New Ruling On Retrocessions - The Supreme Court Rejects Statute Of Limitations For Interests Due To Violation Of The European Principle Of Effectiveness

In a groundbreaking new ruling, the Supreme Court of Liechtenstein found that customers of Liechtenstein banks not only have the right to reclaim inducements withheld by the banks...
Liechtenstein Litigation, Mediation & Arbitration
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In a groundbreaking new ruling, the Supreme Court of Liechtenstein found that customers of Liechtenstein banks not only have the right to reclaim inducements withheld by the banks but also qualify for statutory interest of 5% on these sums for the entire duration of withholding. This significant new decision also calls into question the legislative amendment regarding the statute of limitations on inducement-related claims, which was introduced by Parliament in 2022 to protect banks and asset managers.

The Supreme Court´s decision was rooted in a step-action lawsuit initiated by a customer of a major Liechtenstein bank, seeking full disclosure and reimbursement of all withheld inducements (including retrocessions, commissions, maintenance fees, kickbacks, finder's fees, distribution compensations, discounts, natural benefits etc). After prevailing through all instances with the first part of the lawsuit concerning disclosure of inducements, the plaintiff quantified the claim in the amount disclosed by the bank, including interest accruing from the end of each fiscal year when the bank received these payments. The court of first instance ruled in favor of the plaintiff, ordering the full restitution of the requested amounts. Following this, the defendant bank filed a complaint with the Court of Appeal. While the Court of Appeal upheld the restitution claim, it granted interest solely from the date the defendant was notified about the claims of the plaintiff. Both parties challenged this decision, yet the defendant bank subsequently withdrew its appeal, effectively acknowledging the Court of Appeal´s ruling. The plaintiff demanded the reinstatement of the decision of the court of first instance.

The Supreme Court then ruled in favor of the plaintiff, refuting both the Court of Appeal's stance that interest accrues only after notification and the defendant bank's objection regarding statute of limitation. Drawing on the case law of the European Court of Justice (ECJ), the Supreme Court derived the general principle that in cases involving breaches of EU law, there is not only a right to reclaim unlawfully paid amounts but also a right to interest – covering the entire period of withholding. As per the EJC, interest payment terms must not deprive the affected party of fair compensation for their losses since this would infringe on European principles of effectiveness and equivalence.

The Supreme Court held that this case law by the EJC is comparable to the claim for restitution of inducements, which also has its basis in European law. Therefore, the Supreme Court found that the plaintiff has a right to interest for the entire period of withholding. The Supreme Court further stated that this conclusion is consistent with national law, where § 1000 ABGB provides that that statutory interest on borrowed money is accrued and due even for the period preceding the notification of defendant. Thus, the Supreme Court saw no need for a separate notification of the bank regarding interests (4 Ob 149/06z).

The Supreme Court then also rejected the objection of statute of limitations, once again invoking the principle of effectiveness. Given the intricate nature of the case and the plaintiff's reliance on the defendant bank's disclosure of inducements, imposing a time limit for interest expiry, such as three, five, or ten years, would, in the opinion of the Supreme Court, undermine the plaintiff's right to fair compensation. Therefore, the Supreme Court found that the plaintiff's claim for interest, like the claim for restitution, expires only after a period of 30 years.

The decision of the Supreme Court is expected to have significant implications for the Liechtenstein financial sector. Its call for fair and effective compensation for customers deprived of inducements necessitates a critical re-examination of the legislative amendments concerning inducements introduced by the Parliament in 2022.

Back then, the Parliament limited the statute of limitations regarding requests for information and restitution of inducements against a financial intermediary under the supervision of the Financial Market Authority (FMA) to three years from the date of discovering the payments (relative term) and ten years from the provision of services (absolute term).

As per the transitional provision, this new regulation also applies retroactively from June 1, 2023. Previously, the statute of limitations was set at 30 years. In the legislative materials for the new regulation, the government also stated that the relative three-year term would begin to run when the customer becomes aware that the financial intermediary "may receive" inducements.

Based on the new Supreme Court ruling, it is to be assumed that the Court will not follow the interpretation outlined in the legislative materials since it conflicts with the European principle of effectiveness (effet utile). Moreover, the absolute ten-year statute of limitations will not be sustainable in cases where the financial intermediary failed to disclose the payments to the customer, which was the norm in Liechtenstein until the introduction of MiFID II in 2018.

In summary, therefore, the new case law significantly strengthens the rights of customers in the Liechtenstein financial sector and sanctions the conduct of financial service providers who unlawfully withheld payments from their customers (sometimes) for decades. Customers whose banks or asset managers never disclosed the inducements to them may expect, due to their lack of knowledge regarding the inducements, that despite the legislative changes by the Parliament in 2022, they still have a claim for restitution of the inducements for the past 30 years. Additionally, they are entitled to a 5% interest rate for the entire duration of withholding.

If you have any questions on this matter, please contact our attorney Martin Hermann.

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.

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