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Nature of claims
Common causes of action
What are the most common causes of action brought against banks and other financial services providers by their customers?
The most common causes of action would be breach of contract and breach of rules of conduct.
In claims for the misselling of financial products, what types of non-contractual duties have been recognised by the court? In particular is there scope to plead that duties owed by financial institutions to the relevant regulator in your jurisdiction are also owed directly by a financial institution to its customers?
Under existing Swiss laws, non-contractual duties are not as detailed as under EU laws. Therefore, litigation because of misselling financial products is not as prominent a topic as in EU member states.
The main duties are laid out in article 11 of the Stock Exchange and Securities Dealers Act, the duties of an agent in an agency agreement, and increasingly as an analogy between Swiss and EU laws. The new Financial Services Act (FinSA), expected to be enacted in 2019 or 2020, will define duties similar to the European Union Markets in Financial Instruments Directive (2014/65/EU) (MiFID) and the Markets in Financial Instruments Regulation (EU) No. 600/2014 (MiFIR), collectively MiFID II, to market participants.
Under the existing rules, Swiss banks must adequately inform their clients about the characteristics and risks of products in relation to services.
Statutory liability regime
In claims for untrue or misleading statements or omissions in prospectuses, listing particulars and periodic financial disclosures, is there a statutory liability regime?
Pursuant to article 752 of the Swiss Code of Obligations (CO), anyone who has intentionally or negligently made or distributed incomplete, false, or misleading statements that do not comply with the legal requirements for issue equity or bond prospectuses or similar instruments is liable to the acquirers of the security for any damage caused thereby.
Not only do issue prospectuses as well as similar instruments fall within the scope of the provision in article 752 of the CO, but doctrine and jurisprudence indicate that this rule also applies to structured products and collective investment schemes, as well as to (voluntarily disseminated) private placement memoranda. Disclaimers, according to which this information is not to be considered a prospectus, are void. Information similar to a (compulsory) issue prospectus also includes an issuer’s written communication to influence the investment decision of any potentially interested person.
Other than to initiate a prospectus liability suit, the plaintiffs may try to invoke the general remedies available under Swiss contract and tort law. Likewise, the persons liable for a false or misleading prospectus may also become subject to criminal prosecution under the Criminal Code.
Swiss doctrine is divided on the burden of proof for causality. Some argue that the claimant need not prove that it has relied on the alleged incorrect prospectus because it could legitimately assume that the market value reflects all information available. This argument leads to the defendant’s need to prove that causality is lacking. The Swiss Federal Supreme Court has made it clear that a change of the burden of proof does not apply in the field of prospectus liability, and so it is the investor who must prove cause. However, considering the difficulty of the proof and the investor’s interest in protection, the Swiss Federal Supreme Court has held that no such strict proof is required. One must only prove that the causality is likely.
On 4 November 2015, the Swiss Federal Council adopted, inter alia, the draft of the FinSA and submitted it, together with a dispatch, to the Swiss parliament (the draft FinSA is currently subject to a procedure for the solution of differences between the two chambers of the Swiss parliament). The FinSA set forth the new prerequisites for providing financial services, as well as requirements that apply to offerings of financial instruments. As far as the rules on offering financial instruments are concerned, the FinSA introduced a number of fundamental changes to the Swiss prospectus regime. Most notably, a requirement for an ex ante approval of prospectuses, a duty to publish a prospectus regarding secondary public offerings and a requirement to prepare a basic information document for offerings to private clients. Furthermore, it is foreseen that the above-mentioned prospectus liability will be newly determined in the FinSA. According to the draft of the FinSA, wilful false statements, keeping secret significant facts in the prospectus and the non-publication of the prospectus at the time of the beginning of the public offer will also be sanctioned with a fine.
Duty of good faith
Is there an implied duty of good faith in contracts concluded between financial institutions and their customers? What is the effect of this duty on financial services litigation?
Good faith is one of the core elements in Swiss law. Regarding contracts between financial institutions and their customers, the relationship between the customer and the financial institution is essentially governed by the provisions regarding the agency agreement (article 394 et seq of the CO). One of the main principles of an agency agreement is that the agent must act in good faith and in the best interest of the principal. In litigation, breach of this duty of good faith or acting in the best interest of the principal is often brought forward as an argument. In practice, however, the claimant often has difficulties in proving that the defendant failed in its duty to act in good faith, unless such non-compliance was obvious.
