and 104 of the Finance Criminal Code, Section 49 of the Code of Administrative Procedure and Sections 171 and 143 of the Austrian Fiscal Code.
V JURISDICTION AND CONFLICTs OF LAW
There are, generally speaking, no specific rules on jurisdiction and conflicts of law regarding banking institutions, therefore the general rules set forth below apply.
i Domestic rules on jurisdiction
The Austrian judicial system differentiates between local jurisdiction and competence of the courts. The competence of a court mainly depends on the amount in dispute. District courts are the first instance to decide in civil law cases with a maximum amount in dispute of €15,000. In addition, the district courts have competence irrespective of the amount in dispute on certain types of cases, for example, family and rent law cases. Regional courts as courts of first instance are responsible for rulings in all matters not assigned to district courts.
In the Austrian Court Jurisdiction Act,44 there are several provisions regulating jurisdiction. As a basic principle, the court at the defendant’s place of residence has jurisdiction. For consumer-based claims, the ACPA45 also stipulates that according to the basic principle on jurisdiction, the court at the defendant’s place of residence has jurisdiction. Consumer-based claims are matters relating to a contract concluded by a person for a purpose that can be regarded as being outside his or her trade or profession.
According to Section 104 of the Austrian Court Jurisdiction Act, for non-consumer based claims, the parties may agree on a forum clause. The forum clause has to be in writing and to be valid it must specify a specific litigation or any legal dispute that may arise from a specific contractual relationship. Choices of forum clauses for consumer-based claims that violate the special jurisdiction for consumer-based claims are null and void.
ii International jurisdiction
International jurisdiction – except where the defendant is not domiciled within the EU (see Article 6 of the Brussels Ia Regulation) – is regulated by the Brussels Ia Regulation. According to the Regulation, in principle, the court of the Member State of the defendant has jurisdiction.
Article 7 of the Brussels Ia Regulation constitutes a supplement to the general principle of jurisdiction. In matters relating to a contract, a person domiciled in a Member State can be sued in the courts of the place of performance of the obligation in question (Article 7, Paragraph 1a). In matters relating to tort, delict or quasi-delict, a person domiciled in a Member State can be sued in the courts for the place where the harmful event occurred or may occur (Article 7, Paragraph 3). This is deemed to also include the place where the damage occurred. In other words, a forum can be established both in the place where the event triggering the damage took place and the place where the damage actually occurred. The provision plays a crucial role with regard to cross-border banking disputes as it enables claimants to sue a bank in their home jurisdiction, provided that the place of performance or the place of the damaging event is there. However, the provision regularly gives rise to interpretation issues, which lead to disputes on jurisdiction and may prolong the dispute.
According to Article 25 of the Brussels Ia Regulation, the parties of a contract may agree on the jurisdiction of a court of a Member State. There does not have to be a connection between the parties and the forum. Unless agreed otherwise, the chosen forum has exclusive jurisdiction. A choice of forum clause must fulfil one of the following conditions to be valid:
- the forum clause must be in writing or evidenced in writing;
- the choice of forum is according to practices that the parties have established between themselves; or
- the choice of forum is according to international commercial customs.
Last but not least, the rules on consumer jurisdiction pursuant to Articles 17 and 18 of the Brussels Ia Regulation must be borne in mind in particular with respect to banking disputes. Generally, the provisions allow for consumers to sue their counterparty both at the place of their domicile or at the defendant’s domicile. However, lawsuits filed by the consumer’s counterparty may only be filed at the consumer’s domicile.
iii Conflicts of law
In Austria, conflicts of law are generally regulated by the International Private Law Act.46 Further, in relation to contractual obligations, the Rome I Regulation47 is relevant and regards non-contractual obligations in the Rome II Regulation48 (including obligations derived from culpa in contrahendo).
In principle, the parties, both in business-to-business and business-to-consumer contracts, are free to choose the applicable law. Failing a choice of law, the Rome I Regulation provides that depending on the circumstances, either the law of the place where the service provider is resident applies or the law of the party that performs the characteristic obligation applies (Article 4 of the Rome I Regulation). More complex rules apply to international consumer contracts. Pursuant to Section 13a of the ACPA, certain sets of rules cannot be altered by way of a choice of law, if the choice of law leads to the application of the law of a non-EEA Member State (Paragraph 1). In addition, the Austrian law provisions governing the application and validity of general terms and conditions of a consumer contract are mandatory in all cases where the consumer contract was concluded because the counterparty expanded its commercial activity to Austria, and the consumer contract was concluded as a result of such activity (Paragraph 2). This means that the general terms and conditions of any foreign bank directing its retail business to Austria must comply with the mandatory Austrian rules governing application and validity of such general terms and conditions.
