The debate around Section 153 of the Austrian Criminal Code,
relating to the offence of breach of trust, is now entering the
next round. The question as to whether the legislature will heed
the Austrian business community's call for urgent reform could
be answered toward the end of this year.
Section 153 of the Austrian Criminal Code states: "Whoever
knowingly abuses the authority conferred to him by statute,
official order, law or contract to dispose of property not
belonging to him or to oblige this other person and causes damage
to another person in this way, shall be criminally liable
[...]".
In practice, a high degree of uncertainty regarding the
interpretation of the offence prevails. Following the most recent
Austrian Supreme Court rulings, criticism was voiced against the
law's perceived overly broad scope. Hence, a working group was
appointed by the Austrian Ministry of Justice in February 2013 to,
amongst others things, scrutinize the offence. Ultimately,
the majority of the working group concluded that the problem lay
not with the law, "but rather in the practical application
of the provision". The report issued by the working group
therefore rejected the need for an amendment of the
provision.
Strong criticism has been voiced about the fact that the
ministerial draft of 13 March 2015 on the 2015 Criminal Law
Amendment Act does not include any new regulation on breach of
trust. Moreover, a parliamentary motion demanding a comprehensive
reformulation of its elements has been submitted. This motion
focuses its reform priority on a narrowing of the terms
"misuse" (Missbrauch) and "damage caused by
breach of trust" (Untreueschaden), and aims at
avoiding the a priori criminalisation of bad economic
decisions.
Pursuant to the established case law of the Austrian Supreme Court,
the offence of breach of trust under Section 153 para.1 of the
Austrian Criminal Code encompasses any conduct, done pursuant to or
based upon a power of attorney, prejudicial to the interests of
represented parties, since authorized actors must seek to achieve
the greatest possible benefit for the principal. Consequently, when
assessing the individual transactions concluded for those being
represented, their positive and negative effects must be taken into
account equally. Beyond explicit legal obligations, case law has
recently leaned toward assuming that a misuse of power occurs even
in the case of economically unjustifiable actions that are to the
disadvantage of the holder of a power of attorney. This is where
the parliamentary motion attempts to provide a clarification: in
order to protect the financial interests of the principal, an
infringement performed by the holder of a power of attorney should
constitute a criminal offence only if the holder acts in an
"unacceptable manner". In the future, the use of
legal power by the holder of a power of attorney should only be
considered "unacceptable" if it lies
"beyond what is reasonably justifiable". The
internal rules and guidelines for actions of the holder of a power
of attorney would set the boundaries for his/her actions and
omissions. According to the text of the motion, where the holder of
a power of attorney is granted a discretionary scope of action,
they will exceed their authority if their decision lies
"beyond any reasonable exercise of discretion"
in the form of a "misuse of power". The
principle that the holder of the power of attorney has an
obligation to protect the interests of the principal in the best
possible manner shall continue to apply, but may not, in any way,
put gain maximization above the principal's long-term
interests.
This may be geared towards those economic decisions that have a
positive impact on the principal's interests only in the long
term, but which may initially entail the risk of losses. So far,
the case law of the Austrian Supreme Court has not dealt
specifically with this issue. There can be no misuse of power where
the holder of a power of attorney makes a decision based on an
overall economic plan that takes risks into account and is willing
to accept any initial losses so as to avoid a potential (greater)
loss in the future and/or to compensate losses from a future
transaction with profits from a follow-up transaction. Such an
approach must be regarded as a set of closely interrelated business
actions, which can be economically balanced and should therefore
not be punishable as breach of trust.
In addition, the parliamentary motion proposes that an abuse of
power should be ruled out in those instances in which the principal
has received approval from the "economic beneficiary (i.e.
of the shareholders)". The draft does not mention whether
subsequent approval will similarly have an exemptive effect - a
notion that literature on the issue has so far rejected.
At the same time, the parliamentary motion aims at incorporating
the business judgement rule into Section 84 of the Stock
Corporation Act and Section 25 of the Act on Companies with Limited
Liability: A board member or managing director "by all
means acts with the diligence of a prudent and conscientious
manager when he is not guided by extraneous interests in his
business decisions and may assume on the basis of reasonable
information that he is acting in the interest of the
company."
However, the Austrian Supreme Court rejects the proposals in the
motion, because it does not see any need for adjustment. It remains
to be seen which arguments the legislature finds most
persuasive.
Please click here for the German version of this text.
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.