Financial Services Disputes 2019

ICLG

The International Comparative Legal Guide to: Financial Services Disputes 2019

1st edition

A practical cross-border insight into financial services disputes work

Published by Global Legal Group, in association with CDR, with contributions from:

Allen & Gledhill LLP Kantenwein Barun Law LLC Matheson Blake, Cassels & Graydon LLP MinterEllisonRuddWatts Borenius Attorneys Ltd Mori Hamada & Matsumoto Debevoise & Plimpton LLP PLMJ Dethomas Peltier Juvigny & Associés RPC DQ Advocates Limited Rui Bai Law Firm Financial Services Lawyers Association (FSLA) Stibbe Hannes Snellman Attorneys Ltd Trench Rossi Watanabe Advogados Homburger Wachtell, Lipton, Rosen & Katz Jones Day Wolf Theiss CDR Commercial Dispute Resolution The International Comparative Legal Guide to: Financial Services Disputes 2019

General Chapters:

1 The Evolving Landscape of Financial Services Litigation – Julie Murphy-O’Connor & Karen Reynolds, Matheson 1

2 Levelling the Playing Field in Banking Litigation – Victoria Brown, Financial Services Lawyers Association (FSLA) 4 Contributing Editors Julie Murphy-O’Connor, Karen Reynolds & Claire 3 Lessons Learned: 10 Years of Financial Services Litigation Since the Financial Crisis – McLoughlin, Matheson Elaine P. Golin & Jonathan M. Moses, Wachtell, Lipton, Rosen & Katz 8 Sales Director Florjan Osmani Country Question and Answer Chapters: Account Director Oliver Smith 4 Australia Jones Day: John Emmerig & Michael Legg 14 Sales Support Manager Toni Hayward 5 Austria Wolf Theiss: Holger Bielesz & Florian Horak 21 Sub Editor Oliver Chang 6 Brazil Trench Rossi Watanabe Advogados: Giuliana Bonanno Schunck & Senior Editors Gledson Marques De Campos 29 Caroline Collingwood Rachel Williams 7 Canada Blake, Cassels & Graydon LLP: Alexandra Luchenko 35 CEO Dror Levy 8 China Rui Bai Law Firm: Wen Qin & Juliette Ya’nan Zhu 42 Group Consulting Editor Alan Falach Publisher 9 England & Wales RPC: Simon Hart & Daniel Hemming 47 Rory Smith Published by 10 Finland Borenius Attorneys Ltd: Markus Kokko & Vilma Markkola 54 Global Legal Group Ltd. 59 Tanner Street London SE1 3PL, UK 11 France Dethomas Peltier Juvigny & Associés: Arthur Dethomas & Tel: +44 20 7367 0720 Dessislava Zadgorska 60 Fax: +44 20 7407 5255 Email: [email protected] URL: www.glgroup.co.uk 12 Germany Kantenwein: Marcus van Bevern & Dr. Carolin Sabel 67 GLG Cover Design F&F Studio Design 13 Ireland Matheson: Julie Murphy-O’Connor & Karen Reynolds 73 GLG Cover Image Source iStockphoto 14 Isle of Man DQ Advocates Limited: Tara Cubbon & Sinead O’Connor 80 Printed by Ashford Colour Press Ltd. 15 Japan Mori Hamada & Matsumoto: Shinichiro Yokota 86 February 2019

ISBN 978-1-912509-59-1 18 New Zealand MinterEllisonRuddWatts: Jane Standage & Matthew Ferrier 103 ISSN 2632-2625 Strategic Partners 19 Poland Wolf Theiss: Peter Daszkowski & Marcin Rudnik 110

20 Portugal PLMJ: Rita Samoreno Gomes & Rute Marques 117

21 Singapore Allen & Gledhill LLP: Vincent Leow 124

22 Sweden Hannes Snellman Attorneys Ltd: Andreas Johard & Björn Andersson 130

23 Switzerland Homburger: Roman Baechler & Reto Ferrari-Visca 135

24 USA Debevoise & Plimpton LLP: Matthew L. Biben & Mark P. Goodman 143

Further copies of this book and others in the series can be ordered from the publisher. Please call +44 20 7367 0720

Disclaimer This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

WWW.ICLG.COM Chapter 1

The Evolving Landscape of Financial Services Julie Murphy-O’Connor Litigation

Matheson Karen Reynolds

The growing scale and complexity of financial services disputes Introduction poses many challenges for courts and litigants alike. Technology presents solutions and problems in almost equal measures. Parties From an Irish perspective, many of the financial services disputes to complex financial services disputes face the challenges of which currently occupy the courts emanated from the financial crisis funding litigation in the context of rising costs, increasing which commenced over a decade ago. Mis-selling claims continue regulatory burdens and potential uncertainties where laws and to be central to financial services disputes, although those which regulations are either as yet judicially untested or subject to arose pre or during the financial crisis are likely to be time-barred if legislative and/or judicial re-evaluation – whether in Ireland or not yet instituted. Interestingly, the Financial Services and Pensions abroad. A number of these issues have been the subject of recent Ombudsman Act 2017 extended the time limit for bringing financial services disputes before the Irish courts and in respect of complaints specifically relating to long-term financial services. which landmark judgments have been delivered. This together with some notable judgments in this area suggests we may yet see another peak in mis-selling disputes. Disputes in the financial services sphere increasingly incorporate fraud and Recent Landmark Decisions of Irish Courts conspiracy claims, with the usual cases of alleged breach of a duty in Financial Services Disputes of care. The impact and significance of the financial crisis and the litigation which followed has resulted in regulatory reform in Ireland, largely aimed at preventing a future crisis but also to Limitation Periods in Financial Services Disputes address accusations that “light touch” regulation led to banking failures in the first place. Reliance on breaches of regulatory The cases of Gallagher v ACC Bank [2012] IESC 35 (“Gallagher”) obligations is becoming a more common feature of private civil and Cantrell v AIB PLC & Ors [2017] IEHC 254 (“Cantrell”) are litigation, and the courts are more inclined to consider, of their own considered landmark decisions in Ireland in the context of financial volition, regulatory obligations, especially in consumer cases. services disputes in Ireland. These decisions provide clarity as to Increased regulation has driven growth in related enforcements and how the Irish courts will apply the rules governing limitation investigations and this is set to continue as financial services firms periods in relation to financial loss. move to and grow in Ireland. The leading judgment on this issue in an investment dispute context The consequences of the global recession are likely to continue to was delivered in the Supreme Court by Mr. Justice Fennelly in shape the nature, complexity and volume of financial services Gallagher. The Supreme Court found that, in light of its specific disputes before the Irish courts. Whilst Brexit has not yet had a characteristics, the investment was inherently unsuitable for the significant impact on the number of cases commenced in Ireland, claimant from the moment of investment. Therefore, his loss there has been a discernable acceleration in obtaining final orders accrued at the time he made his investment. The proceedings were where there is a potential need for cross-border enforcement into the issued over six years after that and were therefore statute-barred. UK. It is too soon to tell precisely what additional impact Brexit However, in Gallagher, the Supreme Court was careful to will have on the volume and nature of financial services litigation in acknowledge that were another type of investment in issue, the Ireland but an event of such legal and political significance will characteristics could vary and the action might not accrue at the inevitably shape the landscape for years to come. The ISDA Master same time. The court considered, obiter, that if a claim arose from Agreement in 2018 means that Irish law will now be an option for mis-management of an investment – rather than mis-selling – loss parties to its derivatives documentation. This is a significant might accrue at a later stage. More recently, in the High Court in development in its own right and one which underscores the Geraldine Cantrell v Allied Irish Banks Plc, the Second Belfry attractiveness of Ireland in the context of certain international Properties (UK) Plc and Others, the claimant sought damages for transactions post-Brexit. The benefits for users of derivatives of negligent misstatement, breach of contract and breach of statutory using ISDA Master Agreements governed by a law within the EU duty. Whilst the court ultimately held the claim was statute-barred, legal framework include the automatic recognition and enforcement it found that the loss at issue had not arisen at the time the of judgments obtained in one EU Member State in other EU investment was made (and the general rule that a claim in tort should Member States and the fact that the legislative framework protects be brought within six years of the investment did not apply). In so financial collateral arrangements and provides certainty on certain finding, the High Court relied on the comments of the Supreme insolvency related matters. Court in Gallagher to the effect that “the cause of action accrues in