The Rome I Regulation also allows the courts of the Member States to apply ‘its overriding mandatory’ rules, irrespective of which law applies to the contract (Article 9 of the Rome I Regulation).
The application of foreign law has to be established ex officio. In such cases, the court that has to apply foreign law will consult with the Austrian Ministry of Justice and has to rely on expert opinions. If foreign law cannot be established within a stipulated time frame despite considerable efforts, Austrian law will be applied.
VI SOURCES OF LITIGATION
Banking litigation in recent years has revealed that banks are more likely to be defendants in lawsuits than plaintiffs. Nevertheless, a few cases with high amounts in dispute were initiated by banks, for example, a case filed by a well-established Austrian bank against an Austrian community seeking redress for the closing costs of derivative instruments with negative market value, which had been purchased by the public administration in order to improve its debt management.
With regard to banks as defendants, numerous cases were triggered following the start of the financial crisis in 2008, which concerned alleged breaches of advisory duties in the context of the marketing and sale of certificates. These included claims based on prospectus liability if the bank was involved in the issuance or control of prospectus information. These cases reached four-digit sums at various Austrian courts and were responsible for a significant statistical increase in lawyers’ caseloads.
Such cases are now in decline as they are being resolved by way of final judgment or settlement. However, nowadays banks seem to be increasingly exposed to representative actions filed by consumer protection associations, primarily the VKI, seeking the removal of terms and conditions used by banks for alleged non-compliance with transparency and contra bonos mores rules, as provided for in Austrian consumer law. The most recent example is the issue of negative interest loan agreements (including FX loans), which focuses on the extent to which banks are obliged to pass on the economic benefit of negative interest in loan arrangements to the customer.
VII EXCLUSION OF LIABILITY
According to Austrian law, a total exclusion of liability is prohibited. Provisions to that effect are therefore null and void. Consequently, exclusion of liability for intentional or conscious violations is not possible. Whether this also applies for certain cases of gross negligence is often discussed by scholars. Generally, exclusion of liability for gross negligence is – even though there are some exceptions – not permissible. Exclusion of liability for slight negligence is largely permissible,49 but not for personal injury.50
The ACPA provides for exclusion of liability in consumer contracts. For other damages (e.g., financial loss) exclusion of liability is not possible for gross negligence and intentional damages according to the ACPA.51 Moreover, any contractual provision included in the general terms and conditions or contractual form shall be ineffective if it is unclear or unintelligible.
Regarding gross negligence, the Supreme Court distinguishes between gross negligence and extreme gross negligence, which implies conduct that cannot be expected on the basis of usual daily life experience. According to the Supreme Court, exclusion of liability for extreme gross negligence contradicts good manners and is therefore considered equal to intentional damaging conduct. Thus, exclusion of liability for extreme gross negligence is prohibited in any case. Agreements that exclude liability for extreme gross negligence are therefore null and void. The circumstances in which conduct can be considered grossly negligent or extremely grossly negligent constitutes a difficult normative question that, to a great extent, depends on the facts of each case.52
i Credit reports
Regarding credit reports, the Supreme Court ruled (7 Ob 666/84)53 that exclusion of liability for gross negligence – but not for extreme gross negligence – was justified and valid owing to the fact that companies could largely pass on their general business risks (i.e., their relevant credit risk (owing to the insolvency of their customers) onto the financial or credit institutions.54 In the Supreme Court’s view providing credit reports is a big business that has high risks as the conditions subject to the assessment are, in some cases, very complex. The Supreme Court argued that credit and financial institutions generally have little self-interest in this regard as they do not usually receive any compensation for providing such credit reports. Therefore, financial institutions have a legitimate interest in restricting their liability. For this reason, it seems possible to restrict liability to extremely grossly negligent and intentional conduct.
ii Consulting on funding opportunities
The Supreme Court’s jurisprudence on exclusion of liability concerning credit reports is, however, not applicable with regard to consulting on funding opportunities in connection with the financing of a company. The specific issues in one underlying decision (6 Ob 541/92)55 were whether exclusion of liability was permissible for miscounselling in connection with funding opportunities. In this respect, the Supreme Court argued that credit and financial institutions generally have self-interest in the conclusion of the business transaction especially when the consulting services are closely linked to credit accommodations.56 Therefore, a legitimate interest to restrict one’s liability is not predominant. For this reason, an exclusion of liability for grossly negligent conduct would be null and void.
