In the aftermath of the financial crisis of 2008 onwards, there has been some case-law on the role of financial intermediaries in their relationship with clients. Earlier this year, the Portuguese Supreme Court of Justice (“PSC”) was called upon to make a decision on matters related with the liability of a bank acting as financial intermediary resulting from the trading/sale of commercial paper to a non-professional client (PSC's Ruling of 17 March 2016, Proceeding no. 70/13.1TBSEI.C1.S1). The bank in question was Banco Português de Negócios (BPN) which was nationalised in 2008. The issuer was a part of the same corporate group as the bank and defaulted on its obligations to pay interest and to repay the principal.

The PSC decided in favour of the plaintiff (the non-professional client), basing its decision on the fact that bank had breached its duties vis-à-vis the client, in particular by not providing the necessary information on the nature of the relevant financial instrument and the risks associated therewith and not making clear to the client that any payment obligation under the commercial paper instruments that were subscribed was not guaranteed by the bank.

There are also two interesting takeaways from the PSC's decision on the statute of limitations applicable to the liability of financial intermediaries - under the Portuguese Securities Code, the statute of limitation for this type of liability is two years unless the financial intermediary acts with wilful default or gross negligence - as follows:

  1. the statute of limitations period shall commence only as from the moment the client becomes aware of the precise terms of the transaction and not merely when the client underwrites the financial product – in the case in hand, the PSC found that such moment had only occurred when the client became aware of the possibility that the principal amount of the commercial paper would not be repaid by the bank, considering that the bank had misrepresented the terms and conditions of the product when the it was underwritten;
  2. the financial intermediary is deemed to act in wilful default or gross negligence when it is using aggressive marketing techniques with the purpose of obtaining clients' agreement to underwrite specific financial products which the latter would never subscribe should he/she/it have known the exact terms and conditions applicable to the relevant product and therefore the aforesaid statute of limitation period shall not apply.

The PSC decision is in line with other recent case-law in respect of liability of the financial intermediaries and reinforces the position of investors (in particular non-professional investors) which may have initiated litigation against other Portuguese banks based on the breach of their financial intermediary's duties, e.g. the clients of Banco Espírito Santo (in particular non-professional clients) that acquired commercial paper and other financial instruments issued by Grupo Espírito Santo entities (sold and placed by Banco Espírito Santo).