I OVERVIEW
i Sources of law
In Switzerland, there is no single body of law setting out the law of securities. The substantive law regulating securities is codified in the Swiss Code of Obligations (CO).2 Three sections of the CO are of special relevance when dealing with securities: the provisions on companies limited by shares in Article 620 et seq. CO, dealing with equity securities; the provisions regarding negotiable securities (which may include both equity and debt) in Article 965 et seq. CO; and the provisions regarding debt securities issued as bonds in Article 1156 et seq. CO. The procedure for civil litigation is set out in the Swiss Civil Procedure Code (CPC).3 In cases involving foreign parties, international private law comes into play, especially the Lugano Convention (LC)4 (applicable in cases involving parties from most European countries) and the Federal Statute on Private International Law (PIL)5 (applicable in cases involving parties from non-European countries).
Public securities law and public enforcement are governed by the Federal Act on Financial Markets Infrastructures and Market Conduct in Securities and Derivatives Trading (FMIA)6 and – for securities that are traded on the main Swiss stock exchange, SIX Swiss Exchange Ltd – the Listing Rules and implementing provisions of the SIX Swiss Exchange.7 The Financial Market Supervision Act (FINMASA)8 establishes the organisation and sets out the supervisory instruments of the Swiss Financial Market Supervisory Authority (FINMA), which is the Swiss authority for the supervision of the financial markets. Concerning criminal liability in general, the Swiss Criminal Code (SCC)9 and the Swiss Criminal Procedural Code (SCP)10 are of relevance.
ii Regulatory authorities
There is no regulatory authority entrusted with the general supervision of securities transactions in Switzerland. Indeed, in the absence of any criminal act, offerings of securities, whether public offerings or private placements, are still not subject to any regulatory oversight.
FINMA has certain limited power in connection with the enforcement of the requirements under the FMIA, in particular relating to disclosure of major shareholdings, insider trading and market abuse. SIX Exchange Regulation, an independent body of the main Swiss stock exchange, assumes a certain supervisory and enforcement role as a private organisation against its members. In the securities context, SIX Exchange Regulation may act in the event of certain failures to disclose price-sensitive information or of making false and misleading statements to the capital market (the ad hoc rule).
The Federal Department of Finance has the primary responsibility for the prosecution of failures to notify qualified shareholdings. Prosecution authorities are responsible for criminal proceedings under the FMIA and the SCC (see Section III, infra).
iii Common security claims
Very few actions for breaches of securities laws are ever brought to court in Switzerland. Lawsuits brought by investors against issuers or banks for prospectus liability are also infrequent but are probably still the most common securities claim in Switzerland. Only a few precedents are available, though. The reasons are not entirely clear but are likely a combination of the following: (1) Swiss investors tend to be relatively unlitigious; (2) there is no class action or similar instrument and therefore there is a risk of high litigation costs; and (3) many investors have entrusted banks or other financial intermediaries with investment decisions and will therefore sue or claim damages first from their agents before invoking prospectus liability claims against issuers or banks involved in securities offerings.
Because of the absence of a regulator with broad power to police securities offerings, the public enforcement of securities claims is limited to certain aspects of the FMIA mainly relating to disclosure of shareholdings, insider trading and market abuse.
II PRIVATE ENFORCEMENT
i Forms of action
Prospectus liability
The pivotal provision of Swiss substantive law concerning securities litigation is Article 752 CO. This provision governs the liability for the issue prospectus and similar documents and reads as follows:
Where information that is inaccurate, misleading or in breach of statutory requirements is given in issue prospectuses or similar statements disseminated when the company is established or on the issue of shares, bonds or other securities, any person involved whether wilfully or through negligence is liable to the acquirers of such securities for the resultant losses.