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the case of financial loss when the Plaintiff has suffered actual The Irish Law Reform Commission and the ongoing Review of damage”, and, obiter, that “the mere possibility of loss arising from Civil Justice Administration, which is led by Mr. Justice Peter Kelly, advice given or the entry upon a transaction is not enough to the President of the High Court, are tasked with considering and constitute actual loss at that point in time. There must be some reporting on the desirability of litigation funding in Ireland. The probability of loss”. In Cantrell the High Court held that the landscape may well be set to evolve. claimant could not be required to come to court before she could quantify her loss, and therefore, should not be time-barred for Legal Certainty, Implied Duties, Penalty Clauses having waited to do so. Accordingly, as a result of the decision in Cantrell, financial services providers do not have certainty that claims in tort expire after six years from the date of investment. It Irish courts are traditionally reluctant to re-write or otherwise remains to be seen whether an appellate court will take a different intervene in contractual agreements between commercial parties – view. and particularly slow to do so on vague grounds of doing fairness between parties. This approach was demonstrated recently by the Court of Appeal in Litigation Funding Flynn & Anor v Breccia & Anor [2017] IECA 74 and in doing so the Court of Appeal restored certainty that, under Irish law, there is no Litigation funding is an important feature of litigation in many general implied duty of good faith in the context of commercial jurisdictions. In the UK, litigation funding has been a feature of the contracts. The case arose in the context of an acquisition of secured legal landscape since the Criminal Law Act 1967 which abolished debt from a defunct Irish bank by a corporate shareholder in the the rules on maintenance and champerty. Many civil law EU company on which the debt was secured. A shareholders’ agreement jurisdictions permit the use of litigation funding. In the US, third- existed and the debtor argued that the acquirer of debt – also a party litigation funding is a newer concept, but hardly novel. shareholder – was prohibited from enforcing the security as a result Federal law is silent as to champerty, and the law on litigation of alleged implied duties of good faith under the shareholders’ funding varies from state to state. agreement. The High Court at first instance departed from In Ireland, litigation funding still falls foul of the old rules against established principles of Irish contract law, which could have had champerty and maintenance and has been the subject of a number of significant consequences for long-term commercial contractual recent, landmark decisions in relation to litigation funding in the relationships and the secondary market in non-performing loans context of financial services disputes. (“NPLs”) had it not been overturned on appeal. However, the Court The decision in Persona Digital Telephony Limited and Another v of Appeal was not persuaded by the High Court reasoning (nor by the Minister for Public Enterprise and Others [2017] IESC 27 some recent case law in the UK where a duty of good faith and fair (“Persona”) provoked comments on the Irish position from the then dealing had been implied into “relational contracts”) preferring Chief Justice, Ms. Justice Susan Denham. instead to maintain the traditional approach, and refusing to recognise any general doctrine of good faith under Irish contract law. “It may be said that in light of modern issues, such as Ireland being an international trading State, issues arising on international However, in the related cases of Flynn v Breccia and Sheehan v arbitrations, and in the Commercial Court, it might well be Breccia [2018] IECA 286, also before the Court of Appeal, the court appropriate to have a modern law on champerty and the third party held that a surcharge interest clause in a financing agreement was an funding of litigation. However, that is a complex multifaceted issue, unenforceable penalty (thus departing from the traditional approach more suited to a full legislative analysis.” of upholding clear and express commercial terms). The Court of Appeal held that a generic surcharge interest clause contained in the The comments in Persona were echoed last year in the context of a lender’s standard general terms and conditions could not represent a large-scale financial services case before the Irish Supreme Court, genuine attempt by the parties to estimate in advance the loss which SPV Osus Limited v HSBC Institutional Trust Services (Ireland) would result from a breach/default of the terms and conditions of the Limited [2018] IESC 44 (“Osus”). This case arose out of litigation loan. The Court of Appeal arguably missed an opportunity to relating to the Madoff Ponzi scheme and, on appeal, focused on the reevaluate the interpretation and application of the test originally set issue of whether the assignment of claims transferred by an out by Lord Dunedin in the case of Dunlop Pneumatic Tyre Co Ltd investment company (Optimal Strategic) to an SPV (SPV Osus), in v New Garage Motor Co Ltd [1915] A.C. 79 and applied in Ireland the context of the administration of a company could be allowed to in the 1998 Supreme Court judgment of Pat O’Donnell & Co v stand. In Osus, the Court reviewed the body of Irish law in relation Truck and Machinery Sales [1998] 4 I.R. 191. The UK courts to the assignment of claims and litigation funding. In doing so the recently revisited their approach in the joint cases of Cavendish Court acknowledged the contemporary obstacles which individuals Square Holding BV v Talal Wl Makdessi 67 and ParkingEye Limited face in gaining access to the courts, but against this, the Court was v Beavis [2015] UKSC 67. There, the UK Supreme Court clarified cognisant of the complex and multi-faceted issues which would that clauses which have the effect of imposing a penalty for arise in permitting litigation funding and considered that such issues contractual default would, generally, be enforceable, except where would be best addressed by the legislature and appropriate the impact is to impose a detriment on the defaulting party which is regulation. out of all proportion to any legitimate interest of the innocent party The Chief Justice of Ireland, Mr. Justice Frank Clarke (the “Chief in the enforcement of the main purpose of the contract. Although Justice”), has publicly raised the issue. This is reflective of his the Irish Court of Appeal was not persuaded by the approach taken judgment in Osus where, although he cautions against unregulated by the UK Supreme Court, the judgment leaves the door open for reform, he encourages the legislature to address the competing the Irish Supreme Court to consider the issue in the future. issues identified in the case before him. In a statement in September

