The Supreme Court recently settled the question of whether a hand-signed faxed declaration of suretyship is valid. Although the prevailing doctrine would suggest its validity, the issue was still in dispute. In general, suretyships under Austrian law must be given in written form. However, questions have arisen as to whether a signed declaration of suretyship will fulfil the formal requirements if the declaration is transmitted by fax.
The Constitutional Court was recently asked to review the legality of the conflict of interest provisions stated in the Securities Supervision Act, as well as in a regulation issued thereto by the Financial Markets Authority (FMA). The managing directors of a bank had been fined by the FMA for not having properly implemented effective measures to prevent conflicts of interest.
The Administrative Court recently further clarified the circumstances under which lending activities are deemed to be carried out on a commercial basis. In general, this applies if the lender grants loans repeatedly (or has the intention to do so) and the loans are granted with the aim of realising income. However, the court stressed that the legislature did not intend to place all types of lending under the ambit of the Banking Act.
The EU Markets in Financial Instruments Directive, which was recently transposed into Austrian law, requires all banks to establish, implement and maintain an effective conflicts of interest policy. The policy must be appropriate to the size and organisation of the bank and the nature, scale and complexity of its business. In response to concerns over the legality of the new laws, the Constitutional Court has reviewed their provisions.
In a recent judgment the Supreme Court dealt with interest rate adjustment clauses and interest rate calculation methods under business loan agreements. The court acknowledged that banks have a legitimate interest in providing for the adjustment of interest rates in accordance with changes in refinancing conditions and the relevant markets. This judgment provides important guidance for banks and their advisers.
In the case of a bank guarantee drawn without legal cause, the Supreme Court granted the party on whose account the guarantee had been issued parallel recourse claims against both the beneficiary of the guarantee and the debtor whose payment obligation was meant to be discharged by the payment under the guarantee. This authoritative opinion decides a long-lasting dispute that followed from contradictory case law.
Under Austrian law, the term 'letter of comfort' is a collective description for instruments predominantly issued by parent companies to banks that secure the payment obligations of a third party, usually a subsidiary company, under its financing arrangements with the beneficiary bank. They come in a variety of forms within two 'pure' types - the unrestricted comfort letter and the restricted comfort letter.
The EU Consumer Credit Agreement Directive was implemented in Austria through the enactment of a new federal Consumer Credit Act. Under the directive, banks must provide extensive information on credit offers in order to enable consumers to compare offers. While banks appreciate the importance of early repayments, they risk being at a disadvantage if a fixed interest rate is in place.
In the context of secured financings, lending banks often require a pledgor to issue a sale power of attorney for the asset pledged, to facilitate realisation of the pledged asset in the event of default. However, in recent decisions, the Austrian Supreme Court held that such a sale power of attorney may be considered an illegal circumvention or breach of Section 1371 of the Civil Code.
The Supreme Court recently dealt with two incidents that may easily occur in the course of handling bank guarantees. In the first case the beneficiary had lost the original guarantee and could present only a copy when demanding payment under the guarantee. The second decision concerned a bank guarantee that had been issued to another bank as beneficiary in the context of a real estate transaction.
In a recent case a claimant deposited two cheques with an Austrian bank for encashment from French banks, on which the cheques were drawn. The cheques were later found to be forged. The French banks asked for a refund, so the Austrian bank cancelled the credit and returned the funds to them. The claimant, who had no prior knowledge of the forgery, sued the Austrian bank to reverse the cancellation of the credit.
The EU Payment Services Directive was implemented in Austria through the enactment of a new federal Payment Services Act and amendments to several banking and financial market laws. The directive and the act lay down detailed rules regarding, among other things, the execution of payment transactions and the liability of payment services providers.
In a recent case the Supreme Court had to decide whether a creditor has the right to terminate a loan facility because of the debtor's worsened economic situation. A creditor may cancel a loan agreement in case of deterioration of the debtor's financial circumstances; however, if the creditor itself causes the deterioration, such right of cancellation does not exist.
In a recent case the plaintiff transferred money into the bank account of the defendant (common debtor) once the bankruptcy proceedings had opened after confusing the name and account of the defendant with the name and account of his real creditor. After realizing his mistake, the plaintiff claimed from the bankruptcy estate the segregation of the amount credited to the bank account and its repayment.
As part of the concerted European action plan to implement coordinated stability measures for the financial markets, Parliament has passed a bill that aims to protect banks and insurance companies swiftly and decisively from the potentially serious effects of the international financial crisis.
The Supreme Court recently had to decide on the validity of various share pledges. The sole shareholder and executive director of an Austrian limited liability holding company pledged all of his shares in the holding and the holding’s shares in two subsidiaries, one of which had its seat in Germany. He then challenged the secured bank's realization of the pledges, which he argued had not been correctly perfected.
In a recent decision the Austrian Supreme Court, for the first time, discussed the issue of whether the mistakes of other banks involved in the execution of a letter of credit may be attributed to the issuing bank. The court ruled that a bank acting as nominated bank may not be regarded as the issuing bank’s agent, but usually acts as a substitute and of its own responsibility.
Stamp duty legislation is based on the principle of documentary evidence. According to this principle, the requirement for the emergence of stamp duty is the creation of a document. The execution of documents for certain types of transaction, such as loan or credit agreements, assignments or sureties, will trigger an obligation to pay stamp duty. However, in an increasingly digital age, what constitutes a 'document'?
According to Section 4(1) of the Banking Act any commercially operated banking business listed in Section 1(1) of the act requires a banking licence from the Financial Market Authority. In the present case the Supreme Court had to decide whether a bank registered in Switzerland had carried out a domestic and commercially oriented banking business, in which case an Austrian banking licence was mandatory.
Discussions about the introduction of a register for pledges and other securities over movables have reached a stage that allows the examination of the results achieved so far and the possible future changes to the Austrian system of perfecting security. Such a register could significantly influence financial practice.