Category: Austria

The Constitutional Tribunal recently analysed regulations regarding dawn raids carried out by the Office for Competition and Consumer Protection (OCCP) and ruled that the respective law is not in line with the Constitution insofar as it excludes the possibility to challenge rulings allowing searches to be conducted.

Facts

After receiving consent to search from the Warsaw Court for Competition and Consumer Protection (the Circuit Court), the OCCP raided the premises of companies operating in the fitness sector. One of the undertakings searched appealed the ruling even though the right to challenge it before the second-instance court was explicitly excluded by the Competition Act. As a result, the Warsaw Court of Appeals suspended the proceedings and forwarded a question on the constitutionality of the respective provision to the Constitutional Tribunal.

Current regulations and tribunal verdict

According to the Competition Act, the OCCP may conduct a search of undertakings’ premises and belongings when there are reasonable grounds to suspect a serious infringement, in particular where evidence could be tampered with. The OCCP must submit a request in order to receive consent to conduct a search and get a search warrant from the Circuit Court.

However, the court’s ruling in this regard (ie, a ruling authorising the search) could not have been appealed again before the higher court. The undertaking subjected to a search may have only filed a complaint with the Circuit Court regarding search-related activities that exceeded the subject matter of the search or other search-related activities conducted in infringement of the law.

According to the Constitutional Tribunal, the provision of the act pursuant to which there was no possibility to challenge consent to search before the Court of Appeals was inconsistent with the Constitution. Namely, it violated Article 78 (which states that each party has the right to appeal against judgments and decisions made at the first stage) in conjunction with Article 45.1 (according to which all parties have the right to a fair and public hearing of their case before the courts).

The tribunal emphasised that searched undertakings do not take part in proceedings before the Circuit Court and therefore cannot comment on the arguments that the OCCP presents when requesting a search warrant. As the possibility to appeal against the Circuit Court’s consent is excluded, there is no procedure under which a higher court can examine whether a search was justifiable, necessary or proportionate.

The tribunal explained that the higher court’s control in this regard should be performed ex post in order not to eliminate the surprise nature of searches. However, at the same time, the tribunal suggested that a positive outcome (for the complaining undertaking) of the higher court’s review should result in excluding the evidence collected during such searches from case files.

Comment

The direct result of the Constitutional Tribunal’s judgment will be an amendment to the Competition Act to provide searched undertakings with the possibility to appeal against Circuit Court consent to conduct searches.

To date, the Circuit Court’s decisions regarding searches had generally been favourable to the OCCP (there is no publicly known case in which the competition authority’s request for a search warrant has been rejected). It will be interesting to see whether the additional scrutiny of the Warsaw Court of Appeals will change the OCCP’s and Circuit Court’s practice in this regard.  

By Peter Feyl, Attorney at Law Schoenherr

Background and facts: Austrian (case) law on capital maintenance (Verbot der Einlagenrückgewähr) is stringent and in many of its decisions the Austrian Supreme Court has interpreted the principles of capital maintenance as laid out in Austrian corporate law very strictly. Now, for the first time, the Supreme Court has decided on the question of cash pooling.

These are the relevant facts:

• The cash pooling was a notional cash pooling (no zero balancing).
• An Austrian subsidiary of a Dutch parent (ultimately owned by an Australian group) participated in that notional cash pooling. 
• The Austrian subsidiary pledged any credit balance on the participating account to the (Dutch) bank.
• The Austrian participating company did not have an obligation towards the bank to keep a minimum balance on its participating account and it was entitled to terminate the cash pooling agreement with the bank. Internally, however, the parent company instructed its subsidiary that any withdrawal would be possible only with its consent. Funding of the Austrian subsidiary from the cash pool was subject to the parent’s consent. The bank was not aware of these internal arrangements.
• At the beginning, after joining the cash pool, the Austrian subsidiary received cash (and thus funding) out of the cash pool. Within two years the Austrian subsidiary was mostly in a credit position.
• When the parent group fell into financial difficulties, the bank terminated the cash pooling agreement (first with the subsidiaries, then with the parent). The bank enforced its account pledge and set off the credit balance on the subsidiary’s participating account against the debit balance of the parent on the master account.
• Shortly thereafter, insolvency proceedings were opened over the Austrian subsidiary. The receiver challenged the enforcement of the account pledge by way of set-off, in particular relying on a violation of the rules on capital maintenance.

Supreme Court ruling

In its judgment of 2 May 2019 (17 Ob 5/19p), the Supreme Court dismissed the receiver’s complaint and held in favour of the bank.