In what circumstances will a financial institution owe fiduciary duties to its customers? What is the effect of such duties on financial services litigation?
As with question 4, the relationship between the customer and the financial institution is essentially governed by the provisions regarding the agency agreement (article 394 et seq of the CO). The financial institution, as a fiduciary, owes fiduciary duties to its customer. In cases of financial services litigation, breach of these duties is often brought forward as an argument. Financial institutions try to limit these duties and their ensuing liability as much as possible. In case of licensed financial institutions, liability can generally be waived only for slight negligence.
How are standard form master agreements for particular financial transactions treated?
Swiss law provides for three stages of review of standardised (ie, pre-formulated and non-negotiated) agreements. These were largely developed by way of jurisprudence and doctrine, given that there is no comprehensive codification of the law on standardised agreements in Switzerland. The first stage, referred to as a ‘review of the validity’, consists of verifying whether the parties in fact agreed to the terms in a standardised agreement. The second stage of review involves interpreting the terms. The third stage consists of reviewing their content to assess whether they are abusive or unfair in nature.
Article 8 of the Act on Unfair Competition (AUC) relates to and explicitly deals with the third stage of review:
A person acts unfairly if he or she, in a manner contrary to good faith, uses general terms and conditions that create a considerable and unjustifiable imbalance between contractual rights and obligations to the disadvantage of consumers.
Article 8 of the AUC expressly limits the review of the content of clauses to consumer contracts. Article 8 of the AUC has no effect on the use of standardised agreements between sophisticated or institutional investors. This means that standardised agreements are subject to only the first two stages of review.
The first stage of review of standardised agreements, referred to as a review of their validity, consists of verifying whether the parties have, in fact, agreed to them. An important aspect of the review of the validity of standardised agreements is the ‘unusualness rule’; here, unusual terms that are not specifically brought to the attention of a weaker or less sophisticated party are not, in principle, valid. According to the Swiss Supreme Court, the rule is derived from the principle of good faith.
The second stage of review of standardised agreements consists of interpreting the standard terms. Under Swiss law, standardised agreements are interpreted in accordance with the same rules of interpretation as other contracts. This means that terms in standardised agreements are interpreted according to the real and common intention of the parties. If this real and common intention of the parties cannot be established, the principle of normative consensus applies. Here again, if a party makes a declaration of intent to another, it is bound by its declaration according to the meaning that the recipient can and must attribute to it in good faith and based on all circumstances.
In practice, when retail customers institute civil proceedings against Swiss financial institutions, the above provisions and rules are very commonly brought forward.
Can a financial institution limit or exclude its liability? What statutory protections exist to protect the interests of consumers and private parties?
See question 5.
Freedom to contact
What other restrictions apply to the freedom of financial institutions to contract?
The main restrictions under Swiss law are be those described in question 6. Penalty clauses are rarely found in agreements between financial institutions and their customers.
What remedies are available in financial services litigation?
In civil law litigation, the court may issue judgments on the merits. These include judgments for damages, judgments for specific performance, declaratory judgments, cease-and-desist orders, as well as judgments changing a legal right or status, and partial judgments.
Damages are strictly compensatory. Accordingly, rulings are limited to the amount of damages actually suffered. Punitive damages are not available. On monetary claims, a statutory interest rate of 5 per cent per annum applies, unless the parties have agreed on a different interest rate. Interest is generally owed as of the date of default. The party claiming interest must explicitly state this together with the relief sought.
The losing party bears the costs. The amount of the court fees and the reimbursement of the winning party are regulated by statute.
Have any particular issues arisen in financial services cases in your jurisdiction in relation to limitation defences?
Yes. Inter alia, the Federal Supreme Tribunal decided in 2006 that the limitation period concerning the reimbursement of the money paid in by a bank customer does not commence as long as the depot contract exists (ie, the limitation period does not commence already with the transfer of the money). In another case, the Swiss Federal Supreme Tribunal decided in 2012 in favour of a bank customer that a bank that receives retrocessions from fund providers and distributors of other financial products is obliged to reimburse such retrocessions. As this decision of the Swiss Federal Supreme Tribunal has an effect not only pro futuro but also retroactive, the discussion was triggered when the claims of the clients concerning the issue of such retrocessions shall become time-barred (whether after five or 10 years). In 2017, the Swiss Federal Supreme Tribunal held that the customer’s claim for reimbursement of retrocessions is time-barred after 10 years. The limitation period commences on the day the bank (or an asset manager) received the retrocessions. Furthermore, it is notable that a limitation of defence only applies when such a defence is raised by a party (ie, it does not apply ex officio).
Do you have a specialist court or other arrangements for the hearing of financial services disputes in your jurisdiction? Are there specialist judges for financial cases?
There is no specialist court for financial services cases in Switzerland. One can, however, expect the courts in the financial centres of Switzerland, namely Zurich and Geneva, to be more experienced in financial cases than in other locations. This is one of the main reasons (apart from most financial institutions being located in either city) for the jurisdiction clauses in financial contracts to provide for Zurich or Geneva as the place of jurisdiction.
To be heard in a court, a claimant is expected to submit the claim with the competent court that has jurisdiction both over the parties and over the subject matter. If a court decides that it lacks jurisdiction over the parties or over the subject matter, it will either set a deadline within which the claimant can request a transfer to the competent court (which is the practice of Zurich courts) or dismiss the case without prejudice. In cases where claims pending at separate courts have a common question of fact or law of substantial importance, they can be transmitted to the court first seized.
Because there is no specialised court, the procedural rules in financial services disputes are the same as in other civil proceedings.
Do any specific procedural rules apply to financial services litigation?
No. The rules for financial services litigation do not differ from other civil law litigation.
May parties agree to submit financial services disputes to arbitration?
Under the fundamental Swiss law principle, the freedom of contract, the parties can agree to submit financial services disputes to arbitration. In practice, however, arbitration is typically only chosen in connection with larger financial transactions.
In Switzerland, different sets of rules apply to domestic and international arbitration. Chapter 12 of the Swiss Private International Law Act (SPILA) applies to international arbitral proceedings seated in Switzerland where, upon conclusion of the arbitration agreement, at least one of the parties did not have its domicile or habitual residence in the country. Although SPILA is not based on the United Nations Commission on International Trade Law Model Law, there are no major differences between them.
Domestic arbitration is governed by Part 3 of the Swiss Code of Civil Procedure (CCP). Part 3 of the CCP (article 353) applies to arbitrations having their seat in Switzerland where, upon conclusion of the arbitration agreement, all parties had their domicile or habitual residence in Switzerland. The parties in a domestic arbitration, however, may choose to apply Chapter 12 of the SPILA, but they must express this choice in writing or in another form that provides text-based proof of this agreement (paragraph 2, article 353 and article 358 of the CCP).
Moreover, if the parties so agree, arbitral proceedings, whether domestic or international, can be governed by any set of rules issued by private arbitration institutions, such as the Rules of Arbitration of the International Chamber of Commerce, or the Swiss Rules of International Arbitration of the Swiss Chambers of Commerce (Swiss Rules), issued by the Chambers of Commerce and Industry of Basel, Berne, Geneva, Lausanne, Lugano, Neuchâtel and Zurich.
Out of court settlements
Must parties initially seek to settle out of court or refer financial services disputes for alternative dispute resolution?
Parties have no requirement to settle out of court. If a legal proceeding is initiated and unless the parties contractually agreed to the contrary, such proceeding starts before the magistrate and the goal is to find a settlement.
Are there any pre-action considerations specific to financial services litigation that the parties should take into account in your jurisdiction?
Parties need not take into account any pre-action considerations specific to financial services considerations.
Civil proceedings commence with the claimant submitting a detailed, usually written, statement of claim to the court. It is the court that serves the statement of claim upon the defendant, usually by mail, sometimes through a clerk. The service of judicial documents is completed when the addressee, or an authorised person in his or her stead, physically receives the documents. If the recipient deliberately impedes service of documents, service is considered complete as per the date of the action.
Serving judicial documents outside Switzerland is effected according to the corresponding rules of service applicable in the country where service is sought. Between member states of the Hague Convention 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, the rules as set out in the Convention apply. According to the Hague Convention, a central authority provides the service of process to and from a foreign country. In Switzerland, there are cantonal central authorities, usually the cantonal high court and, for federal matters, the Federal Department for Justice and Police. In addition to the Hague Convention, bilateral agreements may apply.
