Austria: Austrian Supreme Court Decides on the Term "Consumer", also with Respect to Arbitration

In recent decisions the Supreme Court has established an economic approach to the qualification of shareholders as consumers or entrepreneurs for the purposes of Section 1 of the Consumer Protection Act. This economic view has now been consolidated by a new Supreme Court decision of June 24 2010 (OGH, docket no 6 Ob 105/10z). Importantly, the economic approach is also determinative for an interpretation of Section 617 of the Code of Civil Procedure, and thus for the term "consumer" as applicable in Austrian arbitration law.

Section 617 of the code, which severely restricts the possibility of conducting arbitration agreements with consumers, applies whenever Austria is the place of arbitration. For example, according to Section 617(1), arbitration agreements with consumers can be concluded only after a dispute has arisen. Consequently, it is of considerable importance for Austrian arbitration law to which extent physical or legal persons qualify as consumers for the purposes of Section 617, and can thus avoid the legal consequences of arbitration agreements previously entered into.

In its decision of June 24 2010 the Supreme Court was called on to decide whether a shareholder, holding 50% of the shares in a company and acting as managing director thereof, was to be considered a consumer for the purposes of Austrian consumer protection law. The Supreme Court, following its economic approach, rejected the application of consumer protection law in this case.

Facts

The claimant company, S-GmbH, had entered into a franchise agreement with another company, P-GmbH, which at the time was in the course of incorporation. P-GmbH was held by two individuals, one directly holding 50% of the shares, the second holding 100% of the shares in a third company, which in turn held the remaining 50% of the shares in P-GmbH. Both the direct and the indirect shareholders acted as managing directors, with the right to represent solely P-GmbH. Both individuals stood surety for P-GmbH under the franchise agreement. The franchise agreement contained a forum selection clause, setting out that all disputes were to be settled by the court competent for S-GmbH, which was the franchisor and claimant in the ensuing litigation.

S-GmbH then requested payment under the franchise agreement, directing its payment claim against the two individual shareholders as sureties.

According to Section 14(1) of the Consumer Protection Act, a forum selection clause concluded with a consumer which is resident, domiciled or employed in Austria is valid only with respect to disputes which have already arisen. Section 617 of the Code of Civil Procedure contains the same restriction with regard to arbitration agreements concluded with consumers. As in this case a future dispute was concerned, it was crucial to determine whether the respondents qualified as consumers on entering into the forum-selection clause.

The lower courts

The first instance court rejected the claim for lack of jurisprudence. It held that the forum selection clause had not been validly concluded as the two respondents, neither of which held a majority but only 50% of the shares each, were to be regarded as consumers.

The second instance court, however, reversed this decision, rejecting the jurisdictional challenge. It held that from an economic perspective both respondents were to be considered as 50% shareholders and sole managing directors and as such, according to the rationale of the Consumer Protection Act, did not qualify as consumers for the purposes of this act. They had thus validly concluded the forum selection clause.

The respondents appealed against this decision to the Supreme Court.

The Supreme Court decision

The Supreme Court concurred with the second instance court.

After noting that a person qualifies as a consumer, according to Section 1 of the act, if the transaction at hand does not pertain to the conduct of its business, the Supreme Court gave an overview of its past case law with respect to the qualification of managing directors and shareholders as consumers or entrepreneurs.

In particular, the court pointed to its leading decision of February 11 2002, in which a sole shareholder and managing director of a company was held to be an entrepreneur (OGH, docket no 7 Ob 315/01a). There, in construing Section 1 of the act, the court had already strongly relied on an economic approach.

The Supreme Court also highlighted another decision, handed down on the interpretation or Article 13 of the Brussels Convention ("jurisdiction over consumer contracts"; OGH, docket no. 6 Ob 12/03p). In this judgment the court had again invoked an economic approach. Two co-shareholders, which were at the same time managing directors of the company, had entered into suretyship agreements for their company acting as entrepreneurs and thus did not qualify as consumers. It was left unclear, however, whether this reasoning could also be transferred to Austrian domestic law.

