Background

Under the principles of Austrian 'collateral ownership', if a borrower transfers ownership of certain goods to a lender as security for a loan, the lender is obliged to re-transfer ownership once the loan has been repaid. Austrian law treats collateral ownership as a lien: the lender must therefore have actual possession of the goods.

Since the 1980s, collateral ownership in relation to regular moveable goods brought into Austria has been exclusively judged according to Austrian law, regardless of whether collateral ownership was established under foreign law before the goods were transferred to Austria. This has led to some difficulties for foreign entities dealing with goods crossing borders. For example, in Germany, unlike in Austria, it is possible to secure collateral ownership through 'constructive' rather than 'actual' possession of the goods.

Held

In a Supreme Court case heard by the Austrian courts earlier this year (case number 3 Ob 249/18s, 23.01.19), as part of a loan agreement subject to German law, the borrower provided security in the form of collateral ownership over various items. However, the items remained with the borrower and were subsequently transferred to Austria. After the items were seized during enforcement proceedings against the borrower, the lender requested the surrender of the items with reference to his collateral ownership.

Surprisingly, the Supreme Court held that as long as collateral ownership was effectively established abroad, it will remain effective in Austria. In coming to its decision, the Supreme Court held that previous judgements had infringed on the principles of free movement of goods within Europe.

Comment

The decision of the Supreme Court is a welcome change and should provide comfort to foreign entities whose rules on collateral ownership differ from those in Austria.