AUSTRIA: Is legal advice by software solutions and/or AI permitted in Austria?

30.11.2023

In its judgment 4 Ob 77/23m from 27th June 2023 the Austrian Supreme Court, among other things, ruled that the provision of recommendations for action by software solutions and/or AI to lawyers in a legal advisory or automated manner is permissible and that the correspondence between lawyer and client may also take place entirely via a software platform as long as the confidentiality of the data is maintained. Another important finding is that it - according to the Supreme Court - is permissible to take success rates into account when selecting lawyers for clients. However, as an intermediary, the software platform may not demand a percentage of the lawyer's fee as a referral fee.

FACTS

The reason for the aforementioned Supreme Court decision was a lawsuit filed by the Austrian Lawyers Association (ÖRAV; not to be confused with the Austrian Bar Association) against a LawTech company that describes itself as the "first digital legal department on demand" and offers online legal advice through AI support.

As a rule, the defendant company initially acts as an AI-based debt collection service provider. If necessary and if desired by the customer, it subsequently brings the customer together with suitable partner lawyers, provides the latter with research results generated by an AI and (also using AI) generates legal proposals/recommendations for action for its partner lawyers. Apart from debt collection, the company also offers a similar intermediation model for other "legal issues of all kinds".

Among other things, the ÖRAV was of the opinion that it would be inadmissible to

(as a “non-lawyer”) provide lawyers with proposals and/or recommendations for action in a legal advisory or mechanical manner, because legal advice and representation was reserved for lawyers

and

handle correspondence between lawyers and their clients via the LawTech company's software, because this would violate the lawyer's duty of confidentiality.

In essence, the Supreme Court therefore, in the third and final instance, had to decide the questions of whether software solutions and/or AI may provide legal advice and technically "enable" communication between lawyers and their clients.

THE SUPREME COURT’S DECISION

With regard to the AI-generated research results and recommendations for action, the Supreme Court stated that neither the business model nor the contracts of the defendant company indicated that the (partner) lawyers were bound by the (even if “only” automatically generated) research results, recommendations for action or the like or that they were otherwise released from their professional duty to represent their clients and their rights in accordance with their mandate, conscience and the law with zeal, loyalty and conscientiousness towards everyone.

Furthermore, the Supreme Court pointed out, that outsourcing is in principle also permissible for lawyers and that it was not at all comprehensible, why a lawyer may not seek or accept external or “non-lawyer” advice in principle or in this case.

The Supreme Court also did not follow the "concerns" of the ÖRAV that communication between lawyers and their clients via external software would violate the lawyer's duty of confidentiality. Rather, in the opinion of the Supreme Court, the disclosure of data relating to the core area of lawyer-client confidentiality, namely the communication between the client and the lawyer, even to a third party (as in this case) contractually engaged by the latter to provide services, does not constitute a breach of the duty of confidentiality, because the third party is to be qualified as an auxiliary of the lawyer and is therefore also bound by the lawyer’s confidentiality obligation.

Although the Supreme Court did not address this in light of the above, it should nevertheless be mentioned that, in practice, the defendant LawTech company i) is anyways likely to be released from the duty of confidentiality by its customers, ii) apparently also has taken appropriate protective measures (such as double encryption of the case data in an ISO-certified cloud until the lawyer is mandated) and iii) communication does apparently no longer take place via the company's platform anyway after a partner lawyer has been mandated.

Another important finding is that – according to the Supreme Court – it is permissible to take success rates into account when selecting the partner lawyers for the customers.

However, the Supreme Court considered it inadmissible that the entire billing of the partner lawyers' fees was to be carried out by the LegalTech company, that all fees were to be transferred to the LegalTech company first and that the LegalTech company retained 25% of the lawyer's fee as an referral fee before transferring it to the partner lawyers.

CONCLUSION

Although the LegalTech company had to change its remuneration model, this decision can be seen as a breakthrough in the digitalization of the legal sector and thus as a basis for the establishment of further LegalTech companies and their services in Austria.

Link to the Supreme Court’s Decision (available only in German):
https://tinyurl.com/Decision-of-the-Supreme-Court

Article provided by INPLP member: Arpad Gered (MGLP Rechtsanwälte, Austria)

Co-Author: Alexandra Prodan

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