The legal nature of prospectus liability is debated in legal doctrine. Some authors qualify Article 752 CO as a contractual liability,11 others argue that it is a lex specialis in relation to Article 41 CO, which governs the liability for torts.12 Still others argue that Article 752 CO is a form of liability for breach of trust.13 The qualification is relevant for, inter alia, the burden of proof for fault on behalf of the respondent and the determination of damages: fault is presumed in contractual liability but not under tort law. The methods for the calculation of damages differ in tort and contract law.14 Nevertheless, the Swiss Supreme Court has qualified the liability for the issue prospectus as a liability in tort.15
Scope of application
Two requirements must be fulfilled for Article 752 CO to apply. First, there must be an issue of shares, bonds or other securities by a company. This requirement thus covers the creation or increase of equity capital (by issue of shares or participation certificates during the establishment or capital increase of a company limited by shares) or the raising of borrowed capital (by the issue of bonds). The provision generally applies to all kinds of securities that are issued in large amounts. This includes shares, bonds, participation certificates, convertible bonds and convertible option bonds.16 The applicability extends to initial public offers, fixed price underwritings and – according to Watter – to the offer documents regarding acquisitions.17 Not covered, however, are 'secondary placements' whereby an investor sells its securities to the public.18
Second, an issue prospectus or similar statement must have been prepared, or there must have been a failure to comply with the duty to publish such a prospectus or similar statement. Therefore, Article 752 CO not only applies where a prospectus or similar document was prepared in compliance with a legal obligation to do so, but also where the document was prepared and disseminated voluntarily.19
An issue prospectus is a written document created by the issuer to inform potential investors about the intended issue and to invite them to subscribe to the securities.20 A duty to publish an issue prospectus is established in Article 652a CO and Article 1156 paragraph 1 CO for public offers of new shares and new bonds, respectively. Article 27 paragraph 1 Listing Rules sets out the duty to publish a listing prospectus if the securities are to be listed on SIX Swiss Exchange. In this case, the prospectus must contain significantly more information than under Article 652a CO.21
The term 'similar statement' encompasses any information given to potential investors that relates to the issue of the securities and that is used as a means to market the securities and to inform the potential purchaser. Article 752 CO might therefore apply to listing prospectuses (if not identical to the issue prospectus), short prospectuses, advertisements, research reports, presentations, press releases, business reports, interim reports or letters to shareholders.22 However, there is little case law specifying which type of statements fall under Article 752 CO and the question provokes controversy in legal doctrine. A general characteristic of a similar statement pursuant to Article 752 CO is that it is impossible or unreasonable for the recipient of the statement to verify the given information.23
Right to sue and capacity to be sued
Pursuant to the wording of Article 752 CO, anyone who acquires securities has standing to sue. This does not just include the first buyer; any later buyer is also eligible to file a claim if the information in the prospectus was causal for the acquisition of the shares.24 Controversies exist regarding the legitimacy of claims if the acquirer already resold the securities or otherwise lost their ownership, and regarding the acquisition of already issued securities of the same kind as the ones being subject of a duty to issue a prospectus.25 The community of creditors according to Article 1164 CO and the company itself cannot act as claimants.26
Liability under Article 752 extends to any person involved in the drafting or the dissemination of the prospectus or similar statement. The involvement needs to be of a certain significance to trigger a liability, that is, the person must have had an influence on the contents of the prospectus.27 These persons can be executives or employees of the issuer or the leading issuing bank, or advisers of the issuer, issuing bank or rating agencies, such as lawyers, tax advisers and environmental advisers. Persons who disseminate the prospectus or similar document can be a consortium bank, financial institutions and other persons who are involved in the distribution of the prospectus.28 Further, it is possible to file a claim against the issuer of the security.29
Footnotes
1 Matthew T Reiter and Thomas U Reutter are partners at Bär & Karrer Ltd.
2 The Federal Act on the Amendment of the Swiss Civil Code (Part Five: The Code of Obligations) of 30 March 1911 (as of 1 January 2017), https://www.admin.ch/opc/en/classified-compilation/19110009/ The Federal Act on the Amendment of the Swiss Civil Code (Part Five: The Code of Obligations) of 30 March 1911 (as of 1 January 2017), https://www.admin.ch/opc/en/classified-compilation/19110009/ index.html.
3 The Civil Procedure Code of 19 December 2008 (as of 1 January 2017), https://www.admin.ch/opc/ en/classified-compilation/20061121/The Civil Procedure Code of 19 December 2008 (as of 1 January 2017), https://www.admin.ch/opc/ en/classified-compilation/20061121/index.html (the English version only reflects the version as of 1 May 2013).
