A Supreme Court judgment of November 19 2002 declared 12 of 17 contested clauses in a domestic bank's terms and conditions to be unlawful. The action was brought by a consumer protection organization.

Supposedly customer-friendly terms and conditions for banking transactions were introduced in 2001 by the Federal Bank and the insurance section of the Federal Economic Chamber, and were adopted by most banks. The court's ruling gives useful guidance on the interpretation of some of these provisions.

The following rulings are salient for businesses, because some were revoked not only on the basis of being incompatible with consumer protection legislation, but also because of a prohibition against discrimination in company terms and conditions (Section 879(3) of the Austrian Civil Code), and as a result of violations against the Banking Act and the Data Protection Act:

  • The general disclaimer (Clause 9(1)(1)) attempted to disclaim most of the bank's liability. The court considered this degree of immunity to be unlawful and to constitute gross discrimination as defined under the Civil Code.
  • Notice of termination of an account (Clause 36) must be served on each account holder individually where several of them exist (eg, for a joint account). The Supreme Court did not accept the bank's slightly puzzling argument that there were countries in which the receipt of such documents is punishable as a capital offence and that therefore it would be sufficient to serve the document only on one account holder.
  • A merely discretionary duty to verify consistencies in electronic transfer orders (Clause 39(1)(2)) discriminates against customers, in that it does not oblige the bank to check a bank account number against the recipient's name.
  • The co-holders of a joint account cannot be jointly and severally liable for a lien on the assets of the account (Clause 50(1)(2)). Joint liability discriminates against the customer under Section 879(3) of the Civil Code by granting access to assets that the bank would not otherwise be able to access. The same reasoning applies to Clause 58 which, through a retention right, achieves the same effect for joint accounts like a lien.
  • For the same reason any set-off by a bank from joint accounts against liabilities arising from a co-holder's own account (Clause 59(1)) is unlawful.
  • A shifting of the risk regarding falsified orders to customers (Clause 3(1)(1)) is unjustifiable and derogates too much from the statute. Under Section 1014 of the Civil Code the customer, as the ordering party, is responsible only for such falsifications that are attributable to her.
  • Exemption from the requirement of confidentiality (Clause 27) is lawful only with the customer's written consent. This requirement is not met if the exemption clause is included in terms and conditions that regularly go unsigned and thus do not comply with the written form requirement laid down in the Banking Act.
  • The unfettered right to pass information to small loan registry and warning lists (Clause 26(1)) without customers' written consent is unlawful. Such a clause should not be hidden among the bank's general terms and conditions. In addition, it is unlawful for banks to pass data (Clause 26(2)) to consortium/risk partners, lenders of refinancing funds or the deposit and investor indemnification facilities of their trade associations. Such clauses breaches various provisions of the Data Protection Act.
  • Clause 38(1) should allow the bank to balance accounts in a biased way: whereas accounts with a balance in favour of the customer would be balanced at the end of a calendar year, accounts with a balance in favour of the bank would be balanced at the end of that quarter. This invalid clause would thus allow the bank to earn more compound interest on debit accounts than the customer does if there is a credit balance.
  • Clause 69(3) attempted to restrict the bank's liability to culpable selection of a third-party custodian for securities. Such exclusion requires an individual agreement and cannot be made with consumers in general business terms and conditions.
  • Clause 3(3)(2) tried to restrict the bank's acceptance of orders by means of telecommunication only upon the customer's written request and with the bank's consent. The Supreme Court held this clause ineffective because it violates the principle of transparency as set forth in Section 6(3) of the Consumer Protection Act.

Banks are obliged to modify their terms and conditions accordingly, but not all of them have done so yet. A thorough review of any business practice that is based on the unlawful clauses is recommended.

For further information on this topic please contact Tibor Fabian at Binder Grösswang Rechtsanwälte by telephone (+43 1534 80) or by fax (+43 1534 808) or by email ([email protected]). The Binder Grösswang Rechtsanwälte website can be accessed at www.bgnet.at.