Switzerland: Leading Case Of The Swiss Federal Supreme Court On The Statute Of Limitation Applicable To Claims For Restitution Of Retrocessions

In its decision of 16 June 2017 the Swiss Federal Supreme Court held that the obligation to account for and pass on retrocessions to the client under the law on mandates (article 400 (1) CO) is subject to a ten year statute of limitation starting to run as of the receipt of the retrocessions by the agent (decision of the Swiss Federal Supreme Court 4A_508/2016). Until this decision, the matter was a subject of controversy among Swiss scholars, who debated both the duration of the statute of limitation (five or ten years) and the point in time as of when the statute of limitation starts to run (as of the receipt of the retrocessions or as of the termination of the mandate agreement).

Case Facts

In 1994 and 1995, the claimant, a transport association, mandated the defendant, an insurance brokerage firm, to develop and structure an insurance concept for its members. The insurance brokerage firm concluded contracts with several insurance companies on behalf of the transport association. In 2005, the transport association discovered that the insurance brokerage firm had received a percentage amount of the insurance premiums as retrocessions from the insurance companies. The transport association immediately terminated the contract with the insurance brokerage firm.

In 2007, the transport association filed a suit with the Court of First Instance of the Canton of Geneva to claim, among other items, the restitution of the retrocessions. The Geneva court held that a ten year statute of limitation should apply to such claims, starting to run as of the date of termination of the mandate agreement. The Court of Appeals of the Canton of Geneva confirmed the decision of the lower court in 2016. The insurance broker then appealed to the Swiss Federal Supreme Court.

On appeal from the insurance brokerage firm, the Swiss Federal Supreme Court had to decide on (a) the applicable statute of limitation period for the obligation to account for and pass on retrocessions and (b) the point in time as of when the statute of limitation starts to run.

Clarification on the Statute of Limitation

Controversy on Applicable Time Period and Starting Point in the Past

Since the leading case on retrocessions FSC 132 III 460 et seq. of the Swiss Federal Supreme Court in 2006, Swiss scholars have debated the relevant time period and starting point of the statute of limitation for the obligation to account for and pass on retrocessions under article 400 (1) of the Swiss Code of Obligations (CO). While some legal scholars held that the obligation was subject to the general rule of a ten year statute of limitation under article 127 CO, others, probably the majority, argued that the restitution of retrocessions was periodically owed and, as a result, subject to a five year statute of limitation under article 128 (1) CO, which applies to recurrent payments. Furthermore, while some legal scholars held that the statute of limitation starts to run as of the date of termination of the mandate agreement between the financial service provider and the client, others took the view that the starting point is the receipt of the relevant retrocessions by the financial service provider.

In 2012, the Court of Appeals of the Canton of Zurich ruled that the obligation to account for and pass on retrocessions was subject to a ten year statute of limitation starting to run as of the termination of the mandate agreement (decision of the Court of Appeals of the Canton of Zurich LB090076 dated 13 January 2012, p. 26). In contrast, in 2014, the Regional Court of Berne-Mittelland ruled that the obligation to account for and pass on retrocessions was subject to a five year statute of limitation starting to run as of the receipt of the retrocession.

In summary, the views ranged between the extremes of a) a statute of limitation of five years as of the receipt of the respective retrocession and b) a statute of limitation of ten years as of the termination of the mandate agreement.

Swiss Federal Supreme Court's Decision

In its decision, the Swiss Federal Supreme Court resolved this controversy. It held that retrocessions do not arise from a contract of duration as they have not been agreed by the principal and the agent in advance. Each obligation to account for and pass on retrocessions is founded on a separate basis. Therefore, retrocessions usually do not qualify as recurrent payments and, consequently, the five year statute of limitation (article 128 (1) CO) does not apply. In contrast, the agent's obligation to account for and pass on the received retrocessions to the principal is subject to the ordinary ten year statute of limitation under article 127 CO. In this respect, the Swiss Federal Supreme Court confirmed the decision of the cantonal courts of Geneva.

However, the Swiss Federal Supreme Court held that the agent's obligation to account for and pass on a retrocession to the principal is due on the date of receipt of each individual retrocession by the agent irrespective of when the principal becomes aware of the claim and of its maturity. Under article 130 (1) CO the limitation period starts to run as soon as an obligation is due. Consequently, the Swiss Federal Supreme Court ruled that the limitation period for the restitution of each retrocession starts to run on the day the agent receives the payment and overruled the decisions of the cantonal courts on this matter.

Outlook

This decision is the latest development in the ongoing legal saga on retrocessions. It comes more than ten years after the initial leading case on retrocessions of the Swiss Federal Supreme Court (FSC 132 III 460 et seq.) referring to an independent asset manager but less than five years after the Swiss Federal Supreme Court's further widely noticed precedent of 2012 (FSC 138 III 755 et seq.) referring to a bank as asset manager, which led to the revision of FINMA-circular 2009/1 Guidelines on Asset Management in 2013. However, while this decision is an important development on a controversial legal issue, it is not likely to send a shock wave through the industry on the same scale as the previous decisions. Most financial service providers have already adapted their terms and conditions and included disclosure fact sheets governing their client relationships in order to meet the standard set by the Swiss Federal Supreme Court for a valid waiver of the obligation to pass on retrocessions. Many even sought to resolve the legacy issues by obtaining a waiver of the obligation to pass on past payments. Others have even adapted their business model to meet the more exacting standard applicable to pension funds and are no longer compensated through distribution fees.

Moreover, except in particular circumstances, we would expect that clients who were inclined to ask for the disgorgement of retrocessions have already done so. Indeed, the issue was widely publicized then and even if, contrary to the expectation of several pundits at the time, clients did not rush to raise a claim against their bank, it was not because they were unaware of their rights, but, more probably because they did not consider it worthwhile to compromise a business relationship with their financial advisors. The issue will, however, remain important for cases that are pending and perhaps in an M&A or exit context, where clients may feel more inclined to act than usual.

Practically speaking, with the exception of these particular circumstances, this matter should mainly concern legacy issues for claims which were not settled until now. In this respect, the decision of the Swiss Federal Supreme Court cuts both ways: on the one hand, it opted for a ten year statute of limitation. On the other, it limits the exposure in so far as it considered that the statute of limitation starts to run as of the receipt of the retrocession. Overall, following this decision, the risk of possible restitution claims should be limited to known instances and should diminish as time goes by.

Looking to the future, the bill for a Swiss Federal Financial Services Act (FinSA), which is currently pending in parliament, proposes – contrary to MIFID II – to continue to permit retrocessions. It will, however, codify the rules on disclosure and consent developed by the Swiss Federal Supreme Court. The FinSA is currently expected to enter into force in 2019, at the earliest.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Rashid Bahar
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions