Liability in capital investments — the court case as a reflection of disappointed expectations
Making correct decisions on the basis of complete and correct information is a challenge that every investor, including capital investors, has to face. In the case of a failed investment, the incentive is great to minimize one’s own responsibility in court. The starting points are manifold in today’s world.
By means of Internet research, information that is allegedly relevant to the decision but not provided by the bank to the decision-maker, namely the investor, is subsequently brought to light. The responsible citizen presents himself as a victim of the persuasions of professional advisors. Facts that are clearly documented in writing are suddenly denied. — The case law of the XI Civil Senate of the German Federal Court of Justice in particular plays its part in incapacitating investors when even professional market participants are denied the ability to recognize risks and make decisions accordingly, as was recently the case in Ille Waschraumhygiene v. Deutsche Bank on the CMS spread ladder swap (Case No. XI ZR 33/10).
In the case of highly speculative investments, we very often experience that it was the first successful investments that aroused the investor’s interest in further, more voluminous investments. Here, too, the basic rule applies that a transaction that was successfully concluded with a considerable profit within a short period of time could just as well have gone in a completely different direction with a similar result. — Nevertheless, many courts allow negative initial transactions to suffice as a warning to the investor, but not positive investment experiences. All the worse in this context: In court, there must be a fierce fight to ensure that the investor at least has those earnings credited to his loss which he has already earned from similar transactions in the past. This in itself is a dictate of common sense and fairness; however, these dictates have no place in many legal disputes.
No other issue has taken on a similar dimension in liability jurisprudence in recent years as that of bank compensation. At the same time, no one can close their eyes to the fact that banks do not operate free of charge. Thus, if the customer does not pay a fee directly to the advising bank for a financial service, it is a matter of course that the bank is remunerated by a third party, as is the case in particular with the distribution of closed-end investments.
Nevertheless, several civil divisions of the Federal Court of Justice consider banks to be obliged to provide information in this regard. At least the Federal Court of Justice recently stated with all the clarity that can be desired that — as with any business enterprise — the calculation of internal profit margins is a matter for the banks and they therefore do not have to disclose margins from the sale of products that are priced into the investor’s investment amount. — As far as the remuneration of the individual banker is concerned: The amount of this remuneration is neither a basis for liability nor does it have to be disclosed. Nevertheless, any social imbalance between investor and advisor in the decision-making process resonates here in the sense of a “gut feeling”.