What?

In 2006, the Swiss Federal Supreme Court clarified that banks and asset managers are obliged to hand over kickbacks (also known as commissions, retrocessions, etc.) that they receive from providers of financial investments to their clients. This applies in any case unless an express agreement to the contrary has been made. The reason for this lies in the duty of an agent to hand over to the client everything he receives from third parties in the course of executing the mandate (Article 400 paragraph 1 of the Swiss Code of Obligations).

Banks and asset managers have been fighting back for years against clients who demand that they hand over kickbacks. Among other things, they have argued that there is no obligation to hand over the kickbacks,

  • if the kickbacks are compensation for services that they provide for the providers of the financial investments
  • if no asset management agreement has been concluded
  • if a clause in the general terms and conditions excludes the surrender across the board
  • if the customer is unable to provide evidence of a particular loss
  • if the short limitation period of 5 years under Article 128 of the Swiss Code of Obligations has expired since receipt of the payments.

The courts are constantly restricting these arguments or often cancelling them altogether. The judgement discussed below should be seen in this context.

In a recent ruling (HG210223 of 21 June 2023), the Commercial Court of Zurich decided that clients of banks may be entitled to reimbursements (retrocessions) even if they have neither signed an asset management agreement nor an advisory agreement with the bank or asset manager, but had an “execution only” relationship.

In the specific case, clients of the bank had claimed reimbursements totalling around CHF 59,000 that the bank had received for the purchase of securities from third parties. The bank rejected the repayment, arguing that neither an asset management agreement nor an advisory relationship had existed and that the clients had waived such reimbursements by accepting the general terms and conditions.

However, the Commercial Court found that the clients were entitled to the reimbursements because Article 400 paragraph 1 of the Code of Obligations also applied in the case of an “execution only” relationship. It is particularly interesting that three different versions of the General Terms and Conditions were applicable during the duration of the client relationship because the bank repeatedly reformulated them. However, none of the three versions led to an effective waiver:

  • the first version contained a waiver of kickbacks for customers, but the small print did not provide sufficient information about the range of possible commissions. The clause was therefore not sufficiently clear. The customers were not even aware of what they were specifically supposed to waive. The clause was therefore not effective.
  • the second version did not formulate the waiver clearly at all, but simply took it for granted that the kickbacks belonged to the bank. Customers could not have been aware that they were being asked to waive something to which they were entitled.
  • the third version was considered abusive within the meaning of Article 8 of the Unfair Competition Act (UWG).

So what?

For investors, this judgement strengthens their rights and reduces the unresolved legal issues and thus the litigation risk in lawsuits for the refund of kickbacks.

Do What?

If you have invested in securities, it is worth asking the bank to disclose and hand over the kickbacks received. If the bank refuses to do so, an in-depth investigation is worthwhile.