First ruling

The client invested in a capital-protected structured product issued by a Dutch subsidiary of the Lehman Brothers group, and guaranteed by the parent company of the group. The product was distributed in Switzerland by the defendant bank.

The client had concluded an advisory agreement with the bank and claimed to have given specific instructions to it, according to which he wanted no US-related investment in his portfolio due to his hostility to US policy.

The court concluded that the bank was entitled to understand that the instructions applied only to direct investments (US securities or investments in US dollars), as it was not possible to check whether any investment made by, for example, a fund and its sub-funds would exclude US securities.

Hence, the bank could sell to the client the structured product in question denominated in Swiss francs and issued by a Dutch company, even though the product was guaranteed by a US entity.

Second ruling

A company claimed approximately Sfr3 million from its bank for the losses it incurred in buying a structured product issued by the Lehman Brothers group.

The claimant considered that the bank had a disclosure and information duty, as well as a duty of care and a duty to warn in relation to the investment. In particular, the claimant considered that the bank had a duty to inform it of the issuer risk and the risks related to a US investment bank.

The court observed that the issuer risk is not different in the case of structured products as it is, for example, for a simple bond, as structured products often comprise a bond element and a derivative element.

The court also added that the claimant was unable to demonstrate why and how the US regulatory status of investment banks would impact negatively on its investments, especially in an ex ante assessment (ie, before the collapse of the Lehman Brothers group).

Only in exceptional circumstances where the bank, although bound by an advisory agreement, has developed a special trust relationship with the client, may it have to monitor the risks and warn the client.

The court did not see any such exceptional situation here. The collapse of the group came as a surprise to everybody, hence no duty to warn could be identified.

Christophe Rapin
Christophe Petermann