2018, the Chief Justice noted that the judiciary’s objective is to make access to justice as straightforward and uncomplicated as it Continuing Evolution can be while at the same time ensuring that the court process is fair and comprehensive. The Chief Justice of Ireland is a strong advocate for the continual development of the Irish courts system. Plans are in train to build on

2 WWW.ICLG.COM ICLG TO: FINANCIAL SERVICES DISPUTES 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London Matheson The Evolving Landscape of Financial Services Litigation the success of the specialist commercial division of the Irish High recognised and enforced in a straightforward and predictable Court by introducing a specialist financial disputes list. Legislation manner across the EU. This is particularly important for financial to double the number of judges in the recently formed Court of services disputes which are regulatory and cross-border in nature Appeal is imminent. Further developments are evident by the trial and often rely on the enforceability of interim protective measures and gradual acceptance of e-litigation in this jurisdiction and this such as mareva injunctions (for the freezing of assets) across the will likely be expanded upon in the recommendations to be made by EU. The benefits of a legal system integrated into a wider EU the Review Group established to review and reform the framework together with the importance of ensuring pan-European administration of civil justice in the State. measures for enforcement have come into sharp focus in the recent It is expected that the certainty provided by Ireland’s membership of Brexit negotiations. It remains to be seen how financial services the EU will contribute to its popularity as a jurisdiction for disputes will be impacted in the context of the evolving political international financial disputes post-Brexit. Ireland, as a member of landscape and the continued uncertainty associated with Brexit. the EU, benefits from the re-cast Brussels I Regulation and the Undoubtedly, whatever the outcome of the Brexit negotiations, both Lugano Convention. These legal instruments together ensure that risks and opportunities will arise across many jurisdictions and this judgments and choice of law and jurisdiction in civil matters are will be no different in the area of financial services disputes.

Julie Murphy-O’Connor Karen Reynolds Matheson Matheson 70 Sir John Rogerson’s Quay 70 Sir John Rogerson’s Quay Dublin 2 Dublin 2 Ireland Ireland

Tel: +353 1 232 2192 Tel: +353 1 232 2192 Email: [email protected] Email: [email protected] URL: www.matheson.com URL: www.matheson.com

Julie is a Partner at Matheson, practising in all aspects of contentious Karen is a Partner in the Commercial Litigation and Dispute Resolution and non-contentious restructuring, recovery and insolvency law Department at Matheson, and co-head of the firm’s Regulatory and matters and is an experienced litigator specialising in banking and Investigations Group. financial services and shareholder disputes. Julie was a member of Karen has a broad financial services and commercial dispute the Council of the Irish Society of Insolvency Practitioners from 2011 to resolution practice. She has over 10 years’ experience providing 2014 during which time she acted as secretary and as chair of its strategic advice and dispute resolution to financial institutions, educational committee. Julie is a regular contributor to Irish and financial services providers, domestic and internationally focused international legal publications. She lectures on insolvency law and companies and regulated entities and persons. She advises clients in directors’ duties at the Law Society of Ireland and Dublin Solicitors Bar relation to contentious regulatory matters, investigations, inquiries, Association. She is co-author of the Law Society’s insolvency manual. compliance and governance related matters, white-collar crime and She is a member of the Commercial Litigation Association of Ireland corporate offences, commercial and financial services disputes, anti- and co-author of the Practitioner’s Guide to the Commercial Court in corruption and bribery legislation and document disclosure issues. Ireland. Julie is a non-executive director of Coillte Teoranta (Irish State forestry company). She is ranked as one of Ireland’s top insolvency Karen has substantial experience in corporate restructuring and lawyers by international legal directories. insolvency law matters, having had a lead role in some of the most high-profile corporate rescue transactions of the last 10 years. She advises liquidators, regulators, directors and insolvency practitioners in relation to corporate offences and investigations, shareholder rights and remedies, directors’ duties, including in relation to fraudulent and reckless trading and disqualification and restriction proceedings.

Established in 1825 in Dublin, Ireland and with offices in Cork, London, New York, Palo Alto and San Francisco, more than 700 people work across Matheson’s six offices, including 96 partners and tax principals and over 470 legal and tax professionals. Matheson services the legal needs of internationally focused companies and financial institutions doing business in and from Ireland. Our clients include over half of the world’s 50 largest banks, six of the world’s 10 largest asset managers, seven of the top 10 global technology brands and we have advised the majority of the Fortune 100.

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Levelling the Playing Field in Banking Litigation

Financial Services Lawyers Association (FSLA) Victoria Brown

■ resources may not allow it. The issue fee for claims is 5% of Levelling the Playing Field in Banking their value, with a cap (for claims worth over £200,000) of Litigation £10,000. If an SME loses, it is likely to have to cover the bank’s legal costs. Those costs can be very high; a claimant Banks are likely to provide the following three services to SMEs: has little or no control over a defendant’s spending, subject deposit-taking; the sale of specific financial products such as only to the costs recovery rules; interest rate swaps; and lending. Since the 2008 financial crisis, the ■ even well-resourced SMEs might struggle to take a bank to provision of these services has been the focus of considerable court. Financial services disputes often cause cash flow attention by both regulators and the courts. stresses. Cost and speed of redress is often critical to an SME’s ability to stay in business. Many SMEs will have Whilst deposits have been entirely protected by regulatory action limited access to finance and reserves, and have limited or no and the sale of financial products is largely regulated to the same ability to diversify investments; standards across the EU, lending by banks to SMEs generally falls ■ litigation funders are not readily available. Legal fees can outside the regulatory regime. This gives rise to certain difficulties involve unexpected outlay, such as expert fees and forensic for SMEs: in the event they wish to seek redress against a bank, accountants; conduct of one of the core services is not subject to regulatory ■ there can be a lacuna in legal services for those claiming oversight. against banks. Many banks engage solicitors through legal A further difficulty for SMEs seeking redress is the existing scope of advice panels, which often involve law firms covenanting not the Financial Ombudsman Service (FOS) regime. Presently, only to act in any matter against the bank; and an SME that is a micro-enterprise may bring a complaint to the FOS. ■ unlike individuals,1 SMEs have no right of action for However, from April 2019, the FOS regime will expand to include damages for breach of the Financial Conduct Authority small businesses with an annual turnover below £6.5 million, an (FCA) rules and must instead rely on general legal principles. annual balance sheet total under £5 million and fewer than 50 In practice, this means claims for misrepresentation, employees. negligence, breach of contract, etc. Banks may attempt to limit general legal liabilities by contractual terms to the Richard Samuel of 3 Hare Court suggested a permanent, specialist extent permissible under the FCA rules. Financial Services Tribunal (FST) in a series of articles in the Capital Markets Law Journal. That idea gained widespread support and in October 2018 the Treasury Select Committee (TSC) The FOS concluded that the Treasury should bring forward proposals to create the FST. The FOS regime exists to provide eligible complainants (until April This chapter examines the advantages and disadvantages of the FST 2019 only individuals and micro-enterprises; thereafter it will be regime and, where lacunas in protection for SMEs remain, sets out expanded to broadly include small businesses) with an easier means measures that might help level the playing field for SMEs in of recourse against providers of financial services. It should be successfully seeking redress against banks. noted, however, that even from 2019 only regulated activities such as the sale of financial products will fall within the scope of the

