BANKING LITIGATION
THE CROATIAN HIGH COMMERCIAL COURT RULES ON SWISS FRANC DENOMINATED CONSUMER LOANS
The Croatian High Commercial Court rendered a new interesting decision in a long-lasting judicial process between consumers and banks with regard to the validity of CHF denominated consumer loans, by declaring both CHF currency clauses and variable interest clauses null and void. According to estimates, the banks may consequently be liable for up to EUR 2 billion.
As reported in the 6th and 9th issues of our DRInsider, as a reaction to significant increases in the exchange rate between Swiss francs and Croatian kuna, in 2012 the consumer association "Potrošač" ("Consumer") filed a lawsuit against the largest operating banks in Croatia in order to protect local consumers that had taken out loans denominated in Swiss francs. The claim was based on the theory that CHF currency clauses and variable interest rate clauses represented unfair provisions that should be deemed null and void. Following the initial approval of the claim by the Commercial Court in Zagreb, the dispute took different routes through several levels of appellate proceedings, involving the High Commercial Court, Supreme Court and the Constitutional Court. From the inception of the dispute, the courts more or less shared the same view that variable interest rate clauses were unfair and, thus, null and void. However, opinions diverged when it came to CHF currency clauses.
In its most recent decision published on 14 June 2018, the High Commercial Court held that the banks violated the consumers' rights by agreeing to the denomination of loans in Swiss franc.
Despite previously declaring that the currency clauses were easily intelligible and therefore binding for the consumers, the High Commercial Court now took a different approach after the case was remanded for reconsideration. The Court ruled that the banks failed to duly inform the consumers on all the necessary parameters important for making an informed decision about taking on Swiss franc denominated loans. This, apparently, resulted in an imbalance of contractual rights and obligations between the parties and therefore a breach of the mandatory provisions of Croatian law.
As to variable interest rates, the High Commercial Court maintained its earlier position by confirming that these were adjusted non-transparently. Variable interest rates were considered amended in accordance with internal regulations of the banks, without a proper notification to consumers regarding calculation methods and parameters. To resolve the problem, the Court now ordered conversion of the interest rates into fixed rates as applicable at the commencement of the life of the loans.
However, the latest decision is currently under appeal. Should the Supreme Court share the view of the High Commercial Court, this may enable thousands of consumers to file individual claims against the banks and demand the repayment of the amounts overpaid due to raging CHF exchange rates.
It remains to be seen whether the ruling of the High Commercial Court will be upheld by the Supreme Court in the final chapter of this exhausting, yet interesting judicial saga. We also look forward to seeing how other related issues, such as the question of the loan conversion from CHF to EUR and the validity of variable interest rates in other currencies, will be resolved by the Croatian judiciary in the aftermath of this decision.
CIVIL PROCEDURE
CONFLICTING CASE LAW LEADS TO CONTROVERSY OVER THE RIGHT OF PARTIES TO INITIATE A CASSATION (SECOND) APPEAL IN ROMANIA
On 30 May 2017, the Romanian Constitutional Court ("RCC") issued Decision no. 369, declaring the provisions of art. XVIII (2) of Law no. 2/2013 – measures relieving the courts and the implementation of Law no. 134/2010 regarding the Civil Procedure Code (“CPC”) unconstitutional. The Decision was published in the Official Gazette no. 582 of 20 July 2017.
The legal provisions that were declared unconstitutional limit the right of parties to initiate a cassation (second) appeal against judgements issued in court cases with a value lower than RON 1,000,000 (approx. EUR 217,000). The RCC ruled that regardless of the value of a court case all parties must have access to such extraordinary remedy.
Due to the RCC's decision, numerous cassation (second) appeals with a lower value have been registered this year on the dockets of the Romanian courts in disputes. As provided by the CPC, all of these appeals have been sent to the High Court of Cassation and Justice ("HCCJ") for resolution.
Due to this unexpected volume of appeals HCCJ attempted to limit their number by interpreting the grounds and effect of the RCC's Decision of 30 May 2017.
As the RCC did not specify exactly which court cases will be affected by its decision, the HCCJ issued Interpretative Decision no. 52 (File no. 866/1/2018) on 18 June 2018, stating that a cassation (second) appeal may only be lodged in court cases with a value lower than RON 1,000,000 (approx. EUR 217,000) and which have been registered and settled by judgements after the RCC's Decision was published in the Official Gazette.
