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Liability for Lehman

Recently, the Swiss Federal Supreme Court rendered its decision concerning a structured product issued by Lehman Brothers Treasury and guaranteed by Lehman Brothers Holdings

Andreas Moll
Recently, the Swiss Federal Supreme Court rendered its decision concerning a structured product issued by Lehman Brothers Treasury and guaranteed by Lehman Brothers Holdings. Suissimage, a Swiss cooperative, suffered a loss of almost SFr3 million ($3.14 million) after the collapse of Lehman Brothers in 2008 and sued the selling bank, Credit Suisse, for damages.

Suissimage averred that Credit Suisse had breached several contractual duties alleging that it had not been sufficiently informed by the bank about specific risks of the product. Furthermore, Suissimage believed that Credit Suisse had breached its duty of care and loyalty and claimed that the bank was obliged to issue a warning concerning the distressed financial situation of Lehman Brothers in March 2008.

The Swiss Federal Supreme Court qualified the legal relationship as an investment consulting agreement based on which the bank assists the customer with its investment but the customer takes his own decisions. The bank is obliged to inform the customer about specific risks in connection with certain products but not about risks which are commonly connected with financial products.

Suissimage's argument that it was not sufficiently informed about the risk of the issuer's insolvency was refuted. The risk that an issuer of a financial product is not able to pay back the invested capital is to be considered common within the aforementioned meaning. The court also did not find a breach of Credit Suisse's duties of care and loyalty as the product complied with Suissimage's investment strategy.

Finally, the court concluded that the parties did not agree to a warning obligation of Credit Suisse. Such obligation would have required a continuous monitoring of Suissimage's account and would have been provided only in exchange for a substantial fee. Furthermore, at the beginning of 2008, the financial situation of Lehman Brothers was not obviously distressed. The facts also showed that Credit Suisse suffered the same losses due to the collapse of Lehman Brothers which indicated that it itself was not aware how serious Lehman Brother's financial situation was.

The Swiss Federal Supreme Court came to the conclusion that Credit Suisse had not breached any of its contractual obligations and denied Suissimage's claim fully. This decision shows that it is very difficult for a customer to prove a breach of a contract by a bank based on an investment relationship. In this particular case, however, the legal grounds for compensation claims seemed to be particularly weak. The agreement between the parties was indisputably an investment consulting agreement and not an asset management agreement which would have imposed wider duties on Credit Suisse. Moreover, the bank was able to prove that it sufficiently assisted its customer in this case. Apparently, Suissimage even turned down an offer of a personal meeting for further information about the product.

Andreas Moll

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