The court further reported the main Austrian scholarly views on the issue, concluding that they, to a large extent, support an economic approach to the interpretation of the term "consumer" (see Martin Karollus, Anmerkung zu OGH February 11 2002, 7 Ob 315/01a, JBl 526 (2002); Peter Bydlinski & Susanne Haas, GmbH ÖBA 11 (2003); Albert Heidinger, OGH February 14 2007, 7 Ob 266/06b, wbl 146 (2007); Daniela Huemer, JBl 647 (2007).

With respect to the present case, the Supreme Court reasoned that - notwithstanding the first respondent's mere indirect holding - from an economic view both respondents were to be considered as 50% shareholders and sole managing directors. On conclusion of the franchise agreement, both respondents held a material economic interest and could exert material influence on the franchisee. As each of the two respondents held 50% of the shares, neither of them could give instructions to the other, so that in practice both enjoyed sole entrepreneurial decision-making power. Since, 'in truth' both respondents were acting in their own economic interest comparable to a sole shareholder, the Supreme Court concluded that the rationale of the act would oppose qualifying the respondents as consumers.

Author's comment on the Supreme Court's decision

It is commonly held that Section 617 of the code, which severely restricts the possibility of entering into arbitration agreements with consumers, refers to the definition of the term "consumer" as set out in Section 1 of the act.1 Supreme Court decisions rendered on the scope of Section 1 - such as the present judgment - are thus of material importance to Austrian arbitration practitioners.

In its recent case law, mainly concerned with the conclusion of suretyship agreements between a company's shareholder and a third party, the Supreme Court has developed an economic approach ("substance over form") to the interpretation of the term "consumer" - an approach which was further consolidated in the present judgment.

According to this case law, mere financial investors which do not exert relevant influence on the management of a company qualify as consumers and thus enjoy the protection of Section 617. This, however, does not apply to shareholders which, due to their legal standing as sole shareholders or else factually (eg, as 50% co-shareholders), enjoy entrepreneurial decision-making power. It remains to be seen whether in subsequent decisions the Supreme Court will further extend this notion of "entrepreneur", also including - under certain circumstances - managing directors who hold less than 50% of the shares.

Indeed, in various constellations a qualification of minority shareholders as entrepreneurs may well be justified (eg, where a minority shareholder acts as managing director while enjoying certain veto rights). Also, under certain circumstances the mere shareholding without a formal position as managing director together with effective influence on the management of the company might suffice for such a shareholder to qualify as an entrepreneur. Those cases, however, remain to be decided.

In its present judgment the Supreme Court stressed the consistency of the consumer term underlying Section 1 of the act, which, according to the court, does not vary depending on whether a certain provision is based on European law or not. Still, it remains to be seen, irrespective of the ever stronger economic approach generally taken, whether the court might interpret the term "consumer" even more restrictively when it comes to the conclusion of arbitration agreements (ie, "consumer" for the purposes of Section 617 of the code) regarding shareholders' internal corporate relationship.2 This would, for example, concern shareholders' agreements, rather than the conclusion of suretyship contracts with external third parties. The very existence of a shareholders' agreement may often carry with it the implication that the shareholder is actively involved in the management of the company.

It has now become increasingly difficult for shareholders who have entered into arbitration clauses to challenge the jurisdiction of arbitral tribunals by invoking consumer protection law, again adding to Austria's appeal as a place of international arbitration.

Footnotes

1 See Gerold Zeiler, Schiedsverfahren no 8 to section 617.

2 Such interpretation is advocated by distinguished Austrian scholars, inter alia by Christian Hausmaninger in Zivilprozessgesetze, Section 617 mn 23 (Fasching, HW & Konecny, A (eds), 2nd ed, 2007).

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions