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By: Dr. Andreas Weinzierl

BREXIT from an Austrian perspective

On June 23 2016 the United Kingdom European Union membership referendum resulted in a “leave” majority of 51,9%. The Austrian reactions varied between calls to start our own ÖXIT (“Österreich-Exit”) campaign as to speculations that Britain’s politicians will turn a blind eye on the non-binding referendum.

Austria is looking forward continuing its political and economical relationship with the UK, its 8th largest trading partner. For historic reasons Austria is very well prepared to do business with non EU-member countries, as many neighboring countries have only recently become an EU-member (like Croatia), or will not join the EU in the near future (like Switzerland).

If and when the Brexit happens it will certainly have an enormous impact on legal issues regarding not only cross boarder trade.

The European single market will no longer cover the UK unless the UK joins the European Economic Area.

Thus, British companies may consider setting up a foreign entity in Austria where the 'real seat' theory is applicable (unless suppressed by the EU law’s incorporation theory).   Meaning that the law of the country where the company has its 'real' seat (e.g. its management and control centre) is the applicable law regarding the formation requirements as well as company relationships (Austrian Supreme Court’s decision 4 Ob 119/11w).

Consequences on taxes and dividends are hardly predictable. It remains to be seen what the negotiations between the UK and the EU will ultimately reveal. Cross boarder dividends and restructuring could be subject to deteriorated conditions.

Tariffs might lead to an increase on prices for imported goods and affect new contracts as well as existing ones. In case tariffs and taxes lead to increased prices on traded goods, this might result in the right of an early termination concerning existing contracts.

Pursuant to Austrian law every continuing obligation can be cancelled should prolonging a contract be unacceptable. This right of early termination is granted even if the parties agreed on an irredeemable contract, yet only under rigorous criteria.

Under certain conditions contracts may be deemed null and void through mutual mistake or by fundamental change of circumstances. However, the right to challenge a contract due to mutual mistake based on non-foreseen tariffs or taxes is only granted if the price calculation was part of the contractual negotiations (Austrian Supreme Court’s decision 9 Ob 194/98i).  

Consequential, it would be advisable to renegotiate long-term contracts in order to clarify such issues for both parties. In the future the choice of law and forum will become more important and should be considered in every new contract. Nevertheless, Austrian consumer protection law will always have to be respected in B2C business.

In civil proceedings British parties may be prompted to name an Austrian authorized recipient (e.g. a legal representative) otherwise legal notifications may be only serviced by deposition at court. Garnishment procedures are expected to become more complicated and time consuming.

Another challenge for mutual future trade will emerge due to data-protection regulations. Yet it has to be seen if the European Commission classifies the UK as a secure or unsecure non-member state, the former being far more likely. If the latter should apply, transfer of data will have to be approved by the Austrian data protection authority, which is usually granted pursuant to a list of standard terms and conditions.

The aforementioned issues are only a small selection of possible legal challenges that awaits Europe. Once the Brexit is finalized and negotiations between the UK and the EU are completed the full scope of legal turmoil will unfold.

In any case Tramposch & Partners will be glad to guide you through the legal consequences in the best possible way so that despite the Brexit business with Austria remains business as usual.