The Supreme Court argued as follows:

• The arm’s length test should not be applied to cash pooling because cash pooling is typically entered into within a group of companies and not with an independent third party. 
• Consequently, the test to be applied is primarily whether the cash pooling has a corporate benefit (betrieblich gerechtfertigt; see also Supreme Court 6 Ob 271/05d; 3 Ob 50/13y).
• Typically, a notional cash pooling is less critical from a capital maintenance point of view than a zero balancing; however, interest benefits may have to be shared (no explicit statement by the Supreme Court but may be inferred).
• Providing upstream security in a (notional) cash pool may run afoul of capital maintenance rules. Granting such security may be permissible if participation in the cash pool offers a corporate benefit to the subsidiary and if liability is not highly probable.
• Participating in a cash pool by an Austrian subsidiary which is likely to also receive funding out of the cash pool should offer a corporate benefit (betrieblich gerechtfertigt).
• In a notional pooling the subsidiary needs to be in the position to freely dispose of its credit balance on the participating account (and such discretion may also not be limited by group internal arrangements or instructions by the parent). 
• The participants in a cash pool need to be granted information rights by the parent on the financial situation of the parent and the group (risk management).
• Each participant must have the right to terminate its participation in the cash pool by giving notice (also not to be limited internally).
• Due to the group internal limitations imposed on the subsidiary to dispose of its credit balance on the participating account (but to secure the entire debt under the cash pool), the cash pool in question is likely to have violated Austrian capital maintenance rules (the Supreme Court did not finally decide on the issue because the bank was not liable).
• However, the Supreme Court held that the bank does not have to return the amount recovered to the receiver, because the bank could not have been aware of the violation (standard of gross negligence). On the contrary, the bank was not aware of the internal restrictions imposed on the subsidiary to dispose of its credit balance on the participating account, so that the participant had discretion towards the bank regarding the amount with which it participates in the cash pool. The bank could reasonably assume that the cash pool is operationally justified.

Conclusion

The Supreme Court only deals with notional pooling. It does not give a blank cheque to a bank setting up a cash pool but sees a corporate benefit (betriebliche Rechtfertigung) for such cash pooling, at least if the relevant Austrian subsidiary is likely to also receive funding out of the cash pool. Still, banks are well advised to request adequate representations and undertakings from every participant in a cash pool (which is subject to restrictions under capital maintenance rules) following the above mentioned principles so that the bank may rely thereupon.  

By Peter Feyl, Partner Schoenherr

I. Introduction: Drones (coll.; “unmanned aircraft [systems or vehicles]” in technical terms) are aircraft operated with no pilot on board. Once mainly developed and used for military purposes, drones are increasingly influencing our everyday lives. Drones vary greatly in size, performance and type. Civil drones are operated for risky flights to accident areas (e.g. firefighting, overflying flooded areas, finding missing persons3), can assist authorities4 (e.g. border control), deliver commercial services such as infrastructure (e.g. bridges, railways, nuclear plants) maintenance and monitoring, aerial mapping (e.g. for construction planning, insurance, urban planning), filming6 (see “Can flying photo drones be shot down?”), farming7, forestry, fisheries or may deliver packages. In fact, taxi drones may turn out to be a landmark in drone operations (see “Taxi drone EHang 216 takes off in Austria”). Considering that unmanned aerial toys will increasingly impact the Single European sky airspace, proper harmonised rules on safe and secure drone operation within the EU and its internal (aviation) market are urgently needed. EU-wide harmonised rules on civil drones must take into account their great variety of use these days.

II. Transitional period until harmonised rules for drones are in place

Outstanding application of the new BR…

The new “EASA-Basic Regulation” (BR) entitles the EU to regulate all civil unmanned aircraft (drones) irrespective of their operating mass. However, according to Art 140 BR, the special provisions on drones in the BR will apply for drones as soon as delegated and implementing acts according to Art 57 f enter into force. These tertiary acts set out detailed requirements for civil drone operations pursuant to the BR. The tertiary legislation will enter into force on 1 July 2019. Nevertheless, the new EU drone law will only be gradually applicable beginning one year after the entry into force, as of 1 July 2020. Appropriate transitional measures will enable EU Member States to convert the national documentation on civil drones in accordance with the EU drone law. The new EU drone law must be widely implemented as of 1 July 2020 and is finally applicable for all types of civil drones as of 1 July 2022.11

For the transitional period of EU drone law, the relevant provisions of Regulation (EC) 216/200812 continue to apply. However, this EU regulation, the former BR, limits its scope of harmonisation to civil drones with an operating mass over 150 kg. In any case of military activities, unmanned aircraft systems (UAS) fall under Member States’ regulations.