VIII REGULATORY IMPACT
Generally, the increasing pressure applied to banks by the regulator makes financial institutions cautious as to whether they are ready to introduce new products of higher complexity. This conduct reduces the risk of getting exposed to litigation. Currently, financial institutions are still prioritising getting in line with constantly evolving regulatory requirements, regarding, for example, the updated anti-money laundering rules (see Section II.ii, above) and the changes incurred through the future implementation of the Markets in Financial Instrument Directive (MiFID) II.
At the same time, we expect the latest regulatory developments, such as MiFID II, to continue influencing the case law of the civil law courts. More so than before, breaches of the regulatory rules will be construed as breaches of contractual or pre-contractual duties enabling the customer to adapt or rescind a contract or seek damage compensation. Banks are therefore likely to continue focusing primarily on their internal processes, implementing the increased regulatory duties of care not only to avoid administrative sanctions, but also to reduce the risk of exposure in civil litigation.
IX LOOKING AHEAD
In the years following the 2008 financial crisis, banking litigation played a significant role before the Austrian courts, in particular in Vienna. In particular, damage claims filed by retail investors for wrongful advice or wrongful prospectus information were responsible for capacity restraints before the courts. The sheer number of these lawsuits and their complex nature contributed to the significance of these banking litigation cases in Austria after 2008. Nowadays, such claims are in decline as many cases not yet filed with the court are under increased risk of being rejected as time-barred. This decline does not seem to have been compensated by new cases.
However, representative lawsuits filed by consumer associations (dealing with the application and validity of general terms and conditions towards banks’ customers) will continue as the banks are under competitive pressure and cannot afford to relent, especially in cases where the dispute with the consumer organisation will have an impact on the income of the bank. The latest disputes regarding the ‘negative interest’ cases serve as an example. Further, we anticipate an increase in litigation cases against former management board members of financial institutions based on breaches of professional duties of care.
1 Holger Bielesz is a partner, Paul Krepil is an associate and Florian Horak is a consultant, at Wolf Theiss.
2 Financial Market Stability Act, Official Gazette (BGBl) No. I 136/2008 as amended by Official Gazette (BGBl) No. I 127/2015.
3 Directive 2014/59/EU of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms, OJ 2014 L 173/190. The Directive was implemented by way of the Federal Act regarding the restructuring and liquidation of banks (BaSAG,), Official Gazette (BGBl) No. I 98/2014.
4 Constitutional Court decision dated 14 March 2018, G248/2017 et al.
5 EuGH 25 January 2017, C-375/15.
6 OGH 28 September 2017, 8 Ob 14/17t.
7 Durable medium means any instrument that enables the payment service user to store information addressed personally to him or her in a way that is accessible for future reference for a period of time adequate to the purposes of the information, and that allows the unchanged reproduction of the information stored.
8 The Austrian Payment Services Act (ZaDiG), which implemented Directive 2007/64/EC, foresees information and notices by the credit institution to be provided either in paper or through another durable medium (Section 26, Paragraph 1, No. 1; Section 29, Paragraph 1, No. 1 ZaDiG);
9 OGH 21 March 2017, 10 Ob 13/17k.
10 OGH 26 April 2017, 1 Ob 4/17w.
11 OGH 3 May 2017, 4 Ob 60/17b.
12 Koch, ‘Negative interest: no minimum entitlement according to a fixed rate through interpretation of the contract’, ÖBA 2017, p. 422.
13 OGH 30 May 2017, 8 Ob 101/16k.
14 OGH 13 June 2017, 4 Ob 107/17i.
15 OGH 28 June 2017, 9 Ob 35/17p.
16 OGH 29 August 2017, 6 Ob 51/17v.
17 OGH 30 August 2017, 3 Ob 88/17p.
18 Regulation (EU) No. 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ 2012 L 351/1.
19 The relevant existing cases decided by the ECJ are C-168/02 (Kronhofer), ECLI:EU:C:2004:364; C-375/13 (Kolassa), ECLI:EU:C:2015:37; and C-12/15 (Universal Music Holding v. Schilling et al) ECLI:EU:C:2016:449.
