AUSTRIA Trends and Developments Contributed by: Anna Zeitlinger, Gabriel Lansky, Philip Goeth and Konstantin Oppolzer, Lansky Ganzger Goeth + Partner Rechtsanwälte GmbH
leads (only) to a loss of revenue for the subsidiary, the second contract leads to damage claims launched by the contractual partner of the subsidiary, and the third contract concerns the subsidiaries bank account with a designated bank, with the consequence that the subsidiary cannot pay its employees and suppliers and that the directors of the subsidiary will be investi - gated for an alleged breach of local laws. In the first example, the mere loss of revenue and the potential decrease in profits will likely not render the shareholder instruction “unfeasible”. As for EU enti - ties, economic losses must be tolerated in order to achieve the objectives of a particular sanctions regime. The second example includes damage claims against the subsidiary. One could argue that damages are part of an “economic loss” and, thus, must be tolerated by the EU parent. However, it could also be argued that in such cases the third-country subsidiary is worse off compared to an EU subsidiary. This is because an EU subsidiary could protect itself against damage claims by referring to the “no claims clause” which prohibits an EU operator from satisfying any claims where per - formance is impacted by EU sanctions. This defence would hold up in an EU court and the EU subsidiary would not be required to pay the damages. Since the third-country subsidiary should not be treated worse than the EU subsidiary, one could further argue that instructing the subsidiary to terminate such agree - ment is “unfeasible” for it exposes the subsidiary to damage claims. In the third example, terminating the bank account with a designated bank exposes the subsidiary and its directors to significant liabilities. If under local laws directors are exposed to civil or criminal liability for complying with the EU parent’s instruction, one can argue that such instruction is not “feasible”. Con - sequently, the EU parent would not breach its best- efforts obligation if it refused to issue such instruction to its subsidiary. The above examples demonstrate the potential dif - ficulties in the practical application of the best-efforts obligation. This is why each measures ought to be assessed individually and regard must be given to
the consequences for the concerned subsidiaries and directors. Loss of control If an EU entity lost control over its third-country sub - sidiary and if such loss is not attributable to the EU entity’s conduct, it is generally accepted that in light of the best-efforts obligation, the EU entity cannot take any measures for the lack of actual control – such actions are not feasible and, therefore, the best-efforts obligation is complied with. However, according to the EU Commission, EU enti - ties that decided to remain in Russia may not argue the loss of control over its Russian subsidiary due to Russian laws in order to justify its inactivity vis-à-vis the Russian subsidiary. The EU Commission argues that such an EU entity must have been aware that Russia is a jurisdiction with serious and well-docu - mented deficiencies in the rule of law. Thus, the loss of control is attributable to the EU entity and the best- efforts obligation continues to apply to it even if it fac - tually lost the ability to exert influence over its Russian subsidiary. Indeed, Russia has adopted wide-spread counter - sanctions against companies from “unfriendly states”. A Russian subsidiary of an EU entity cannot refuse performance under a contract because it may under - mine EU sanctions. The subsidiary’s directors are obliged to act in the best interest of the company; this extends also to the best economic interest of the company. Failing to do so exposes the directors to severe civil and even criminal liability. The existence of Russian countersanctions on the one hand and the obligation to (strictly) comply with the best-efforts obligation on the other often results in a dead-lock situation in which the EU entity issues instructions to the Russian subsidiary to cease certain activities, and the Russian subsidiary refuses to follow these instructions to avoid exposure to liability. Though the EU Commission’s approach towards Rus - sian subsidiaries is not binding, authorities often defer to the views of the EU Commission. Thus, as long as the EU Commission maintains its position on the best-efforts obligation vis-à-vis Russian subsidiaries
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