… and coherent Member States’ competence for drones weighing less than 150 kg

Considering that the transitory EU drone law is applicable to drones with a mass over 150 kg, since 2008 EU Member States have introduced their own standards for drones of 150 kg or less. Effective national regulations may even apply after 1 July 2020. To ensure a proper implementation of the new EU-wide harmonised rules on drones, transitional periods are laid down to provide Member States and stakeholders enough time to adapt their procedures based on national law to the new regulatory framework before the new EU drone law applies. Authorisations granted to UAS operators, certificates of remote pilot competency and declarations made by UAS operators or equivalent documentation, issued based on national law, must remain valid until 1 July 2021. By the same date, Member States must convert their existing certificates of remote pilot competency and their UAS operator authorisations or declarations, or equivalent documentation in accordance with the new EU drone law (Art 21 IR).14

For the article at hand, Austrian regulations will provide the reference legal order to be compared with that of the new BR. The Austrian legislator has fixed essential requirements for the operation of civil drones in Austria in Sections 24c – 24l Aviation Act (AA). In a nutshell, the prospective common EU rules on drones fundamentally differ from those under the Austrian legal system in force.

Air law aims primarily at protecting the security of civil aviation. For this, the former and new BR as well as Sections 24c ff AA set different approaches for drone operation and their personnel, technical and operational requirements. This article deals with the outlines of the effective Austrian aviation law and its main operational categories (Cf. III). Subsequently, the main aspects of the new BR and of tertiary law should be described (Cf. IV). To sum up, the current Austrian regulation should be compared to the intended harmonised EU drone law (Cf. V). 

III. Outlines of Austrian aviation law

Scope of application

Pursuant to the amendment of the AA, the civil operation of remotely piloted aircraft systems (RPAS) is permissible as of 1 January 2014. The operation of autonomous UAS, which function autonomously and are controlled by a computer without pilot intervention after take-off, is not explicitly addressed by Sections 24c – 24l AA. To comply with the rule of equality, the operation of autonomous UAS shall be allowed without any restrictions. For military use, drones still fall under the general dichotomy of aircraft (“Luftfahrzeug”) and air devices (“Luftfahrtgerät”) in accordance with the AA.

Four national civil drone categories

Essential requirements in AA

The special provisions for civil drones in the AA determine categories of drones to provide their secure operation based on different legal conditions. For this, Sections 24c ff AA refer to criteria concerning the modality of drone operation such as kinetic energy, operating mass, purpose of use (esp. non-commercial/commercial) and visual line of sight (VLOS). The Austrian legislator has decided that the four main national categories will be toys (“unbemannte Geräte”, Section 24d AA), model aircraft (“Flugmodelle”, Section 24c AA), RPAS class 1 (“unbemannte Luftfahrzeuge der Klasse1”, Section 24f AA) and RPAS class 2 (“unbemannte Luftfahrzeuge der Klasse 2”, Section 24g AA).

Toys are limited to non-commercial flights with max 79 Joule kinetic energy and an altitude of max 30 m above ground level. An operational approval (“Betriebsbewilligung”) issued by a competent aeronautical authority is notcompulsoryfor toys and model aircraft not exceeding 25 kg. Apart from these two categories, a technical certification of model aircraft above 25 kg by the Austrian Aero Club or of RPAS class 1 and 2 by the Austro Control is stipulated. Such operational approvals may be issued in the form of a decision on the permission (“Bewilligungsbescheid”) to operate on the application of a drone operator. The civil operation of drones, which does not comply with at least one of the necessary and cumulative preconditions for model aircraft according to Section 24c par 1 AA, falls under the category of RPAS. RPAS operations beyond visual line of sight (BVLOS) belong to RPAS class 2. RPAS which do not correspond with the regime of Section 24c par 1 AA but are operated without technical aid in direct unobstructed VLOS count as RPAS class 1. In other words, any commercial flight of a civil drone within VLOS must comply with the requirements for RPAS class 1 to obtain obligatory operational approval by Austro Control. In conclusion, the valuable or commercial purpose of a flight with an unmanned aircraft is of primary importance for its categorisation pursuant to the Austrian legislation in force.

Additional legal requirements

Except for toys, which are not even in the scope of the AA (Cf. Section 24d S 2 AA), the operation of drones must comply with special requirements laid down in ordinances of the competent authorities based on the legal provisions in the AA. For model aircraft over 25 kg the Austrian AeroClub has issued detailed requirements for operational approval in an airworthiness notice. For RPAS class 1 the Austro Control has published an airworthiness and operational notice. Both special regulations determine further subdivisions of drones. These are based upon the type of model aircraft (S, R, B or L), or upon the area of operation (uninhabited, populated or densely populated) and the maximum operating mass of the pertinent RPAS class 1 (category A, C or D). The operation of drones must meet the detailed technical, operational and personnel requirements according to the notices. In general, the minimum age for the (remote) pilot is 16.

