In four judgments of 26 June 2012, case refs.: XI ZR 259 / 11, XI ZR 316 / 11, XI ZR 355 / 10 and XI ZR 356 / 10, the Federal Court of Justice (BGH) has again stated its position on the question of when there is a duty to disclose commission. In all four cases the investors purchased certificates from the same defendant bank to invest different amounts and these certificates turned out to be largely worthless following the insolvency of the issuer (Lehman Brothers Treasury Co. B.V.) and the guarantor (Lehman Brothers Holdings Inc.) in September 2008. In each case, the bank received sales commission of 3.5% from the issuer which it did not disclose to the investors. Apart from the amount to be paid to the defendant for the certificates, the securities statements did not show any items to be paid by the investor to the issuer which would later find their way back to the defendant behind the claimant’s back. The Federal Court of Justice rejected a duty of disclosure on the part of the advising bank concerning its profit margin. In its reasoning, the Court first of all confirmed and substantiated the case law on the first two Lehman cases from 2011 and then applied this to the scenario where the purchase of certificates is based on a commission agreement between the investors and the bank.
No duty to disclose profit margin on fixed-price transactions
In its introduction and in keeping with the first Lehman judgments, the BGH again made it clear that the advising bank has no fundamental duty of disclosure concerning the profit margin included in the purchase price when selling certificates for its own account. If third-party investment products are sold for the bank’s own account at a price which is above the purchase price, applying the relevant objective, normative test it is obvious to the customer that the bank is pursuing its own (profit) interests and this does not therefore need to be pointed out explicitly. This is analogous to the scenario where the bank recommends its own investment products, which does not give rise to a duty of disclosure. In both cases the profit-making motive is obvious and the customer is not entitled to any special protection in this regard. The BGH emphasised the fact that the manner in which the bank achieves its profit motive in a sales transaction is irrelevant. According to this view, the advising bank is also under no obligation to inform the customer that the certificates are being acquired for the bank’s own account. This information would also be of no benefit to the customer. According to the Court a duty to disclose information about own-account business would amount to providing the – meaningless – information to the investor that the bank does not have to inform its customers of the existence and amount of the profit margin.
No other judgment in the event of an obligation to surrender on the part of the commission agent
The BGH has now applied these principles to a case where the certificate purchase is based on a commission agreement between the investor and the bank, with the bank solely receiving remuneration from the issuer of the certificate. A legal obligation to surrender or of accountability based on contract or the commission on the part of the bank related to sales commission received directly from the issuer of the security does not in itself establish a duty to disclose receipt of this commission or the amount. If – as in the cases before the Court – an investor does not have to pay commission or any other premiums to the bank for the purchase over and above a price that corresponds to the nominal value of the securities, then the security transaction is no different in economic terms from his point of view than the bank’s own-account transactions, meaning that it must be treated in the same way, given the required evaluative approach to the advisory contract.
Bank’s general interest in making a profit does not establish a duty of disclosure
The simple fact that a bank has an interest in making a profit, which is typical for any provider of commercial services in the market, does not in itself establish a duty by way of the advisory contract to disclose the commission paid by the issuer to the defendant. The Senate of the BGH did not see any special circumstances in the present cases which were of such significance that they would have to be disclosed to an investor. It should be noted that since the judgment of the BGH on advice in connection with CMS spread ladder swaps (judgement of 22 March 2011 − XI ZR 33 / 10), circumstances of this type may exist where the bank has consciously designed the risk structure of the actual product being recommended to the customer’s detriment, in order to be able to “sell” the risk in direct conjunction with entering into the contract. Unlike the bank’s general intention to make a profit, an investor is unable to recognise this conflict of interest due to the complexity of the product.
No decision on a scenario where investors themselves pay remuneration to the bank
It has important practical implications that the BGH did not decide on the question of whether in the case of a commission transaction there is any duty of disclosure on the part of the bank arising from the advisory contract with regard to commission received from the issuer of the security if the customer himself pays a commission fee or similar premium to the bank. Based on the references in these and previous judgments to rebates, it is conceivable that the BGH would assess such a case differently.