In today's dynamic banking landscape, the responsibility of banks towards their clients is more vital than ever. Amidst this backdrop, it's important to understand the nuances of seeking damages, especially when banks act as agents or commissioners.
According to article 398 of the Swiss Code of Obligation of 30 mars 1911 (“CO”), the mandatee generally has the same duty of care as the employee in an employment relationship (paragraph 1). The mandatee is liable to the mandator for the diligent and faithful performance of the business entrusted to him (paragraph 2). He must conduct such business in person unless authorised or compelled by circumstance to delegate it to a third party or where such delegation is deemed admissible by custom (paragraph 3).
Understanding the Role of a Bank in Switzerland
When banks play the role of agents or commissioners, clients have the right to demand damages if they believe the bank failed to display due diligence. For instance, if the bank didn't execute a client's order in the most beneficial manner, they can be held accountable as per article 398 CO. This becomes complex when the bank's role is only that of a seller, for instance, where their responsibilities are explicitly defined, leaving less room for complaints based on perceived diligence.
Quantifying Damage
The very foundation of any damages claim lies in the existence of a proven damage. The Swiss Federal Court defines this as an involuntary reduction of net assets– essentially, the difference in a client's wealth had the damaging event not occurred[1]. It could manifest as a drop in assets, increased liabilities, or even missed opportunities. Clients must then show how their assets were affected, such as if a bank acquired a different asset than the one the client desired. Furthermore, the court mandates a five percent (5%) interest on claims, which becomes controversial in high negative interest rate scenarios, resulting in a penalty against the bank[2].
Bank's Due Diligence
Article398 CO outlines that the mandatee's diligence is equated to that of an employee in a work contract (art. 321 CO)[3]. However, given a bank operates independently, often as specialists, the diligence expected from them is naturally higher. Essentially, diligence implies executing tasks with competency and adequate attention. But this raises a question: should a local bank and a global one with vast resources be held to the same standard of diligence? The answer might lie in setting expectations right. If a bank informs a client of its limitations and the client still chooses to proceed, any perceived lack of diligence shouldn't be a ground for complaint[4].
Establishing Fault
Not all lack of diligence translates to fault[5]. The bank needs to have intentionally or negligently erred for them to be liable. The onus isn't on the client to prove fault, as per Article 97 al. 1CO. However, any discussion on fault will inevitably veer towards the bank's capabilities. For instance, banks can't use workload as a defense against negligence[6]. Interestingly, while fault is presumed in damage claims, the severity needs to be proven by the claimant.
Cause and Effect
There needs to be a direct link between the bank's lack of diligence and the client's loss. This means the client must prove that their instruction could have been executed in the manner they specified[7]. For instance, if shares were to be sold at a specific price, the client needs to prove that they would have been sold at that price if that bank had acted diligently.
Third-Party Involvement
Banking operations often involve third parties, especially in international transactions. When a bank outsources part of its operation, who's responsible for any mishaps? The distinction between an auxiliary (art. 101 CO) and a sub-agent (art. 399 para. 2 CO) becomes crucial here. A bank's responsibility might lie only within the domain of a sub-agent, who acts autonomously[8]. This distinction often requires clear communication in bank policies to manage client expectations.
The Client's Concurrent Fault
Interestingly, clients aren't free from responsibilities. If they recognize the bank's error and don't act to mitigate their loss, they might be held partly accountable[9]. It's a principle grounded in proactive client engagement. If a bank errs but the client also sits idle when corrective action could be taken, the client's claim might be reduced[10].
In brief, the relationship between banks and clients is intricate, shaped by defined roles, diligence, perceived faults, and responsibilities on both sides. As the financial landscape becomes more global and complex, understanding these nuances is essential for both banks and their clients. Clients need to be aware of their rights and responsibilities, while banks must ensure clarity, diligence, and proper communication to foster trust and mitigate disputes.
Forward-looking- The Future of Banking and Client Relations
Predicted Trajectories
The fusion of quantum computing, decentralized finance, and virtual banking portends a future of seamless, instantaneous, and highly personalised banking services.
Article398 CO's Evolution
The current provision will undoubtedly require reinterpretations and adaptations, aligning with the future's banking realities, maintaining the sanctity of client relations.
Advice for Clients in the Banking Landscape
Navigating the intricate web of banking responsibilities can be daunting, but as a client, staying informed and proactive is key. Firstly, always ensure clarity in communication with your bank. If you're uncertain about any terms, services, or roles they play, seek explicit clarifications. It's not just about protecting yourself, but also about building a transparent relationship with the institution. Secondly, maintain meticulous records of all transactions and instructions given to the bank. These can serve as crucial evidence should any discrepancies arise. Additionally, if you ever suspect that the bank may not have acted with the requisite diligence, address the issue promptly, seeking appropriate guidance if necessary. Proactivity on your part can not only potentially mitigate losses but also reinforce your stance if you ever need to claim damages. Lastly, always stay updated with evolving banking norms and practices. The more informed you are, the better equipped you'll be to navigate any challenges and ensure your assets are managed with the care and expertise they deserve.
Our Experience
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This article is for information purposes only. It does not constitute professional advice or an opinion. Please contact us on info@lecocqassocate.com for any questions.
Footnotes
[1]ATF 120 II 296 ss, 298.
[2] TF4P.277/2004 2 May 2005, consid. 5.2 ;TF 5A_388/2018 3 April 2019, consid. 5.5.4.3.
[3] Tercier/Bieri/Carron, Les contrats spéciaux, Schulthess Editions Romandes 2016, N 4438.
[4] TF,29 October 1997, SJ 1998, p. 198 ss, 201.
[5] ATF 112 II 450 ss.
[6] CarloLombardini, Gestion de fortune : réglementation,contrats et instruments, Genève/Zurich 2012, Schulthess Editions Romandes, p.291.
[7] TF 4C.471/2004 24 June 2005,consid. 3.2.1.
[8] CarloLombardini, Gestion de fortune : réglementation,contrats et instruments, Genève/Zurich 2012, Schulthess Editions Romandes, p.292.
[9] TF 4C.191/2004 du 7 septembre2004, consid. 5.1 et seq., SJ 2005 I p. 174 et seq..
[10] TF 4C.191/2004 du 7 septembre2004, consid. 5.2 et seq., SJ 2005 I p. 174 et seq..