20 OJ 2017 C 269/6. The opinion of the Advocate General is already available (ECLI:EU:C:2018:310).
21 Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.
22 Mainly, the entities listed in Section 1 of the BORA are registered with the Austrian Commercial Register.
23 Barbist/Gassner, ‘The new register for beneficial owners’, Ecolex 2017, p. 1170.
24 Section 244 of the Austrian Enterprise Act includes parent companies having in another company (subsidiary): (1) the majority of voting rights of shareholders; (2) the right to appoint or remove the majority of management or supervisory bodies, in the case the parent company is also a shareholder; (3) the right to exercise a controlling influence; or (4) the right to decide, on the basis of an agreement with shareholders of one or more subsidiaries, comparable to voting rights of a shareholder, on the appointment or revocation of the majority of the administrative, management or supervisory body.
25 See Section 2, Paragraph 1(b) BORA.
26 Kühne, ‘The determination of the beneficial owner according to the Beneficial Owner Register Act’, Ecolex 2018, p. 205.
27 Durstberger/Nicolussi, ‘FMMLA passed’, GesRZ 2017, p. 3.
28 In Austria, the competent authority is the Finance Minister (see Section 3 FMMLA).
29 Ruhm/Tutsch, ‘Current legislation on the financial market’, ZFR 2017, p. 100.
31 In addition, the FMMLA foresees penalties for violations of responsible representatives (see Section 34 FMMLA).
32 Directive (EU) 2018/843; OJ 2018 L 156/43.
33 www.ots.at/presseaussendung/OTS_20171124_OTS0028/liste-pilzkolba-vw-geschaedigte-brauchen-rasch-die-sammelklage (last visited on 26 June 2018).
35 RGBl 1896/79, in its applicable version.
36 Kodek in Angst/Oberhammer, EO3, Section 379, AEA, Paragraph 7ff.
37 Kodek in Angst/Oberhammer, EO3, Section 379, AEA, Paragraph 34.
38 Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of 12 December 2012.
39 Thomas Garber in Angst/Oberhammer, EO3, Section 79, AEA, Paragraph 11.
40 Regulation (EU) No. 655/2014 of the European Parliament and of the Council of 15 May 2014.
41 Before 1 December 2016, the respective provisions were included in Section 79, AEA.
42 Prunbauer-Glaser, ‘“Legal Professional Privilege” v. Schutz der anwaltlichen Verschwiegenheit’, AnwBl 2013, p. 56.
43 Owing to the implementation of Directive 2013/48/EU, an amendment of Section 157 of the ACCP entered into force on 1 November 2016.
44 RGBl, No. 111/1895, in its applicable version.
45 BGBl, No. 140/1979, in its applicable version.
46 BGBl No. 304/1978, in its applicable version.
47 Regulation (EC) No. 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), OJ 2008, L 177, p. 6.
48 Regulation (EC) No. 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II), OJ 2007, L 199, p. 40.
49 Krejci in Rummel/Lukas, ABGB4 Section 879, Civil Code, Paragraphs 122 to 130.
50 Reischauer in Rummel, ABGB3 Section 1298, Civil Code, Paragraph 10a.
51 Reischauer, ‘Contractual exclusion of liability for culpable conduct, in particular gross negligence’, ÖJZ 2009/114.
52 Krejci in Rummel/Lukas, ABGB4, Civil Code, Section 879, Paragraphs 122–130.
53 OGH 22 November 1984, 7 Ob 666/84; SZ 57/184; EvBl 1985/98 p. 495; RdW 1985, p. 73; JBl 1986, p. 168.
54 Reischauer, ‘Contractual exclusion of liability for culpable conduct, in particular gross negligence’, ÖJZ 2009/114.
55 OGH 11 June 1992, 6 Ob 541/92; ÖBA 1993, p. 325 (Jabornegg); JBl 1993, p. 397; RdW 1992, p. 399.
56 Reischauer, ‘Contractual exclusion of liability for culpable conduct, in particular gross negligence’, ÖJZ 2009/114.