All questions

Breach of contract claims

Austrian contract and tort law are based on a fault-based liability system. A claimant generally must prove that damage occurred and that it was caused by the other contracting party. Furthermore, the claimant carries the burden of proof of the unlawfulness of the other party's behaviour; a breach of contract indicates unlawful behaviour.

As a fourth step, the defendant's fault must be proven. In contractual matters, slight negligence of the defendant is assumed. If liability for slight negligence is contractually excluded, the defendant must prove that he or she did not act in a grossly negligent way (Section 1298 ABGB). The defendant thus carries the burden of proof with regard to culpability.23

Contractual damages claims are privileged compared with tort claims (delict). First, Section 1313a of the ABGB provides for extensive vicarious liability; anyone is liable for the fault of their legal representatives as well as persons he or she employs to deliver the performance of services – even if those persons are entrepreneurs.

Second, the injured party must usually prove that the other party is at fault; however, contractual liability differs because in this case the injuring party must prove that it is not at fault (see above).

Third, pure pecuniary loss is generally not compensated in tort.

According to Section 1315 ABGB, a person who uses an incompetent or knowingly dangerous person to manage his or her affairs is liable for the damage he or she causes to a third party in this capacity. They may be employed on a permanent basis, but they may also be employed only once. A prerequisite for being an assistant, however, is the integration of the person in question into the sphere of control or organisation of the person potentially liable under Section 1315.24

i Non-performance

If the performance of the contract has (accidentally) become impossible before the contractually agreed date of delivery, the contract falls apart, and the parties must return any benefits already received. If a party is at fault, the infringed party may either stick with the contract, perform its part of the contract and then demand the value of the (meanwhile) impossible consideration, or it may rescind the contract and demand the balance between its own performance and due consideration. The infringed party may claim damages for any disadvantages suffered by the non-performance of the contract.25

Any other non-performance, such as mere non-delivery, constitutes a breach of contract and gives rise to damages claims.

ii Delay

One party's failure to perform within the agreed time frame, to deliver at the agreed place or to fulfil the contract in the determined manner entitles the other party to insist on performance of the contract or to set a grace period and to rescind the contract. Usually, it is not too difficult to determine whether a party failed to deliver at a certain point in time or at a certain place; however, failure to fulfil the contract in the determined manner is harder to establish.

If a party to a contract does not deliver the contracted goods, no matter if the goods delivered are completely different or just faulty, the other party to the contract may reject delivery or accept delivery under reservation. If the party accepts delivery, it may only assert warranty claims (see below).26 If the party in delay of performance is at fault, the injured party may additionally claim for damages caused by delay.

iii Warranties

Statutory warranty against defects applies to any non-gratuitous contract under Austrian law. Statutory warranty must not be mistaken for a contractual guarantee (or warranty). Statutory warranty law is governed by three different regimes following the transposition of Directives 2019/771 on Sales of Goods and 2019/777 on Digital Services: contracts subject to the ABGB (business-to-business and consumer-to-consumer), consumer contracts on sales of goods or digital services subject to the ABGB and the new Consumer Warranty Act (VGG) and any other consumer contracts not subject to the VGG (e.g., contracts for work or real estate contracts).27 The VGG only applies between entrepreneurs and consumers. Certain types of contracts are explicitly excluded, such as contracts for the sale of livestock, health services, gambling and financial services.28

Section 922 of the ABGB stipulates that: (1) the party selling goods is liable for the asset having the agreed or generally assumed qualities; (2) the goods must conform to the description, a sample or a model; and (3) the goods can be used in line with the nature of the transaction or the concluded agreement.29 Thus, any deviation from the contractually agreed service or goods, or what is usually expected from the contracted services or goods, may be a defect. The VGG differentiates similarly between contractually agreed properties (Section 5 VGG) and objectively required properties (Section 6 VGG).

There are defects of legal title and quality or quantity defects. In the first case, the debtor failed to transfer the promised right (partially or fully); in the second case, the debtor does not deliver enough or delivers an insufficient quality of goods.