General additional requirements are regulated in the air traffic rules 2014 (“Luftverkehrsregeln 2014”), according to which each drone operation of more than 150 m altitude above ground level is subject to approval by the Austro Control. They also restrict or absolutely interdict the overflight of defined air zones. In fact, the operational approvals issued by those authorities are solely permissions in regard to the AA. Depending on the manner of operation, further restrictions in virtue of administrative law (e.g. data or nature protection) or civil law (e.g. neighbours’ or landowners’ rights) ought to be observed by the drone operator and the pilot. In case of infringements, Section 169 AA sets fines of up to EUR 22,000, unless a criminal offence has been committed. Self-help (“Selbstjustiz”), for example by shooting drones off, is normally a disproportionate defensive measure against troubles caused by a drone.

IV. Outlines of the new BR

The union legislator has agreed on harmonised EU-wide rules for drones in the new BR. As of 1 July 2020, the new EU drone law based on the BR will begin to apply and eventually will apply to all civil drone operations as of 1 July 2022. To ensure its proper implementation and preparation by the EU Member States, appropriate transitional measures are established by the Implementing Regulation (EU) 2019/947 (IR)27 (Cf. 24th recital IR). The application of the BR and the Delegated Regulation (EU) 2019/945 (DR) also depends on these transitional provisions laid down in Art 20 ff IR. The BR with its essential requirements and, based on the BR, both the DR and IR are legally combined by mutually referring to one another. Art 55 in conjunction with Art 57 BR refer for their essential requirements to detailed rules laid down in the IR. The DR addresses the IR especially for its scope of application (Art 1 f DR) and for its descriptions of the main categories of EU drone operations (Art 3, 40 DR). Furthermore, the IR regularly applies the BR (e.g. for legal definitions) and the DR (e.g. for categorisation of drones). In fact, the three legal acts provide the basic legal unit concerning the new EU drone law.

Scope of application

With the adoption of the BR, the EU is competent for all unmanned aircraft regardless of their operating mass (Cf. 26th recital BR). The regulation will apply to civil unmanned aircraft, which are not registered in a Member State or in a third country and are operated within the territory to which the EU treaties apply by an aircraft operator established or with a principal place of business within that territory (Art 2 BR). As stated above, national registered drones must comply with the EU drone law by 1 July 2021. The BR is also applicable to unmanned aircraft used by a third-country operator into, within or out of the EU. The regulation states that such unmanned aircraft must comply with the applicable ICAO standards or with its own essential requirements, especially regarding Annex IX (Art 2 par 1 lit c in conjunction with Art 59 ff BR).

Unmanned aircraft means any aircraft operating or designed to operate autonomouslyor to be piloted remotely without a pilot on board (Art 3 no 30 BR). Furthermore, the EU drone law regulates unmanned aircraft system (UAS) consisting of the unmanned aircraft and the equipment to control it remotely (Art 3 no 3 DR).

Three UAS categories according to tertiary legislation

Technologies for unmanned aircraft allow a wide range of possible operations. Requirements related to airworthiness, the organisations and persons involved in the operation of UAS (operator, remote pilot) and unmanned aircraft operations should be set out to ensure safety for people on the ground and other airspace users during the operations of unmanned aircraft. The rules and procedures applicable to UAS operations should be proportionate to the nature and risk of the operation or activity and adapted to the operational characteristics of the unmanned aircraft concerned and the characteristics of the area of operations, such as the population density, surface characteristics and the presence of buildings. The risk level criteria as well as other criteria should be applied to establish three categories of operations. UAS operations must be performed in the open, specific or certified category In comparison to the Austrian provisions on drones, the purpose of UAS operations is irrelevant.

Operations in the open category, which should cover operations that present the lowest risks, should not require UAS that are subject to standard aeronautical compliance procedures, but should be conducted using the UAS classes defined in DR. According to the DR, UAS intended to be operated in the open category must meet the requirements defined in Parts 1 to 6 of its Annex. The Annex applies to five classes (CO – C4), which mainly vary in the maximum take-off mass (MTOM). A privileged status is related to model aircraft, which are used primarily for leisure activities, in class C4 (Cf. 4th recital DR, 34th recital BR). According to Art 4 IR, UAS operations in the open category must meet the following requirements: the UAS belongs to one of the five classes set out in DR or is privately built or falls under Art 20 IR; the unmanned aircraft has a MTOM of less than 25 kg; the remote pilot must keep a safe distance from people and not fly over open air assemblies of people; the remote pilot must keep the UAS in VLOS at all times, except when flying in follow-me mode; the max flight distance from the surface must be no more than 120 m, except when overflying an obstacle; and, finally, during flight, the unmanned aircraft must not carry dangerous goods and must not drop any material.

