Austria: Reform Proposals Seek To Clarify Breach Of Trust

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.

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