The topic of retrocessions has been in the focus of banks, asset managers, clients, pension funds, lawyers and the media ever since a verdict was given by the Federal Supreme Court in March 2006 (BGE 132 II 460). In their decision, the Federal Supreme Court decided that the retrocessions received by asset managers from banks belong to the clients of the respective asset management mandates. The topic was further intensified by another judgment of the Federal Supreme Court of October 2012 (BGE 138 III 755) which extended the duty of restitution; not only asset managers are bound to restitute the retrocessions received from banks, but also the banks have to pass on hidden commissions they receive from product providers to clients with discretionary mandates.
By Thomas Müller (Reference: CapLaw-2015-61)
1) Open Questions
What has started with the Federal Supreme Court’s fundamental decisions regarding the duty of independent asset managers and banks to restitute retrocessions has had broader implications. On the one hand, the legal combat zone has been extended to the question of whether clients who have taken the decision to buy products or fund units independently may also claim the restitution of retrocessions and provisions. On the other hand, the applicable statute of limitation period remains a point of controversy (see NZZ, 16 April 2014: Pensionskassen verklagen Banken).
This article deals with the statute of limitation period applicable to the duty to restitute retrocessions. In this context, two questions arise. On the one hand, whether the five- or the ten-year statute of limitation period applies and, on the other hand, at what point in time does the statute of limitation period start to run. These two questions have been discussed in a judgment rendered by the Regional Court of Bern-Mittelland on 15 September 2014 which has since become final.
2) Controversial Views on the Statute of Limitation Period
According to Art. 127 of the Swiss Code of Obligations (CO), as a general rule, claims become time-barred after ten years. However, certain claims, including those in connection with periodic payments, are subject to the shorter statute of limitation period of five years (Art. 128 number 1 CO). It is controversial whether retrocessions constitute periodic payments. If so, the five-year statute of limitation period applies, otherwise the ten-year period. In legal literature, differing positions are being taken on this issue. The positions follow the opposing interest of banks and clients, respectively. While clients’ lawyers argue for a ten-year statute of limitation period, those on the banks’ side argue for a five-year period.
Another focus is the point in time when the statute of limitation period begins to run. While clients’ lawyers take the view that the statute of limitation period begins only with the termination of the asset management agreement, the banks and their representatives, on the other hand, argue that the statute of limitation period already commences upon receipt of the compensation by the asset manager or the bank.
3) Considerable Relevance of the Statute of Limitation
The question of the statute of limitation applicable to claims for restitution of retrocessions is crucial. The later the statute of limitation period begins and the longer it runs, the larger are the clients’ potential claims. If a ten-year statute of limitation period applies, starting to run from the termination of the business relationship, banks and asset managers might see themselves confronted with very high claims of long-term clients. The bank or the asset manager concerned might learn about the assertion of a claim only ten years after termination of the asset management mandate. In some cases, the respective business documents may no longer be available as the legal retention period expires after ten years.
The institution of limitations recognizes the healing power of time. If a claim is not asserted within a specified period, it can no longer be enforced against the will of the debtor. In regard to the question of when such legal relief occurs for banks and asset managers, two contradictory decisions are currently available. Indeed, client’s lawyers base their argumentation on a decision handed down by the Supreme Court of the Canton of Zurich on 13 January 2012 whereas the supporters of the bank-friendly argumentation refer to a decision handed down by the Regional Court of Bern-Mittelland on 15 September 2014. Unlike the mentioned decision of the Supreme Court of the Canton of Zurich, which discusses the limitation issue only in passing, the Bernese decision exclusively deals with limitation.
An external asset manager, who had received retrocessions from the custodian bank, was sued by one of his clients for restitution of those retrocessions. In its decision, the Regional Court of Bern-Mittelland solely discussed the duration and the starting point of the statute of limitation period. It essentially held the following:
Banks pay retrocessions to asset managers periodically, usually on a quarterly basis. As a consequence, such retrocessions constitute periodic payments, which in general is undisputed. Accordingly, the asset manager’s claim against the bank becomes time-barred after five years. In contrast, there is disagreement on whether the asset manager’s duty to restitute retrocessions to clients is periodic as well. In other words, it needs to be assessed whether a payment that arises periodically and must be passed on constitutes a periodic payment, too. If so, the claim for restitution also becomes time-barred after five years. The Bernese court followed the argument that the periodically flowing retrocessions have to be forwarded periodically after receipt and that, therefore, the five-year statute of limitation period applies.
The starting point of the statute of limitation period is closely linked to the question of when the retrocessions received by the asset manager must be passed on to the client. According to Art. 130 (1) CO, the statute of limitation period commences when a claim falls due. Art. 75 CO stipulates that obligations fall due immediately. The fact that the asset manager is obliged to restitute the retrocessions without delay suggests that the statute of limitation period commences immediately, i.e. upon receipt of the retrocessions by the asset manager. Some legal scholars, however, take the view that the statute of limitation period begins to run only when the asset management agreement is terminated. The authors draw a parallel with the restitution duty regarding assets handed over to the asset manager. Such assets, according to the unanimous opinion of both legal doctrine and the courts, have to be restituted only upon termination of the asset management agreement and, accordingly, the statute of limitation period only commences upon termination of the latter. The argument concludes that the same shall now also apply to retrocessions, as they are used to fulfil the contract. However, this is logically incorrect as retrocessions are asset inflows occurring from time to time which are not part of what an asset manager needs to fulfil the contract. The Bernese court followed this reasoning. Accordingly, the five-year statute of limitation period starts upon receipt of the retrocessions.
4) Conclusion
The decision of the Regional Court of Bern-Mittelland has not been appealed and hence has become final. However, until now, no Federal Supreme Court decision on the statute of limitation period applicable to claims for restitution of retrocessions exists. Hence, it remains to be seen when the struggle for retrocessions will come to an end. At least, the judiciary of the Canton of Bern has sent out an important sign. Namely, that the asset manager’s duty to restitute retrocessions becomes time-barred after five years and the statute of limitation period starts to run upon receipt of the retrocessions by the asset manager.
Thomas Müller (mueller@advokatur-thun.ch)