FOS: non-regulated activities such as lending to small businesses Difficulties for SMEs in Achieving Redress will not be in its scope. Likewise, an SME with permissions for the regulated activities about which it complains is unable to complain to the FOS.2 The courts The FOS has many advantages. It is quick and informal,3 and free for the complainant with only a small case fee for the bank. Its Although there is a specialist Financial List in the High Court, it is decisions are binding on the respondent if the complainant accepts limited to complex financial claims worth more than £50 million or the decision,4 and there is no right of appeal. It is especially claims raising issues of general importance. Accordingly, most accessible for the unsophisticated complainant as decisions are legal claims brought by SMEs are litigated in the County Court or taken on the basis of what is ‘fair and reasonable’ in all the non-specialist High Court lists. circumstances, rather than on legal principles.5 SMEs often find it near impossible to take banks to court for the For a number of reasons, the FOS does not fix all the woes of the following reasons: court system. There is no live evidence and no power to compel

4 WWW.ICLG.COM ICLG TO: FINANCIAL SERVICES DISPUTES 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London Financial Services Lawyers Association (FSLA) Levelling the Playing Field witnesses. The financial award is presently limited to £150,000 consider certain questions whether or not they are raised by the although this will rise to £350,000 for SMEs in April 2019. parties. This would be particularly beneficial to SMEs who may not Accordingly, there remains a large gap in the ‘middle market’ where have access to the same degree or quality of legal representation as mid-sized SMEs or SMEs with mid-sized complaints may not be banks. within the scope of the FOS and, for one or more of the reasons set A key benefit of the tribunal system would be the capacity for out above, unable to avail themselves of the courts. Similarly, an different costs rules from the Civil Procedure Rules and the usual SME with a dispute involving a dissolved business or a business rule of ‘winner pays the loser’s costs’ in the courts. For example, in subject to insolvency proceedings may fall within this gap. the tax tribunal, each party generally bears their own costs unless the 6 case is classified as complex. In the Employment Tribunal, parties again generally bear their own costs unless the claim has no What Could Plug the Gap? prospect of success or a party has behaved in some way unreasonably.7 In the Intellectual Property and Enterprise Court (a low-cost jurisdiction which deals with small intellectual property FOS increase cases), the loser pays the winner’s costs but those costs are capped at £50,000 following a full liability trial.8 Further legislation to expand the scope of eligible complainants to the FOS or the size of awards the FOS may require is unlikely, in the A particular advantage of the FST will be the speed of decisions. near or medium term, given the changes due to come into effect in Particularly in relation to larger SMEs, banks are unlikely to become April 2019. Nicky Morgan MP, Chair of the TSC, wrote to the FCA aware of problems with products or services promptly. The reasons on 23 July 2018 to express doubt about the FOS’s ability to increase are obvious: services are often bespoke or tailored; the client its remit to include SMEs by April 2019 following the Lloyd population is small; there are high levels of market concentration; Review. This suggests that proposals for further expansion will be and distribution chains can be complex. FST decisions will alert the met with considerable resistance. industry and the FCA to problem products or problem contractual terms. This may allow for the avoidance of high-impact failures. Banks accept the ‘rough justice’ of a FOS decision and lack of appeal largely because of the caps placed on the size of awards At present, firms must take previous FOS decisions into account 9 within the regime. Should those caps increase considerably, it is when handling complaints. Similarly, firms must identify (from likely that there would be an expectation of a more court-like regime complaints or otherwise) recurring or systemic problems in their in terms of decision-making, evidence-gathering, appeal or financial provision of a financial service (or lack thereof) and put them 10 exposure in the event of loss. Such changes will fundamentally right. FOS decisions therefore increase the quality of firm change the nature of the FOS regime and put an end to many of its decision-making. The same would self-evidently be true of FST beneficial features including speed of decision-making and low decisions. In fact, this advantage would be felt even more acutely as cost. the decisions would also clarify the legal position. In turn, it is likely that higher standards of conduct will increase SME Industry resistance is also likely to take the form of competition- engagement with the financial services industry by removing based arguments: expanding access to the FOS runs the risk of uncertainty and increasing user confidence. harming competition by increasing the expense for new firms to enter the financial services markets and provide products or services However, there are also problems with establishing a FST. In the long to SMEs. Expansion necessarily increases the minimum cost of term the tribunal is likely to increase regulatory certainty, particularly servicing SMEs in circumstances where they, individually, generate in the interpretation of FCA rules where often little guidance exists, relatively little revenue for the bank. Expansion may, therefore, and so save firms money. But in the short to medium term firms will decrease access to products or quality of service, or slow the process incur costs in defending tribunal claims which SMEs will ultimately of developing new products and bringing them to market. have to bear. Clearly, there will be a cost to the industry of increasing eligible complaints from SMEs. First, the obligations to investigate, assess and resolve complaints.11 Second, the obligations to increase A FST awareness of consumers’ protections.12 There is also a danger that increased litigation risk will reduce In October 2018, the TSC recommended to the Treasury the creation product offerings or make them increasingly expensive as firms of a FST which will allow SMEs to enforce their rights against withdraw from the market. financial institutions. The Committee also recommended amending s138D FSMA to allow SMEs a private right of action for breaches of FCA rules in any such tribunal. A FST: A Panacea?