Pursuant to Art 23 IR, the IR – and thereby the new EU drone law – will apply from 1 July 2020. By derogation from Art 23 IR additional transitional measures concerning drone operations in the open category are laid down in Art 20 ff IR. According to Art 20 IR, certain types of UAS in the open category, which do not comply with the DR, can continue to be operated when they have been placed on the market before 1 July 2022. Under specific conditions, Art 22 IR allows, without prejudice to Art 20, the use of UAS in the open category which do not comply with the classes of drones set out in the Annex of DR for a transitional period until 1 July 2022. Until 1 July 2022 UAS operations conducted in the framework of model aircraft clubs must be allowed to continue in accordance with relevant national rules and without an authorisation in accordance with Art 16 IR (Art 21 par 3 IR).

Operations in the specific category should cover other types of operations presenting a higher risk and for which a thorough risk assessment according to Art 11 IR should be conducted to indicate which requirements are necessary to keep the operation safe. Where one of the requirements laid down for operations in the open category is not met, an UAS operator is required to obtain an operational authorisation pursuant to Art 12 IR from the competent authority in the Member State where it is registered (Art 5 IR).

Operations in the certified category should, as a matter of principle, be subject to mandatory rules on certification of the operator, and the licensing of remote pilots, in addition to the certification of the UAS pursuant to 40 DR. In any of the following conditions, UAS operations must be classified in the certified category: operation over assemblies of people (e.g. marriage, open-air event, rally), transport of people (taxi drones), carriage of dangerous goods. In addition, operations will be classified as UAS operations in the certified category where the competent authority, based on the risk assessment pursuant to Art 11 IR, considers it appropriate (Art 6 IR).

Further features

Certificates issued by the European Union Aviation Safety Agency (EASA) or the national competent authorities, and declarations made by persons in accordance with the BR and with the tertiary legislation adopted on the basis thereof will be subject exclusively to the rules, conditions and procedures laid down in the BR and national administrative requirements and will be valid and recognised in all Member States without any further requirements or evaluation (Art 67 BR).

The EASAassists the EC and investigates and monitors Members States, which are primarily responsible for the implementation of Union law concerning drones (Art 75, 83, 85 BR).

A Board of Appeal is responsible for deciding on appeals broughtby persons against the decisions of the EASA (Art 105 BR). Actions may be brought before the Court of Justice (ECJ) for the annulment of acts of the EASA. Union institutions and Member States may bring actions against decisions of the EASA directly before the ECJ, without being required to exhaust the appeal procedures before the Board of Appeal (Art 109, 114 BR).

The ECJ has unlimited jurisdiction to review decisions of the EC, which impose fines and periodic penalty payments on legal or natural persons for infringements of the BR (Art 84 BR, 67th recital BR).

Member States must regulate rules on penalties applicable to infringements of the EU drone law (Cf. Section 169 AA) and must take all measures necessary to ensure they are implemented (Art 131 BR).

V. Conclusions

With the BR, the EU has strengthened its position in the nascent global drone market. It is of utmost importance that the BR initiates an era of EU-wide harmonised drone standards, which will doubtless increase air security and operators’ trust in the Single European Sky airspace and, moreover, ensure legal security in the EU internal (aviation) market.

Apparently, the new BR differs significantly from the Austrian drone regulations in force. The BR treats autonomously operated unmanned aircraft equally to RPAS. The BR will determine a well-balanced legal framework to meet the demands of recreational and professional purposes and taxi drones. For most drone flights, namely unmanned aircraft with a MTOM less than 25 kg in the open category, the Union sets up a well-differentiated, risk- and performance-orientated classification of UAS, whose permissions must be recognised in all Member States. Taxi drones are clearly defined as UAS operations in the certified category.

To comply with the new EU drone regime, Austrian aviation law requires profound revision, which will essentially improve the legal position of drone operations in Austria. Due to appropriate transitional measures laid down in the common EU drone law, the Austrian legislator still has time to properly implement the new EU requirements for drone operations, which start to apply largely from 1 July 2020 in Austrian aviation law. Eventually, from 1 July 2022 the new EU-wide harmonised rules will be fully applicable, ushering in a new era in EU aviation law where the free circulation of drones is ensured.

By Christian Schmelz, Partner and Andreas Lopatka, Paralegal Schoenherr