Unilateral jurisdiction clauses
Does your jurisdiction recognise unilateral jurisdiction clauses?
Swiss law, subject to certain restrictions, generally recognises unilateral jurisdiction clauses.
What are the general disclosure obligations for litigants in your jurisdiction? Are banking secrecy, blocking statute or similar regimes applied in your jurisdiction? How does this affect financial services litigation?
Bank-client confidentiality (bank secrecy) is protected under article 47 of the Federal Act on Banks and Saving Banks and the Data Protection Act (DPA), strictly limiting any information shared with third parties. Bank secrecy, however, is not absolute and does not apply in the context of criminal proceedings (domestic or foreign). Prosecution authorities have a wide discretion to conduct their investigations and to order the production of information or materials otherwise protected by bank secrecy.
This authority applies in the context of administrative proceedings conducted by the Swiss Financial Market Supervisory Authority (FINMA).
However, providing such information or materials on a voluntary basis, in other words, without compulsion, would infringe bank secrecy.
Information protected by bank secrecy cannot be produced to a foreign authority through administrative assistance channels, but it might be available on the basis of a request for mutual legal assistance. The voluntary production of personal data, such as names of employees, to a foreign authority might be restricted by data protection legislation.
Must financial institutions disclose confidential client documents during court proceedings? What procedural devices can be used to protect such documents?
See question 17.
Disclosure of personal data
May private parties request disclosure of personal data held by financial services institutions?
See question 17.
What data governance issues are of particular importance to financial disputes in your jurisdiction? What case management techniques have evolved to deal with data issues?
Regarding administrative proceedings, article 26 et seq of the Administrative Procedure Act (APA) provides that parties may inspect files pertaining to them at the offices of the authority, except under special circumstances as set forth in article 27 APA. This includes restricting access to documents or communications to preserve secrecy. The DPA applies to the processing of data pertaining to individuals and entities where administrative proceedings of first instance are being undertaken. Any concerned person may request information from the data holder (article 8 of the DPA). A federal authority may refuse, restrict or defer providing information if the information would jeopardise the outcome of a criminal investigation or any other investigative proceedings.
Articles 99 and 100 of the Criminal Procedure Act (CPA) apply to criminal proceedings. For each criminal matter, the public prosecutor will keep a file containing all documentary evidence.
Concerned parties may consult the file upon request and if the prosecutor deems it appropriate. Prosecution authorities, however, may restrict the right to inspect files if this is required to safeguard confidentiality of public or private interests (letter b, paragraph 1, article 108 of the CPA).
Interaction with regulatory regime
What powers do regulatory authorities have to bring court proceedings in your jurisdiction? In particular, what remedies may they seek?
In the area of financial markets in Switzerland, various regulatory authorities may bring court proceedings.
The regulatory authority is FINMA. Its main task is to oversee banks, insurance companies, stock exchanges, securities dealers and collective investment schemes in their efforts to comply with the acts and ordinances passed by the federal legislative bodies. In addition to its supervisory function, FINMA also issues, when Swiss law allows, regulations in the form of ordinances and circulars.
SIX Exchange Regulation, an autonomous department within the SIX Group (of which SIX Swiss Exchange, the main Swiss stock exchange, is a member), is responsible as a private organisation for the supervision and enforcement of applicable stock exchange legislation.
The Federal Department of Finance (FDF) has limited enforcement responsibilities and is primarily responsible for prosecuting failures to notify qualified shareholdings.
Finally, prosecution authorities are responsible for criminal proceedings whenever a criminal offence has been committed. At the federal level, the Office of the Attorney General (OAG) is responsible, whereas cantonal public prosecutors have jurisdiction at the cantonal level. The OAG, the cantonal public prosecutors and the FDF investigate criminal offences, whereas FINMA is responsible for supervising and enforcing financial market regulations.
FINMA conducts administrative procedures. To supervise the financial providers’ compliance with applicable provisions, FINMA may, according to section 2, Chapter 3 of the Federal Act on the Swiss Financial Market Supervisory Authority (FINMASA):
- demand that information be provided;
- open formal proceedings against supervised entities;
- appoint an independent and suitably qualified person (investigating agent) to investigate circumstances relevant for the supervision; and
- if it has knowledge of the breach of a criminal provision of financial market legislation, file complaints with the criminal prosecution authorities.
