Interesting new Swiss Federal Tribunal judgement concerning the proof of a financial damage in the context of asset management agreements

Interesting new Swiss Federal Tribunal judgement concerning the proof of a financial damage in the context of asset management agreements

Recently, the Swiss Federal Tribunal (the SFT) uploaded to its website an interesting new judgment that further specifies the complicated issue of the substantiation of a financial damage in the context of banking relationships.

The new judgment discussed herein has the case reference 4A_449/2018 and is dated 25 March 2019.

Already in the past, I have commented on the crucial importance under Swiss commercial law of the correct calculation and presentation of the claimed financial damage. In this context, I have, particularly, explained that it is difficult for injured bank clients to obtain compensation for their losses before Swiss courts because, among other reasons, of the strict requirements for proof of loss demanded by the SFT (see, in this regard, my LinkedIn post dated 10 October 2018).

With regard to such proof of loss issue, the SFT’s constant and basic financial damage calculation formula plays an important role. Pursuant to such formula, the importance of a financial damage corresponds to the arithmetic difference between two net worth situations, an actual and a hypothetical net worth situation: On the one hand, the importance of the damaged person’s actual and current net worth, on the other hand, the hypothetical importance of the damaged person’s net worth had the damaging event not happened.

Applying the above-mentioned formula, the SFT decided in a precedent dated 7 May 2015 (case reference: 4A_539/2014) that the bank customer who claims damages has to substantiate and prove, among other things, what kind of investment he or she would have made had the bank not violated its contractual duties, and how such investment would have performed. To illustrate this aspect, let us look at the following hypothetical example: Say that the bank has violated its duties of diligence vis-à-vis a bank customer, who invested his or her monies in a highly speculative investment fund that went totally bankrupt, by not having properly informed the customer of the fund’s features. To claim damages, pursuant to the mentioned SFT jurisprudence, the bank customer not only has to substantiate and prove his or her current financial position vis-à-vis such investment (i.e., the amount invested, less the residual value, if any, of such investment), but also what kind of investment, if any, he or she would have made had the bank not violated its contractual duties vis-à-vis him or her (as mentioned, not having diligently informed the customer about all the risks of the relevant investment), and how this hypothetical investment would have performed. Pursuant to the SFT, this also applies if a bank customer asserts that he or she would not have invested the relevant monies at all. In other words, if a bank customer argues that he or she would have left the relevant amount on a checking or savings account, had the bank not violated its duties of diligence vis-à-vis him or her, such alleged passive investment behavior would also have to be asserted and demonstrated to the court to make it plausible (see the decision 4A_539/2014, at consideration 3.7).

Let us deepen this aspect further with a concrete hypothetical example. Say a bank customer decided to make an investment of USD 250’000.00 into an emerging markets real estate fund, without having been properly informed by the bank about the risks related to such investment. Now, assuming that the customer obtained a total redemption from such fund in an amount of USD 20’000.00 at the end of the fund’s liquidation. According to this simple hypothetical example, the bank customer incurred a loss of USD 230’000.00. Pursuant to the SFT jurisprudence discussed above, it is, however, not sufficient to assert and prove the mentioned elements in a litigation against the bank. Additionally, the bank customer has to assert and substantiate what he or she would have made with the amount of USD 250’000.00 had this amount not been invested in the mentioned fund, and how this investment would have performed. Otherwise, the bank customer would run the risk of his or her claim for damages being dismissed because the damage element was not sufficiently substantiated.

Now, the new judgment 4A_449/2018 dated 25 March 2019 contains an important specification in the context discussed above.

In the dispute at the basis of this new judgment, the bank, sued for damages by its customer, had, among other arguments, referred to the SFT judgment 4A_539/2014 and claimed that the customer had not sufficiently specified his asserted financial damage. Although the SFT confirmed its earlier judgment 4A_539/2014 (see 4A_449/2018, at consideration 6.2.2), it did not accept the bank’s argument in the case in question.

The SFT decided that its earlier judgment 4A_539/2014 should be distinguished in relation to the matter decided in the new case 4A_449/2018, because of the following difference: In the old case, the disputed investment decision had been taken by the client. In the new dispute at the basis of 4A_449/2018, the client had, however, granted an asset management mandate to the bank. Under such asset management mandate, it was not the customer, but the bank that had to pick the investments, in line with the investment profile agreed with the customer.

In essence (i.e., in a significantly condensed form), the SFT considered that where the client granted an asset management mandate to the bank, the latter cannot dismiss a claim for damages with the argument that the customer should have specified the hypothetical development of his or her investment had the bank not violated the asset management mandate, basically since the information related to such hypothetical scenario lies within the bank when it acts as the asset manager appointed by the client (see 4A_449/2018, at considerations 6.2.4 and 6.2.5).

Let us illustrate the SFT’s considerations summarized above, on the basis of the following hypothetical example: Let us assume a bank, to which the customer has granted an asset management mandate, made an investment of 5% of the customer’s assets (in an amount of USD 100’000.00) into a gold fund that lost its entire value because of fraud. For the sake of this illustration, let us assume that the bank had not diligently selected the gold fund, and also that the customer sues the bank for damages in an amount of USD 100’000.00, corresponding to the mentioned loss. Pursuant to the SFT’s new judgment discussed herein, the bank cannot defend itself against this claim for damages by arguing that the bank customer should have shown how the amount of USD 100’000.00 would have performed had it been diligently invested in line with the agreed investment profile. Pursuant to the SFT, the bank would have to make specific allegations regarding the mentioned performance issue should it wish to dispute the customer’s relevant damage allegation (pursuant to the hypothetical example above, a financial damage in an amount of USD 100’000.00, corresponding to the investment made by the bank in the gold fund that has been victim of a fraud).

It remains to be seen how this new judgment will affect other disputes in the future. In any case, in my opinion it is to be welcomed from the point of view of client protection that the SFT has relaxed the requirements for proof of loss in favour of bank clients with regard to asset management mandates granted to the bank.

Philipp H. Haberbeck, Zurich; first published on LinkedIn on 25 April 2019 (

The information contained in this post is for general informational purposes only and is not intended to constitute legal advice. Readers of this post should not take any actions or decisions without seeking specific legal advice.




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