The security for building contractors under Section 1170b of the Austrian Civil Code (ABGB) is one of the most fascinating provisions of Austrian construction contract law and has for years been a reliable source of highly regarded decisions by the Supreme Court. Case 8 Ob 147/25p concerned a classic construction dispute: a construction contract is concluded, and during implementation defects emerge, the cause of which is assessed differently. The contractor submits an invoice, and the client disputes its due date. The contractor seeks security under Section 1170b of the Austrian Civil Code (ABGB), obtains it, realises it, and the client applies for an interim injunction on the grounds of an abusive exercise of rights in claiming the security. So far, nothing unusual.
Both the court of first instance and the appeal court ruled that the drawing of the bank guarantee constituted an abuse of rights, particularly as the contractor’s claim for payment was not yet due due to the client’s objections. Both courts based their arguments on the decision 6 Ob 113/20s.
Previous case law
The Supreme Court first had to clarify in 2020 whether security under Section 1170b of the Austrian Civil Code (ABGB) may be realised to satisfy disputed claims for remuneration. In 6 Ob 113/20s, the Supreme Court ruled that the contractor is obliged to maintain the security even in the event of unjustified objections. This follows directly from the clear wording of the cost-bearing provision, according to which the costs of the security of up to 2% p.a. are to be borne by the contractor and any costs exceeding this by the client; however, should the security have to be maintained due to unjustified objections by the client, the client must bear the full costs of the security. In short: since the client must in any event bear the costs of maintaining a security in the event of unjustified objections, the contractor may not use this security to satisfy claims asserted by him. This decision alone was heavily criticised in legal scholarship and practice.
In August last year, an opportunity then arose to correct this unsatisfactory line of case law. Regrettably, the 5th Senate of the Supreme Court did not seize this opportunity in 5 Ob 54/25i and confined itself to a brief restatement of the decision in 6 Ob 113/20s and to the point that the contractor was not entitled to draw down the bank guarantee simply because the contractor had in any case carried out an audit of the invoices and – in their view – legitimate invoice items. This decision has led to a resurgence of criticism of 6 Ob 113/20s.
The reversal of the trend
5, 6 and now 8? It is important to note that the Supreme Court is organised into specialist divisions (e.g. for insurance law, insolvency law, etc.). However, there is (as yet) no construction division, meaning that ‘general civil law matters’ can end up before various divisions. The division that has ruled on a case can be identified by the number at the beginning of the case number.
The 8th Chamber of the Supreme Court was therefore tasked with deciding when a security may be realised under Section 1170b of the Austrian Civil Code (ABGB). In doing so, the Supreme Court examined in detail both the numerous critical voices in legal literature and practice, as well as the isolated supportive voices. The very purpose of Section 1170b of the Austrian Civil Code (ABGB) requires that the contractor should not be dependent on reaching an agreement with the client or obtaining a final and binding judgment in order to secure the liquidity guaranteed by the security. Furthermore, the contractor should also be clearly protected against the client’s unwillingness to pay. Furthermore, the requirement set out in the government bill to reach an agreement with the client or obtain a final judgment prior to realising the security (as, for example, the deposit under ÖNORM B 2110 continues to provide for) was deliberately removed during the legislative process and therefore cannot be implicitly derived from the cost-bearing provisions.
Admittedly, this view leads to a certain obligation on the part of the client to provide advance payment, as they may not be able to recover the security amount paid out under certain circumstances; however, according to the Supreme Court, this was deliberately accepted by the legislature. Consequently, security under Section 1170b of the Austrian Civil Code (ABGB) may therefore be realised as soon as the client is in default of payment of a due claim.
What should now be borne in mind in practice?
Consequently, there are now conflicting decisions of the Supreme Court, which fundamentally has two consequences: the likelihood of a similar legal case reaching the Supreme Court increases, as the inconsistent resolution of a legal question indicates the existence of a legal issue of fundamental importance (Section 502(1) of the Code of Civil Procedure). On the other hand, the Supreme Court now also has the option of deciding this legal issue through an enlarged panel (i.e. a panel expanded by six additional judges to a total of eleven judges) (Section 8(1)(2) of the Supreme Court Act).
Despite this decision, which we consider to be well-founded and reasonable, legal uncertainty therefore remains.
It is therefore advisable to include contractual provisions specifying the conditions under which a given security may be realised in accordance with Section 1170b of the Austrian Civil Code (ABGB). In doing so, however, the mandatory nature of this provision must be taken into account, as must various practical considerations.
We are happy to assist you in this matter.
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