A tribunal could be established under the Tribunal Courts and Enforcement Act 2007. It would, necessarily, make decisions in The core difficulty for SMEs in taking action against a bank is the accordance with legal principles. As with other tribunals, it would inequality of arms. be sensible for the tribunal to have an appellate tier to which appeals Steps put in place to amend the FOS regime go some way towards could be made. Appeals from the appellate tier would be made to addressing this but a large pool of medium-sized SMEs will not the Court of Appeal. A tribunal would have powers to compel benefit from these changes. It should also be noted that banks’ witness attendance and test evidence by cross-examination. lending activities do not (and will not post April 2019) fall within A tribunal could be presided over by a judge alone, or by panels of the scope of the FOS regime and therefore any claims an SME may three to include a judge and two ‘wing-members’. For example, a have in regard to these services must be brought on strict legal FST could host wing-members from representatives of both the grounds within the courts. It is probably not a contentious ‘buy’ and ‘sell’ sides of the market. Where wing-members sit, all observation to make that courts have historically been protective of three panellists would have equal votes. banks on these matters for public policy reasons. The tribunal might be adversarial but with some inquisitorial The tribunal system recommended by the TSC may go some way aspects. For example, the Employment Tribunal is obliged to towards levelling the playing field for SMEs, but the complexity of

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banking litigation and the likely sums of claims may mean a tribunal alternative solution. The FCA has the power to require a firm to is not the panacea for SMEs’ difficulties. provide a report by a skilled person, or to appoint a skilled person to Two further proposals in relation to statutory or voluntary mass- produce a report under s166 FSMA. This could support, for redress schemes could ameliorate the position for SMEs: example, the design of a redress scheme in the report’s findings. There is no reason why such findings could not recommend terms of 1) Requirement for the firm(s) to appoint an independent entity (such as an accountancy firm or a law firm) to negotiate the the scheme. terms of a scheme on behalf of its customers. 2) Requirement for the establishment of a redress scheme in the Prima facie criminal misconduct event of a prima facie case of criminal activity. Similarly, there may be scope to consider whether the obligation to Appointing an independent negotiator establish a redress scheme should be expanded to include situations in which there is a prima facie case of criminal misconduct by a Under s404 FSMA, the FCA can set up an industry-wide consumer bank or one of its agents. redress scheme where it appears that there may have been a Presently, s384 FSMA allows the FCA to require authorised persons widespread or regular failure to comply with requirements, such as to make restitution to consumers where a breach of a requirement of FCA rules. This power can only be used where a remedy or relief FSMA caused loss to that consumer. would be available in legal proceedings. The FCA may also require A burden of proof shift would require banks to prove to an a firm to establish a redress scheme which corresponds to, or is independent reviewer that no misconduct took place. This is likely similar to, an industry-wide scheme.13 The FOS is bound to apply to encourage disclosure from banks and increase desire for reasoned the terms of such schemes to any complaints received about the decisions, which in turn counters many of the earlier criticisms subject matter, unless both firm and complainant agree the scheme made of mass-redress schemes. should not apply.

Firms are also obliged to consider whether any systemic problems Conclusion have caused detriment or disadvantage to customers and whether it is fair and reasonable for the firm to proactively undertake a redress The FST will be key to addressing a number of the difficulties SMEs exercise, which may include contacting those who have not face in seeking redress against banks. This chapter has attempted to complained.14 Firms must identify and remedy any recurring or show that, nevertheless, the FST is not a panacea for SMEs, and has systemic problems by analysing root causes of complaints and made two suggestions to facilitate SME access to justice. considering whether they may impact on any other processes or products.15 Firms must also report complaints in aggregate to the FCA.16 Endnotes Mass-redress schemes have often been used post the 2008 financial crisis but as a result of the limitations discussed above, SMEs have 1. See rights of ‘private persons’ in s138D Financial Services & often not qualified. Accordingly, many relevant mass-redress Markets Act 2000 (FSMA). schemes have been voluntary. Many of these schemes have been 2. DISP 2.7.9(1)(a). criticised as lacking transparency and fairness. The schemes are 3. S225 FSMA. often thought to be biased. Banks have often investigated and 4. S228 FSMA. reviewed their own behaviour or those appointed as independent 5. S228 FSMA. reviewers have been criticised as too closely linked to the firm(s) in question. Further, many schemes have been kept confidential which 6. The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, Rule 10 and see Rule 23 for a definition of gives rise to further problems, such as the lack of opportunity for the complex claims. market to learn from previous mistakes and legal and factual analysis of those mistakes. Other criticisms include suppression of 7. The Employment Tribunal (Constitution and Rules of Procedure) Regulations 2013, Rule 76. disclosure or prevention of access for the SME to the independent reviewer. 8. CPR r.45.31(1)(a). 9. DSIP 1.3.2A. To date, the FCA has negotiated the terms of such schemes on behalf of bank customers; a task the FCA has made clear that it is 10. DISP 1.3.6. uncomfortable taking on, not least because its role as a supervisor 11. DISP 1.4.1. and regulator does not sit well with dispute resolution.17 Perceived 12. DISP 1.2.1 and 1.2.2. FCA failings to negotiate such terms robustly have led to 13. Ss55J and 55L FSMA. considerable criticism of the FCA in performing this role. For 14. DISP 1.3.6. example, the IRHP voluntary agreement was much criticised after it 15. DISP 1.3.3. became apparent that the FCA had conceded to numerous requests of the banks. 16. DISP 1.10. An obligation for banks setting up voluntary schemes to pay for an 17. Evidence of Andrew Bailey to the TSC on 20 July and 9 November 2016 and letter to the Committee on 22 January independent entity (such as an accountancy firm or a law firm) to 2018. negotiate the terms of a scheme on behalf of its customers may be an

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Victoria Brown Outer Temple Chambers 222 Strand London WC2R 1BA United Kingdom

Tel: +44 20 7353 6381 Email: [email protected] URL: www.outertemple.com

Victoria advises on all aspects of financial services law, including those related to regulatory perimeter issues and obligations imposed on regulated firms and approved persons. She acts for and against regulators, firms and individuals in the courts and before decision- making committees. Victoria is also familiar with investigations, including document reviews, interviews, responses and representation. In addition to the key areas above, Victoria has cross-over expertise in matters related to employment and pensions. Outer Temple Chambers’ Financial Services team has broad experience in the banking and financial services industry. Barristers at Outer Temple have featured in many of the leading cases arising out of the financial crisis, including at appellate level. The team has particular experience of high-value cases involving alleged misconduct by banks, often following regulatory findings.

FSLA provides a forum for the open exchange of views and the dissemination of knowledge and ideas relating to financial services law and regulation. It creates opportunities for financial services lawyers to meet each other at a variety of educational and social events which take place throughout the year. The aim of FSLA is to foster co-operation between the various financial services stakeholders including lawyers and policy experts in industry, academia, regulators and government.

