Bank Liability for Investment Losses: On the Great Importance of Legally Sufficient Proof of the Financial Damage before Swiss Courts

On 7 September 2020, the Commercial Court of the Canton of Zurich (the Zurich Commercial Court) issued an interesting and important ruling on the bank’s liability for investment losses, in which it comments in detail on important questions of proof of loss (Case No.: HG180163).

The above-mentioned judgment has not yet been published at the present time, but is for the time being only printed in excerpts in the professional journal “Blätter für zürcherische Rechtsprechung” (ZR) (ZR Vol. 119 [2020] No. 49, at pages 219 et seq.).

The legal layman who suffers a loss with an investment usually underestimates how important and difficult it often is to prove the claimed financial damage before Swiss civil courts. The reason why proof of loss is important is that the loss must be alleged and proven in a legally sufficient manner in order for a claim for damages to be approved by the Swiss court. In other words, a claim for damages will be dismissed by the Swiss court in any case if an investment loss is not proven in a legally sufficient manner, even if the bank’s breach of its duty of care is evident. Put even more succinctly, this means that without a financial damage, there is no liability on the part of the bank. For this reason, the greatest attention must be paid to the calculation of the financial damage and the detailed presentation of the financial damage in a bank liability case before Swiss courts.

With regard to the presentation of the financial damage, it is to be emphasized that in a damages lawsuit before Swiss courts it is not sufficient to simply prove the investment loss in question. In the words of the Commercial Court of Zurich, this can be described as follows: “The financial damage is not to be equated simply with the loss suffered, because a loss could have occurred even if the investment had been made dutifully…” (judgment HG180163 of 7 September 2020, ZR 119 [2020] No. 49, at page 225).

As a rule, the bank client who has suffered a loss with an investment and wishes to hold the bank liable for this loss must present two asset situations before Swiss civil courts: The current and effective status of his or her assets with the loss-bearing investment on the one hand, and, on the other hand, the hypothetical status of his or her assets as they would have developed if he or she had invested the amount in question without a breach of the bank’s duty of care. The hypothetical element is formulated by the Commercial Court of Zurich in its judgment discussed here as follows (judgment HG180163 of 7 September 2020, loc. cit., at page 226): “The claimant must … show how the invested capital would have developed if no breach of duty had occurred…”

Only in exceptional cases is it possible, according to current case law, for the investor bringing the action to claim that, but for the loss-making investment, no investment would have been made at all, and that the amount in question would therefore have been held as cash. Apart from such exceptional cases, it is therefore not only the actual situation (investment loss in question) that must be asserted, but also the hypothetical alternative investment in which the relevant amount would have been invested and how this would have developed.

It is obvious that the proof of the two mentioned calculation elements (the actual investment loss as well as the development of the hypothetical alternative investment) can be very demanding depending on the circumstances. In any case, as mentioned above, this aspect of a claim for damages based on bank liability for investment losses must be given very close attention in relation to Swiss courts, as is once again demonstrated by the judgment HG180163 of 7 September 2020 of the Commercial Court of Zurich, which is discussed here. The claim in question was dismissed because the claimant failed to provide legally sufficient proof of the financial damage claimed.

Philipp H. Haberbeck, Zurich, 2 January 2021 (www.haberbeck.ch)

The information contained in this article is for general informational purposes only and is not intended to constitute legal advice. Readers of this article should not take any actions or decisions without seeking specific legal advice. Any mandate is subject to the full execution of an engagement letter.

Rechtsgebiete: Bank- und Finanzmarktrecht