Moreover, HCCJ decided through a unitary case law that the Courts of Appeal are competent to rule on cassation (second) appeals submitted in disputes under the above-mentioned threshold.
The CCR has publicly disagreed with the decisions taken by the HCCJ in interpreting the Decision of 30 May 2017, and has challenged the powers of the Supreme Court to issue such interpretative decisions. Some parties affected by the limitations established by the HCCJ have already raised this issue and submitted applications for unconstitutionality to the RCC.
On 29 May 2018, the Romanian Parliament first circulated the draft law to amend the CPC to reflect the RCC's Decision of 30 May 2017. However, the CPC has still not been amended; leaving the uncertainty about the right of parties to initiate a cassation (second) appeal and significantly prolonging the resolution on such an appeal.
On 4 July 2018, the RCC approved the provisions of the draft law and issued a new Decision no. 454, covering the following important aspects:
i. the RCC's Decision of 30 May 2017 is mandatory for all disputes and not only for those settled after the publication of this decision;
ii. the HCCJ is not allowed to establish/interpret the effects of decision issued by the CCR;
iii. under the current regulations of the CPC, the HCCJ is competent to rule on all cassation (second) appeals.
However, the CCR has not established a remedy for parties that have already been affected by the interpretation made by the HCCJ.
Therefore, there is still conflicting case law of the HCCJ and the CCR that has led to confusion due to the lack of a common point of view regarding the right to lodge a cassation (second) appeal. Parties have been affected by this situation and the only certainty can now be brought by the Romanian Parliament with an amendment to the CPC that will clarify both conflicting aspects and will be mandatory for all courts of law.
CRIMINAL LAW
Breach of Fiduciary Duty: can a principal effectively consent to actions of his or her representative and thus exclude criminal liability? One of the most discussed provisions of Austrian business criminal law is breach of fiduciary duty (Untreue) under Art 153 StGB (Strafgesetzbuch – Austrian Criminal Code, StGB). This offence is committed by any person who knowingly abuses his or her authority to – either directly or via a third party – dispose of property belonging to another person; thus causing a financial detriment to the other person (e.g. as managing director or authorized officer).
The perpetrator must act knowingly with regard to the abuse of authority, meaning that he knows for certain that disposing of the property is an abuse of his authority. Furthermore, he must act with at least conditional intent with regard to the damage of the principal, meaning that he was at least aware of a substantial risk that damage will occur and, under these circumstances, still took the risk.
An abuse of power is committed if the perpetrator takes an action to which he is generally entitled in an external relationship but which is subject to certain restrictions in the internal relationship between the principal and the alleged perpetrator (e.g. the obligation to obtain permission in case of contract values beyond a certain threshold). In a previous issue of the DR insider we shed light on situations, in which internal restrictions were not clearly agreed, as numerous managing directors of companies are not bound to such restrictions in their internal relationship with the company. In this issue we want to address the question, whether the principal is entitled to consent to an action that would otherwise constitute an abuse of power and by doing so exclude the criminal liability of the perpetrator.
In case a person and not a company is involved it is quite logical that the principal can give his consent to the actions of the representative. It is the principal after all who determines the internal restrictions of the representative. Therefore, in cases in which the principal gave his prior consent to an action of the representative an abuse of power does not exist
as the internal restrictions were extended. However, in cases involving companies this question is more complicated, as the principal is the company itself, which is represented by its management board/managing directors. The management board/managing directors of course cannot give consent to their own actions, because if this were possible the criminal offence of breach of fiduciary duty in the context of companies would not exist anymore.
With regard to companies with limited liability (Gesellschaft mit beschränkter Haftung – GmbH) the Austrian Supreme Court already recognized decades ago, that a sole shareholder, who is also managing director, can give effective consent in order to exclude criminal liability. This follows the principle of an economic approach in criminal law: The offence of breach of trust shall protect the property of the principal's beneficiary. In corporations, the beneficiaries are the shareholders. Therefore, if the sole shareholder gives consent the beneficiary gave consent and suffers no damage; therefore such an action does not result in criminal liability.