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Lessons Learned: 10 Years of Financial Services Litigation Elaine P. Golin Since the Financial Crisis

Wachtell, Lipton, Rosen & Katz Jonathan M. Moses

The financial crisis and the Great Recession began a little more than In reviewing the course of this litigation, it is worth keeping in mind 10 years ago, on September 15, 2008, when Lehman Brothers filed the many different types of financial institutions connected to the for bankruptcy. The next day, September 16, the Federal Reserve mortgage underwriting and securitisation markets; none were left implemented a rescue of AIG, and the day after that the markets untouched by financial crisis-related litigation. These businesses were in a state of free fall. On September 18, the government reflected the gamut of financial institutions: mortgage brokers and announced a further rescue proposal, and, on September 19, the mortgage companies that specialised in making subprime Treasury Department guaranteed U.S. money market funds, an mortgages; retail banks that increased their mortgage and other unprecedented move. The ensuing crisis led to manifold legislative, home lending activities; commercial and investment banks that regulatory, and political reactions in the United States and abroad. specialised in RMBS and/or commercial mortgage securitisations The business and legal landscapes for financial institutions were, (“CMBS”) and in even more complicated financial instruments, and remain, significantly altered. For financial institutions, the such as collateralised debt obligations (“CDOs”); the bond rating crisis also produced years of litigation in the United States spanning agencies that deemed such securities to be investment quality; the a broad range of claims. insurance companies that issued protection for some securitisations; Ten years out from the beginning of the Great Recession, it is worth the hedge funds and bank trading operations that invested in such reflecting on the course of that litigation, which appears to be finally securities; the trustee companies responsible for administering the reaching the beginning of the end. Perhaps the largest category of trusts issuing such securities; and mortgage-servicing businesses, such litigation related to the growth of the mortgage market that often operated by banks, that were responsible for servicing such marked the decade before the financial crisis and the expansion of mortgages once underwritten. Government or quasi-government both the government-sponsored and private securitisation markets, institutions were also heavily involved in the mortgage markets, in in particular for residential mortgage-backed securities (“RMBS”) particular the Federal Housing Authority (“FHA”), which that emerged to finance that growth. The downturn in the U.S. guarantees smaller and more standard mortgages in an effort to housing market, the resulting impact on mortgage performance, and make home ownership more accessible, and Government- the ensuing domino effect on institutions and investors arguably Sponsored Enterprises (“GSEs”), such as Fannie Mae and Freddie were among the most significant causes of the financial crisis. Mac, that guarantee mortgages as part of their huge mortgage securitisation activities and even purchased enormous amounts of The extent and depth of the financial crisis took the financial the RMBS issued during the pre-crisis years, which, in turn, fuelled institutions that had participated in the mortgage market by surprise. the growth and expansion of that market. One thing is clear: the legal infrastructure that supported the mortgage underwriting and securitisation markets was not created with such a The financial-crisis litigation emerged in waves. While it is beyond crisis in mind. The securitisation contracts upon which billions of the scope of this chapter to discuss in detail each type or subset of dollars in liability ultimately turned were often hastily put together, and financial-crisis litigation, in hindsight it generally can be few, if any, parties to the contracts had reflected on what would happen categorised into three main waves. The initial wave focused on the if a substantial percentage of the securitised mortgages failed to institutions most immediately and visibly affected by the crisis. perform (as opposed to the low default rates typical in the boom years). Thus, corporate and securities litigation against firms that suffered As might be expected, the ensuing waves of litigation took some time significant losses as a result of their mortgage exposure or even to emerge, were sometimes dominated by the “bad facts” of the crisis, went out of business represented the first wave. Government-led inspired legal creativity and ingenuity, and required the courts to craft investigations and civil actions dominated the next wave as public new applications of traditional legal principles. Ultimately, well- attention focused on the effect the crisis was having on ordinary established legal rules generally prevailed and financial institutions people subjected to foreclosure. Finally, private civil litigation and other market participants developed an understanding of how expanded as various investors in mortgage-related products realised better to address potential legal risks going forward. the extent of their losses (or seized the opportunity to buy bonds at distressed prices as a litigation investment) and began to press

litigation against the various parties involved in making and The Course of Financial Crisis Era securitising mortgages – or at least those parties who by then still Litigation remained in business.

Litigation stemming from the financial crisis emerged in waves as different aspects of the mortgage-related markets came into focus.

