Taking security over goods in Austria

Background

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 under the principles of "collateral ownership". Austrian law treats collateral ownership as a lien so that the lender must have actual possession of the goods.

Since the 1980s, collateral ownership in relation to usual consumer 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 led to some difficulties for foreign entities. For example in Germany, unlike in Austria, it is possible to secure collateral ownership through "constructive" rather than "actual" possession of the goods. The Austrian Supreme Court has now given up this jurisprudence in a landmark decision.

Held

In this case, as part of a loan agreement subject to German law, the borrower provided collateral 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. The Supreme Court stated in its reasoning that the previous jurisprudence infringed on the European fundamental freedoms.

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.

3 Ob 249/18s