The competent public prosecutor has a wide range of powers at his or her disposal for gathering information, including the power to:
- demand that evidence be provided, such as objects, documents, reports and written, audio or video information;
- interview accused persons, potential witnesses and other informants;
- appoint experts; and
- conduct inspections.
The public prosecutor also has coercive measures at his or her disposal, including the power to:
- order the attendance of persons for questioning and summon them if they do not voluntarily appear;
- search for suspects, detain them and keep them in pretrial custody if the prerequisites are met;
- issue search warrants; and
- seize objects and assets, conduct secret surveillance (including intercepting and monitoring mail or telecommunications), monitor bank accounts, and conduct dawn raids.
In certain cases, the competent courts must approve these measures. Coercive measures can, in principle, be appealed to competent courts.
Public prosecutors may also cooperate with foreign authorities in the ambit of mutual legal assistance as well as with other domestic authorities.
These powers are commonly used by regulatory authorities.
Disclosure restrictions on communications
Are communications between financial institutions and regulators and other regulatory materials subject to any disclosure restrictions or claims of privilege?
As a general principle, FINMA and the prosecution authorities of the Swiss Confederation (OAG), along with the cantons, will provide each other with mutual and administrative assistance (article 38(1) of FINMASA). This cooperative stance serves as a protection against self-incrimination. They coordinate their investigations, as far as is practicable and as required (paragraph 2, article 38 of FINMASA). Whenever FINMA becomes aware of behaviour that may constitute a violation of criminal provisions, they must notify the competent prosecution authorities (paragraph 3, article 38 of FINMASA).
Therefore, parallel administrative and criminal proceedings are possible.
To enforce the financial market acts, FINMA may request foreign authorities, responsible for financial market supervision, to provide both information and documentation (paragraph 1, article 42 of FINMASA).
Swiss prosecution authorities may request legal assistance from foreign jurisdictions and therefore obtain documents and other evidence regarding pending criminal proceedings. Other than the Mutual Assistance Act, Switzerland has also adhered to a wide range of bilateral and multilateral treaties in matters of mutual legal assistance in criminal matters.
May private parties bring court proceedings against financial institutions directly for breaches of regulations?
In case of breaches of regulations, private parties may bring court proceedings against financial institutions as long as private parties may also claim a damage resulting from such a breach.
In a claim by a private party against a financial institution, must the institution disclose complaints made against it by other private parties?
There are no such requirements to disclose complaints, unless a court or other competent authority so orders the financial institution.
Where a financial institution has agreed with a regulator to conduct a business review or redress exercise, may private parties directly enforce the terms of that review or exercise?
As a general rule, a private party has no such right.
Changes to the landscape
Have changes to the regulatory landscape following the financial crisis impacted financial services litigation?
Financial services litigation and investigations have increased following the financial crisis.
Is there an independent complaints procedure that customers can use to complain about financial services firms without bringing court claims?
In Switzerland, the Banking Ombudsman deals with customer complaints against a bank with a seat in Switzerland. The procedure at the Banking Ombudsman is free of charge for the customers and can only be carried out if an administrative procedure is not pending (eg, a procedure at the court, administration or debt enforcement office). However, this procedure is not mandatory before a court action can be brought. Furthermore, this procedure is not binding (ie, the parties are not obliged to accept a proposed solution by the Banking Ombudsman).
Besides this, it is notable that a legal procedure starts with the magistrate aimed at finding a settlement (see question 14).
Recovery of assets
Is there an extrajudicial process for private individuals to recover lost assets from insolvent financial services firms? What is the limit of compensation that can be awarded without bringing court claims?
No. Swiss insolvency law does not provide for such an extrajudicial process for private individuals. However, for the restructuring and bankruptcy proceedings concerning banks and securities dealers, different rules apply concerning non-regulated organisations. Inter alia, FINMA has the competences in bankruptcy proceedings that otherwise has the bankruptcy court (eg, the opening of bankruptcy proceedings). Furthermore, bank insolvency law does not provide for a composition of creditors but for restructuring proceedings instead. The satisfaction of the creditors is made pursuant to the process determined in the Federal Banking Act and the FINMA Banking Insolvency Ordinance. The compensation amount depends on the disposable assets that can be distributed among the creditors. There is no limit of compensation that can be awarded without bringing court claims.