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Wells Fargo, Citigroup, and Ally Financial, as settlement for alleged First Wave: Corporate and Securities Litigation abuses in the banks’ handling of their mortgage loan servicing and foreclosure businesses. The agreement required the mortgage The first wave of litigation was marked by corporate and securities servicers to commit more than $20 billion toward financial relief for cases involving the firms that suffered the greatest initial losses on consumers. It also created new standards intended to prevent future the financial markets. Thus, as some of the largest financial foreclosure inadequacies and abuses, such as stricter oversight of institutions experienced significant and highly publicised losses as a the foreclosure process, with compliance to be conducted under the result of their exposure to the mortgage markets, the companies and oversight of an independent monitor. their directors faced shareholder corporate and securities litigation. The DOJ also obtained significant settlements through its use of a These litigations did not break particular new ground, although they statute that had been mostly forgotten until the financial crisis. were the initial battleground over the extent to which financial Passed in the aftermath of a prior banking crisis – the savings and institutions and their officers and directors should be viewed as loan crisis of the 1980s – the Financial Institutions Reform, having legal responsibility for losses related to the financial crisis. Recovery, and Enforcement Act of 1989 (“FIRREA”) allows the Generally, the financial institutions and their officers and directors government to seek civil monetary penalties based on violation of did well in these cases. The legal theories pursued in these cases certain criminal statutes that relate to financial institutions. But, required showing intentional or reckless misconduct or bad faith, a most importantly, it provides the government with tools to high standard. For example, in 2009, in an early victory for a undertake pre-litigation civil investigations. The DOJ, with state financial institution, Citigroup obtained dismissal of all but one attorneys general and other regulators often running parallel claim in a shareholder derivative action that sought recovery for inquiries, used FIRREA to undertake investigations that resulted in Citigroup’s losses in the subprime lending market. The plaintiffs, additional significant settlements out of court to resolve RMBS shareholders of Citigroup, claimed that the defendants, directors and claims. While the government had a great deal of leverage in these former directors of Citigroup, breached their fiduciary duty by negotiations, financial institution lawyers were able to negotiate allegedly not properly monitoring and evaluating the risks Citigroup broad releases and innovative settlement components that gave the faced in its exposure to subprime loans. The Delaware Court of banks settlement credit for consumer relief activities. Although the Chancery held that plaintiffs’ allegations did not establish the bad settlement totals were large, the breadth of the releases across faith required for liability for a director’s oversight lapses.1 This multiple federal and state agencies allowed affected institutions to early victory for a financial institution board likely prevented what make the case to the markets that the financial crisis was “behind would have been a host of similar claims. them”. These settlements included, both in cash and other consideration such as consumer relief: $16.65 billion from Bank of Second Wave: Government-Led Investigations and Civil America; $13 billion from J.P. Morgan; $7.2 billion from Deutsche Litigation Bank; $7 billion from Citigroup; $5.28 billion from Credit Suisse; $5.06 billion from Goldman Sachs; $4.9 billion from RBS; $2.6 The second wave of litigation was instigated by the government, billion from Morgan Stanley; $2.09 billion from Wells Fargo; $2 which eventually directed significant resources to enforcement billion from Barclays; and $1.375 billion from Standard & Poor’s. related to perceived lapses in mortgage origination, servicing, and Another, even older, legal tool put to use was the qui tam action, in securitisation. This effort was driven both by political imperatives which a private plaintiff brings a lawsuit under the False Claims Act and a real need for government intervention to assist those hit hardest claiming the government was defrauded. If successful, the private by the financial crisis. The Obama Administration established the plaintiff gets a portion of the recovery. Often these actions are RMBS Working Group, which brought together federal and state initially filed under seal, enabling the government to investigate the agencies to investigate the securitisation market, while the Financial private plaintiff’s claims and determine whether to intervene. Such Fraud Enforcement Task Force focused on issues of fraud more cases, common in other industries, were previously not typically broadly. Notably, the government relied more on civil tools than used in the financial arena, but, in light of the various ways the criminal ones. This generated public criticism from those who felt government subsidised the mortgage markets, these cases provided individual bankers responsible for the crisis should serve jail time, a fruitful avenue for plaintiff firms and the government. One even as one of the earliest criminal cases brought in the wake of the notable example of such a case was brought against Countrywide financial crisis against two Bear Stearns hedge fund managers Home Loans, a leading originator of subprime mortgage loans, by a resulted in outright acquittals of all charges. The government’s focus former executive. The government later intervened and on civil tools nonetheless proved to be a smart strategy as its civil significantly broadened the scope of the case, adding several remedies were more flexible and subject to lower burdens of proof, additional defendants and claims under FIRREA for civil penalties thereby allowing the government to make its cases more easily. for certain alleged violations of federal mail and wire fraud laws. The first significant government intervention began as a result of a This would later prove to be a grave overreach. The government practice that came to be known as “robo-signing”. This term prevailed at trial, with the jury rendering a general verdict in favour referred to the alleged practice by mortgage-servicing companies, of the government. The district court then entered a $1.27 billion which were responsible for handling mortgage foreclosures, of judgment against Countrywide. having individuals sign foreclosure documents under oath without a But, in a rare victory for a financial institution, that verdict and the proper basis for doing so. While in most cases, although not all, the $1.27 billion judgment were reversed on appeal. The Second foreclosures were nonetheless legitimate, the scandal captured Circuit concluded that instead of proving mail or wire fraud attention as it put a spotlight on the public’s concern that financial sufficient for FIRREA liability, the government had merely proved institutions were not doing enough to help struggling homeowners intentional breach of contract.2 The case was a significant setback avoid foreclosure. In February 2012, the Department of Justice for the government, which had sought to broaden the parameters of (“DOJ”) and the Department of Housing and Urban Development, federal mail and wire fraud beyond the traditional requirements of along with the attorneys general of 49 states, reached a $25 billion common law fraud. It is also a clear example of the courts’ agreement – the “national mortgage settlement” – with the five consistent application of traditional common law contract and tort largest servicers of mortgage loans, Bank of America, J.P. Morgan, requirements to financial crisis and recession era cases.

