Action for Performance or Action for Damages by the Bank Customer Damaged by a Bank Employee’s Misconduct?

Action for Performance or Action for Damages by the Bank Customer Damaged by a Bank Employee’s Misconduct?

On 13 September 2022, the Swiss Federal Tribunal (SFT), Switzerland’s highest court, rendered the new leading judgment 4A_407/2021, which has already been discussed and criticized in depth in the Swiss legal doctrine (LUC THÉVENOZ / CÉLIAN HIRSCH, Le dommage d’investissement et sa preuve, in: SZW-RSDA 2/2023, at pages 166 et seq., in particular at pages 169 et seq.; CHARLOTTE GILLIÉRON, Quelle action initiée contre une banque pour des opérations exécutées par un employé de ladite banque sans autorisation du client?, in: SZW-RSDA 3/2023, at pages 379 et seq., in particular at pages 383-4). Central to this new leading decision is the question answered by the SFT as to which action – an action for performance or an action for damages – a bank client may bring if he or she has been the victim of the misconduct of a bank employee. The answer given by the SFT in the judgment 4A_407/2021 – an action for damages, not for performance – is briefly discussed below.

In the case in question, it was undisputed before the SFT that an employee of the defendant bank had made a total of twelve account dispositions not authorized by the plaintiff customer (4A_407/2021, at consideration 3 in initio). The cantonal lower court (Geneva Court of Justice) had granted the plaintiff a claim for performance in this respect, i.e., a claim to the effect that the amounts in question were to be re-credited to his account by the bank. The bank challenged this claim qualification before the SFT as a violation of Art. 97(1) of the Swiss Code of Obligations (SCO) (loc. cit., at considerations 3 and 4), as mentioned above with success.

The SFT does not deepen the examination of the relevant legal question in its judgment 4A_407/2021. Basically, it only states that banks are liable for unlawful acts of their employees on the basis of the liability for auxiliary persons pursuant to Art. 101(1) of the SCO (loc. cit., at consideration 4.2), and that a distinction must be made between this situation and the exceptional situation in which the bank makes payments or transfers from the bank client’s account to a third party because it failed to recognize the lack of legitimacy of the client or the existence of a forgery (loc. cit., at consideration 4.3). As the only justification for this distinction, the SFT mentions that the aforementioned exceptional constellation is part of the immanent risk of the operation of a bank, which is why the financial damage incurred due to the unauthorized payment or transfer occurs at the bank itself and the bank client, subject to a valid risk transfer clause, is entitled to a claim for performance against the bank for the re-crediting of the unlawfully debited amount (loc. cit., at consideration 4.3).

The distinction made by the SFT is not convincing (LUC THÉVENOZ / CÉLIAN HIRSCH, loc. cit., at page 169; CHARLOTTE GILLIÉRON, loc. cit., at page 383). It is obvious that criminal acts of employees belong to one of the central and typical immanent risks of banking operations (LUC THÉVENOZ / CÉLIAN HIRSCH, loc. cit., at page 170); not least the recent past has provided numerous examples of this. In view of the distinction made by the SFT, it is not clear why an external criminal act (forgery of a payment order) should be treated differently in the present context than an internal criminal act (unlawful disposition of an account by a bank employee). Why should the bank client have a claim for performance against the bank in the former case (e.g., SFT leading case 132 III 449, at consideration 2), but only a claim for damages against the bank in the latter case?

It is regrettable that the distinction made by the SFT in its new leading decision 4A_407/2021 is based on such a thin foundation and that the relevant legal question is not discussed in greater depth. The SFT would then probably have come to a different conclusion.

In my article published a few months ago in the Swiss legal journal AJP/PJA concerning crypto trading platforms, I dealt with a question similar to the situation underlying the judgment 4A_407/2021 (PHILIPP H. HABERBECK, Von der Kryptohandelsplattform unrechtmässig verwertete Kryptowährungen, in: AJP/PJA 3/2023, at page 317; English translation from the German original):

If a crypto trading platform has wrongfully liquidated the crypto holdings pledged by its customer, for example by liquidating them without prior and contractually agreed dispatch of a ‘margin call’ or before reaching the contractually agreed LTV level, then the […] legal question may arise as to what kind of compensation claim the customer has against the crypto trading platform due to such a breach of contract, a claim for monetary compensation for the financial loss suffered or a claim for performance for return or re-crediting of the cryptocurrencies forcibly liquidated, i.e., a claim to be restored to the status quo ante with respect to the credit relationship in question prior to the breach of contract (claim to restoration of the status quo ante).

As a result, I conclude in my aforementioned article, after a thorough examination of the relevant legal situation, that the customer’s claim in question is to be qualified as a claim for performance and not as a claim for damages (loc. cit., at pages 317-8).

The legal question of whether bank customers whose account balances have been reduced in breach of contract have a claim for performance or a claim for damages against the bank is of high practical relevance. For this reason, it is to be hoped that the SFT will soon have the opportunity to deal with this legal question in depth once again.

PHH, Zurich, as of 5 July 2023

This article has been written by Dr. iur. Philipp H. Haberbeck (PHH), a Swiss attorney-at-law, who is registered in the Attorneys’ Register of the Canton of Zurich, Switzerland (see, for more detailed information, The law firm PHH operates in the form of an individual company (Einzelunternehmen) under Swiss law, registered in the Commercial Register of the Canton of Zurich, Switzerland, with the company identification number CHE-407.615.179. Each and any mandate is exclusively concluded in writing, based on the mutual signing of a mandate agreement. Please note that the information contained in this article is for general informational purposes only and is not intended to constitute legal advice. No actions or decisions should be taken on the basis of this article without seeking specific legal advice.




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