For goods with digital elements and digital services, the VGG now stipulates an update obligation. According to Section 7 VGG, an entrepreneur is liable to provide – after prior information – any updates necessary for continued compliance of the goods or digital service with the contract for the agreed time frame or as long as the consumer may reasonably expect but for goods with digital elements at least two years after delivery.30 A consumer may expressly and separately agree to a deviation of the update obligation upon conclusion of the contract after having been specifically informed. The update obligation also applies to B2B contracts.31

According to Section 924 of the ABGB, it is assumed that any defects appearing within six months of the date of delivery were already present at the time of delivery. For consumer contracts within scope of the VGG, the deadline is one year (instead of six months). Especially for highly technical products it can be very difficult to prove that they were defective at delivery; therefore, the assumption is practically relevant.32 The creditor may primarily request repair or replacement of the goods. If repair or replacement is impossible, disproportionate, inconvenient for the creditor, unreasonable for the debtor or if the debtor fails to perform entirely, the creditor may request a price reduction or the rescission of the contract. The VGG details several additional reasons for a consumer to rely on price reduction and recission of the contract, such as severity of the defect.33

In recent years, the Supreme Court has ruled that a party repairing or replacing contracted goods or services before the debtor has been given a second chance to perform any warranty work has to pay the full price but does not have to pay the amount that the debtor saved by not repairing or replacing the contracted goods or services.34

In accordance with statutory law, entrepreneurs must give the other party, if said party is also an entrepreneur, notice of any defects within an appropriate time frame; otherwise, the right of warranty or damages claim relating to the defect is lost.35

Instead of asserting a warranty claim, a party may file a damages claim; the advantage is that the damages claim becomes time-barred within three years of the time the party becomes aware of the damage and the identity of the damaging party (see below),36 whereas the warranty period for movables is only two years (with a three-month period to assert the right for certain types of defects).37

iv Other breaches of contract

If negligent defective performance causes any consequential damage to a party to a contract or a damage is caused by a negligent violation or breach of ancillary obligations, the injured party may recover these consequential damages as contractual damages claims.38

v Pre-contractual liability

Even if the parties do not conclude a contract, a party may be liable for damages if the party negligently breaches pre-contractual duties of protection and care or any pre-contractual disclosure obligations (culpa in contrahendo). The parties are free to discontinue negotiations of a contract at any given time; however, they must act in good faith and may not end negotiations arbitrarily if the other party was induced to rely on the conclusion of the contract and damages would ensure from the discontinuance of the negotiations.39 The injured party may then claim the damages the party suffered owing to its reliance on the conclusion of the contract.

Defences to enforcement

i Initial impossibility

Evident initial impossibility of a contract, such as the legally impossible or ridiculous (e.g., sale of a unicorn), means that a contract cannot be validly concluded. The contract is void. If one party knew or had to know about the impossibility, the other party, who was unaware of the fact, may claim reliance interest.40

ii Subsequent impossibility

See Section V.i.

iii Frustration

The basis of a contract is defined as typical circumstances, which the parties usually assume at the time of the conclusion of the contract and see as the basis of the contract without expressly including them in the contract. The parties' intention to conclude a contract is based on the idea of the existence of future occurrence of certain circumstances.41 If those circumstances change fundamentally (e.g., a major earthquake at a future holiday destination), the contract may be challenged.

iv Laesio enormis

If one party has not even received half of the fair market value of what he or she transferred to the other party, the infringed party may demand rescission or reinstatement. The other party is entitled to pay the remaining amount up to the fair market value to keep the contract. The objective value at the time the contract was concluded is relevant.42

This principle only applies to contracts with a certain consideration (e.g., not donations). Entrepreneurs may contractually exclude this provision at their own expense.43

v Limitation of liability

Liability may be limited by party agreement; however, parties may not exclude any possible liability. Entrepreneurs may limit their liability in non-consumer contracts except for personal injuries, damage caused with intent and blatant gross negligence. Entrepreneurs may only limit their liability with regard to consumers for slight negligence, but even then not for personal injuries. Limitation of liability clauses in consumer cases should be carefully considered on a case-by-case basis.44

vi Statute of limitations

The ABGB recognises two different limitation periods. The default limitation period is 30 years and applies if statutory law does not provide for a shorter (or, seldom, longer) limitation period. A three-year period applies, for example, to damages claims, starting from the time the party becomes aware of the damage and the identity of the damaging party,45 as well as contractual damages claims such as damages for error, where the statute of limitations starts at the time of the conclusion of the contract.46 The statutory warranty period is two years for movable objects and three years for immovable objects.