4 The Lugano Convention, which entered into force in Switzerland on 1 January 2011 (as of 8 April 2016), https://www.admin.ch/opc/de/classified-compilation/20082721/201604080000/0.275.12.pdf (German).
5 The Federal Statute on Private International Law of 18 December 1987 (as of 1 January 2017), https://www.admin.ch/opc/de/classified-compilation/19870312/201701010000/291.pdf (in German).
6 Financial Market Infrastructure Act of 19 June 2015 (as of 1 January 2016), https://www.admin.ch/opc/ en/classified-compilation/20141779/Financial Market Infrastructure Act of 19 June 2015 (as of 1 January 2016), https://www.admin.ch/opc/ en/classified-compilation/20141779/index.html.
7 https://www.six-exchange-regulation.com/en/home/regulation.html.
8 Federal Act on the Swiss Financial Market Supervisory Authority of 22 June 2007 (as of 1 January 2016), https://www.admin.ch/opc/en/classified-compilation/20052624/index.html
9 Swiss Criminal Code of 21 December 1937 (as of 1 January 2017), https://www.admin.ch/opc/en/ classified-compilation/19370083/Swiss Criminal Code of 21 December 1937 (as of 1 January 2017), https://www.admin.ch/opc/en/ classified-compilation/19370083/index.html.
10 Swiss Criminal Procedure Code of 5 October 2007 (as of 1 January 2017), https://www.admin.ch/opc/en/ classified-compilation/20052319/Swiss Criminal Procedure Code of 5 October 2007 (as of 1 January 2017), https://www.admin.ch/opc/en/ classified-compilation/20052319/index.html.
11 Guhl et al., Das Schweizerische Obligationenrecht (Ninth Edition, Zurich, 2000), Section 72 N 6.
12 See, e.g., Müller, Lipp and Plüss, Der Verwaltungsrat, Ein Handbuch für Theorie und Praxis (Fourth Edition, Zurich, Basle and Geneva, 2014), p. 355.
13 See Watter, Basler Kommentar: Art. 530–964 OR (Honsell, Vogt and Watter (eds.), Fifth Edition, Basle, 2016), Article 752 N 2; and Reutter 'IPO – Ablauf, Struktur, Haftung und Schadloshaltung' in Vol 144, Kapitalmarkttransaktionen VIII (Reutter and Werlen (eds.), Zurich, Basle and Geneva: Europa Institut Zürich, 2014), p. 40. Reutter qualifies the legal nature of prospectus liability as a liability for breach in trust, arguing against the blind application of contractual standards.
14 Watter (footnote 13, supra), Article 752 N 2; and Reutter (footnote 13, supra), p. 38 et seq.
15 BGE 129 III 71 E. 2.5.
16 Watter, (footnote 13, supra), Article 752 N 4.
17 Ibid., Article 752 N 3.
18 Reutter (footnote 13, supra), p. 41.
19 Watter (footnote 13, supra), Article 752 N 5; Gnos, 'Prospekthaftung/Haftung gegenüber Investoren', Entwicklungen im Gesellschaftsrecht IX (Kunz, Jörg and Arter, Bern, 2014), Sections 97, 104 et seq.; Müller, Lipp and Plüss (footnote 12, supra), p. 356; and Reutter, (footnote 13, supra) p. 41.
20 Watter (footnote 13, supra), Article 752 N 5.
21 See Article 27 Listing Rules, which refers to the different schemes applicable for the issuance of securities on SIX Swiss Exchange, and Reutter (footnote 13, supra), p. 37 et seq.
22 Watter (footnote 13, supra), Article 752 N 14.
23 See Watter (footnote 13, supra), Article 752 N 14, with reference to the decision of the Cantonal Court of St. Gallen II, dated 19 December 1986, in: SJZ 1989, p. 50 et seq.
24 BGE 131 III 306, E. 2.1; and Watter (footnote 13, supra), Article 752 N 6.
25 Watter (footnote 13, supra), Article 752 N 7 et seq.
26 Ibid., Article 752 N 9, 9a.
27 Reutter (footnote 13, supra), p. 43 et seq.
28 Watter (footnote 13, supra), Article 752 N 10.
29 Ibid., Article 752 N 12.
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