In a recent decision (OGH 19.4.2018, 17 Os 15/17k) the Austrian Supreme Court confirmed that also with regard to limited liability companies (GmbH) and joint stock corporations (Aktiengesellschaft – AG) it shall generally be possible for shareholders to consent to the actions of the management board/managing directors and by doing so exclude criminal liability. This decision to some extent adjusts an earlier decision in which the Austrian Supreme Court excluded such consent with regard to joint stock corporations (AG). The new decision leads to clarification. Still, several questions remain unanswered. For example, it is not yet clear, whether such consent has to be given by all shareholders or whether in some scenarios a majority vote shall also suffice. The topic is therefore not yet entirely clear and will need further clarification in the future.
IP / IT LITIGATION
THE IMPLEMENTATION OF THE TRADE SECRET DIRECTIVE IN AUSTRIA
Directive (EU) 2016/943 on the protection of trade secrets will be implemented in Austria by an amendment to the Federal Act against Unfair Competition (UWG) and will enter into force on 1 February 2019
With the implementation of the EU Trade Secrets Directive, the protection of trade and business secrets, a legal area that has so far only been rudimentarily developed and mainly characterised by case law, will become an essential component of Austrian competition law.
The provisions of the Trade Secrets Directive are to be implemented in Sections 26a - 26j of the Act against Unfair Competition (UWG) and are intended to provide stronger protection for trade secrets and counteract the danger of industrial espionage and betrayal of secrets.
Trade Secrets
With the implementation of the Directive, a uniform term for "trade secret" is laid down by law. Trade Secret means information, which is secret, in the sense that it is not generally known or readily accessible; has commercial value because it is secret and has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.
Unlawful & Lawful Acquisition
The acquisition of a trade secret without the consent of the trade secret holder is unlawful if, inter alia, it is gained by unauthorised access to, appropriation of or copying of any documents or electronic files containing the trade secret or from which it can be deduced. The use or disclosure of a trade secret is considered to be unlawful where, inter alia, a person acquired the trade secret unlawfully or is, for instance, in breach of a confidentiality agreement.
The acquisition of a trade secret shall be deemed lawful when it is obtained, inter alia, by independent discovery or by the creation and appropriation through dismantling or testing of products ("reverse engineering"). The use and disclosure of trade secrets shall be considered lawful in case of whistleblowing or with respect to the functions of employee representatives.
Legal Remedies
As legal remedies, the law provides for provisional and precautionary measures by way of interim injunctions; furthermore, the seizure or delivery of suspected infringing goods shall be possible. In case of intentional behaviour the
infringer shall pay damages to the trade secret holder.
Claims arising from the infringement of trade secrets are subject to a limitation period of 3 years from the date of knowledge of the infringement and the alleged infringer. In any case, such claims shall become time-barred 6 years after the act of infringement occurred.
Protection in the course of legal proceedings
Furthermore, new procedural provisions to protect the confidentiality of trade secrets in the course of legal proceedings will be established. For initiating legal proceedings, a duly substantiated application to the court which proves the existence of a trade secret and its infringement is sufficient. Upon application by a party or at the court's own initiative, the court must take measures to prevent disclosure of trade secrets which may include restricting public access to hearings and initially preventing the disclosure to the (alleged) infringer.
When does the amendment enter into force?
The draft law is to be adopted in 2018 and is expected to enter into force on 1 February 2019.
Arbitration
BOSNIAN COURTS DECLINE JURISDICTION IN INTERIM MEASURE PROCEEDINGS DUE TO EXISTANCE OF ARBITRATION AGREEMENT
Recent final and binding decisions issued by two second instance courts (in Sarajevo and Banja Luka) ruled that national courts do not have the jurisdiction to decide on interim measures when parties agreed on arbitration.
In both cases, parties agreed that disputes arising out of or in connection with their contractual relationship shall be settled by arbitral tribunals seated outside Bosnia. Since respondents in these cases are Bosnian companies, claimants filed for interim measures before the competent courts in Bosnia and Herzegovina; in line with the general rules of laws on civil proceedings. The laws further provide that interim measures can be granted by the court which has the jurisdiction to decide on the main claim. However, they remain silent with regards to the courts' authority to decide on interim measures when such request has been filed prior to or in the course of arbitration proceedings.
In Bosnia and Herzegovina there are no special arbitration laws and only certain aspects of arbitration proceedings are regulated by special chapters in the laws on civil proceedings. Even though the arbitration related provisions refer to the application of certain general civil procedure rules (such as examination of evidence before courts), the laws remain silent if and to what extent rules related to interim measure before the court may be applied if the main claim is to be settled in arbitration.
Thus, the courts of Sarajevo and Banja Luka held that by agreeing to arbitration the parties excluded the jurisdiction of national courts to decide on any issues related to the matter in hand, including on interim measures.
In its decision the court in Banja Luka went one step further by reasoning that due to the mere existence of an arbitration agreement, the relevant dispute does not fall within the competence of the court and thus, the court is obliged ex officio to decline jurisdiction at any time in the course of the proceedings, until the decision on the merits is final and binding. This reasoning could prove to be very problematic since it indicates that there is still a lack of understanding of arbitration in general, which results in a narrow and, to certain extent, wrong interpretation of the mandatory laws. Namely, contrary to the understanding of the court in Banja Luka, in accordance with the relevant law even if an arbitration agreement exists, court jurisdiction may only be declined on the basis of the respondent's timely objection to the court's jurisdiction (which must be raised in the response to the lawsuit at the latest). Accordingly, the existence of an agreement to arbitrate is not a circumstance that can be raised at any time in the course of proceedings in which the court should determine ex officio.
On the other hand, it is evident that there is a need for a new legal framework that provides a detailed regulation of interim measures in relation to arbitration. In the meantime, it seems that Bosnia and Herzegovina will remain a non-'arbitration-friendly' environment, at least in relation to arbitrations seated outside of Bosnia.
What message does this carry for foreign investors in Bosnia and Herzegovina?
While there are various arguments why parties should refer disputes to arbitration (domestic and international), one should take into account any specific issues that could arise in securing a claim; both prior to or in the course of arbitral proceedings. For such purposes, at least for the time being, investors should rather not rely on interim measures but instead seek security for their interests in another manner, such as, for example, security instruments that are directly enforceable under Bosnian law.
Practice Development
Wolf Theiss Hosts Firm-wide Dispute Resolution School
Educating young lawyers and helping them to develop their passion to learn is a responsible task and our School of Excellence offers a variety of training opportunities including also training in technical skills, as well as communication, management and leadership skills.
This October we hosted the Dispute Resolution School Master Level in which the first day has been reserved for the intensive advocacy training on cross-examination held by UK certified experts for training English barristers. Our lawyers were able to learn by doing and observing and had an opportunity to examine genuine expert witnesses. It was interactive, interesting and we all enjoyed switching roles and rephrasing our questions.
As one of the current trends in the world and also in CEE/SEE region is the increase of white collar crime matters and also stricter and stricter legislation regarding these types of offences, the second day of the school started with the presentation on WCC focused on practical tips and real live cases giving our participants an insight into cross-border matters and the challenges they bring along. The session was held by the Head of Disputes Clemens Trauttenberg and senior associate Nikolaus Loudon.
After a short "break" when Wolf Theiss PR Manager Barbara Fuerchtegott taught us more about Litigation PR and do's and dont's when dealing with media, we immediately switched to investment arbitration and the famous Achmea case which offers a variety of questions regarding the future of arbitration. The presentation was held by our arbitration expert Dalibor Valincic from the Zagreb office.
The last session was held by our experienced litigator Holger Bielesz and recently promoted senior associate Markus Taufner. They gave us a dynamic update on recent ECJ case law and the Hague Convention on Choice of Court Agreements which is important for the promotion of international trade.
The Dispute Resolution School has always the best "rankings" among our young lawyers across the region because it provides them with the necessary strategies and the legal techniques to help our clients answer complex questions and plan for the future. The training sessions include case studies, hands-on simulation, different problem-solving methods, which will enable our experts to handle most sensitive and complex of civil claims, criminal actions and investigations.
After such a program one could only wish to relax and mingle and of course enjoy famous Wiener schnitzel and some plum dumplings. Our traditional evening social event was therefore organized in the cozy atmosphere in one of the old Viennese venues.