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agreements, generally provided for three equitable remedies in the Third Wave: Private Civil Litigation event of a breach: cure the breach; repurchase the breaching loan; or provide a substitute compliant loan. The final wave of litigation, which gained momentum in 2011 and Courts typically applied traditional common law legal principles to 2012 and continues even today, involved private civil litigation loan repurchase claims. This resulted in some early decisions that related to the securitisation markets. These cases even pitted significantly helped to cabin litigation and ultimately limit financial financial institution against financial institution, as they were often institutions’ exposure. As noted, most securitisation agreements brought by investors in mortgage-backed securities or other financial provide for a trustee to act on behalf of the certificate-holders, who institutions that touched an aspect of the mortgage markets. are the trustee’s beneficiaries, and these agreements contain Many of these cases rested on contractual claims that required no provisions, called “no-action clauses”, that restrict the certificate- finding of fault – just the willingness of courts to enforce the plain holders’ ability to act directly instead of through the trustee on their language of securitisation and other agreements underlying the behalf. Courts have strictly interpreted these provisions, mortgage securitisation markets. On the other hand, the courts’ significantly restricting the proliferation of litigation. In an early adherence to traditional contract principles meant that plaintiffs had case, Walnut Place, the Appellate Division of the New York to prove contractual breaches, and generalised pleading of Supreme Court, First Department, interpreting a no-action clause, widespread wrongdoing did not suffice. While not a comprehensive held that a certificate-holder could only sue on behalf of the trustee review of all such cases, the civil litigation that financial institutions if it met the strict requirements of the no-action clause. In that case, faced can be sorted into several categories, including securities and as in most RMBS contracts, the no-action clause required the fraud claims related to the purchase of RMBS, repurchase claims for certificate-holder to notify the trustee of an “Event of Default” defaulted mortgages, claims against servicers, and claims against before it could bring its own suit and contained other restrictions.4 trustees. Other areas of litigation not covered here included claims This strict enforcement of no-action clauses foreclosed direct by monoline insurers who guaranteed many RMBS deals, claims by contract actions by investors and required them to work through investors in complex instruments such as CDOs, and claims against trustees, who typically required evidence of substantial ownership the bond rating agencies. and an indemnity from investors before bringing suit on their behalf. Securities Claims Although the volume of representation and warranties litigation was Many of the first cases filed by RMBS investors were claims under large, Walnut Place and subsequent similar decisions meant that the securities laws, alleging that the prospectus supplements that there was far less of it than if every individual investor – including accompanied the sale of each securitisation contained misstatements opportunistic investors who bought distressed RMBS securities about the quality of the loans underlying the securitisations. long after the financial crisis – could have sued in their own names. Critically, these claims do not require evidence of scienter by the Another important New York case, Ace, concerned the strict seller or reliance upon the false statement by the buyer. The Federal application of the six-year statute of limitations for repurchase Housing Finance Agency (“FHFA”), an independent agency created claims, resulting in another application of traditional contract law by Congress to act as the conservator of Fannie Mae and Freddie that helped limit the sprawl of post-crisis litigation. Applying Mac, instituted litigation in 2011 against 18 financial institution traditional principles of state contract law, the New York Court of defendants, alleging violations of the federal securities laws in the Appeals held that breaches of representations and warranties about sale of mortgage-backed securities to Freddie Mac and Fannie Mae. loan quality occur, and thus claims for breach accrue, on the date the Because of the near strict liability nature of Securities Act claims, representations are made (usually the date the securitisation closes), FHFA was able to secure more than $20 billion in settlements from and not when the representations and warranties are discovered to bank defendants. The one bank that went to trial against FHFA – be false or (as some plaintiffs argued) when an RMBS sponsor Nomura – lost.3 As the Nomura court framed it, at the centre of refuses to repurchase a loan. The Court of Appeals noted the general these highly complex cases was merely the simple question of principle that statutes of limitation, in serving the public policy goal whether, under the Securities Act, defendants’ securities offering of repose, generally apply regardless of potential harshness, and that documents accurately described the home mortgages underlying the New York law repeatedly disfavours cause of action accrual dates securities. That court found the magnitude of the falsity to be that cannot be ascertained with certainty in contrast to bright line “enormous”. Private litigants also pursued such claims, often as rules.5 Because New York law limits tolling for contract claims to class actions. six years beyond the six-year statute of limitations, for a total of 12 However, because Securities Act claims based on misstatements in years after issuance, and because the very last pre-crisis RMBS a securities prospectus have a very strict three-year statute of trusts closed in late 2007, the timeline for bringing claims – at least limitations, this wave of RMBS litigation was the first to be under New York law – is just about running out. resolved, and very little of it remains outstanding. The New York courts have also cabined liability through strict Loan Repurchase Claims application of the “sole remedy” clause in RMBS contracts, which requires trustees to prove their claims through the “loan-by-loan” Loan repurchase claims constituted a large category of litigation repurchase protocol rather than through generalised allegations of against financial institutions. A loan repurchase claim, sometimes wrongdoing.6 For example, in one recent case, Ambac, the Court of referred to as a “putback claim”, flows from an alleged breach on Appeals reiterated the “well settled” principle of contract law that the part of a defendant RMBS sponsor, originator, or other contract terms providing for sole remedies are strictly enforced, as contractually responsible party of representations and warranties they represent the parties’ agreement on the allocation of risk of about the nature of the underwriting of the loans and of the diligence economic loss. Although there has been some divergence in the conducted on the overall quality of the loans. The claims are courts about the admissibility of statistical sampling to prove therefore generally for breach of contract – of the representations repurchase claims, the court in the one repurchase case to have gone and warranties – and made by a trustee on behalf of a securitisation to trial prohibited statistical sampling and ultimately forced the trust. As such, repurchase claims must be brought by parties to the trustee to prove breach on a loan-by-loan basis for thousands of contract, and investors must act through the trustee to press such loans, a process that was very expensive and time-consuming.7 claims. RMBS contracts, typically known as pooling and servicing

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These proof requirements, and the doubts around the validity of the failure to take proper steps if there is an event of default, or the statistical sampling, may have contributed to a trend of pre-trial failure to maintain collateral files. Many of these cases turned on settlements. whether an event of default occurred, as such an event often triggers Faced with proliferating claims, and wanting to demonstrate to additional duties for the trustee. Courts often permitted these claims shareholders, regulators and others that the legacy of the financial to proceed to discovery when the allegations were based on public crisis was manageable, some of the largest American banks, first information about alleged breaches while cautioning that such Bank of America, then J.P. Morgan, Citigroup, and others, public information would alone not be sufficient evidence for negotiated bulk settlements with groups of investors and RMBS liability, which often required proof of actual notice of a breach of trustees to obtain broad releases for origination and servicing claims the contract. As such, the trustee’s notice or knowledge of an event across hundreds of trusts. These settlements made use of New of default as defined by the relevant contract is often a critical issue. York’s Article 77 procedure, which allows a trustee to seek approval Even when they survive motions to dismiss, however, claims of a decision made with respect to a trust (here, the decision to settle against trustees face significant barriers to establishing damages. In all potential claims), binding all investors who have received notice a seminal case, a federal appellate court noted that a trustee’s and an opportunity to be heard. While the headline numbers on misconduct must be shown “loan-by-loan and trust-by-trust”.9 In these bulk settlements were large, the preemptive settlements the wake of that decision, numerous courts held that statistical effectively cut off the threat of mushrooming litigation, the sampling cannot be used to prove claims against trustees. For settlement rates as a percentage of losses ended up being very example, a recent decision in the Southern District of New York favourable compared to cases that did go to litigation, and held that “[l]oan-by-loan proof is required to establish the Trustee’s shareholders and other constituencies were reassured that the banks liability to the Certificate-holders because, under . . . [the pooling had a plan for containing legacy liabilities. and servicing agreements], the Trustee has neither the obligation nor Claims Against Servicers the ability to demand cure, substitution, or repurchase of a nonconforming loan unless – among other things – it can identify a In contrast to repurchase claims, private claims against servicers [representation and warranties] breach . . . that ‘materially and have been both less successful and, correspondingly, less common. adversely’ affects the value of that particular loan”.10 This is because it is difficult to prove a breach of the servicing standards in the securitisation agreements, which are often phrased And, also recently, the courts have declined to certify classes of generally, such as imposing the obligation to service loans investors in trustee litigations, noting that difference in timing and 11 “prudently” or in accord with “industry custom and practice”. structure of investors’ investments make class litigation infeasible. Servicers could defend claims by arguing that their servicing of the The trend has been to deny class certification because of the myriad loans was within their business judgment or consistent with individualised determinations that would be necessary to determine (arguably previously low) industry standards. Further, standing, statutes of limitations, and damages. Such limitations on securitisation agreements often contained exculpatory provisions class actions also applied in securities actions brought by RMBS that restricted servicers’ liability only to instances of willful investors. misconduct or gross negligence. As such, servicer claims (outside of the government enforcement Lessons Learned context discussed above) had little success. Indeed, one trial court, though permitting the claim to survive summary judgment, noted The financial crisis that began in the fall of 2008 led to a cascade of that it was doubtful an expert’s opinion that a servicer’s conduct litigation against financial institutions. The course of that litigation deviated from contractual servicing standards could amount to is a case study in how major litigation can wind its way through the “gross negligence, malfeasance, or bad faith”, as the securitisation legal system. But it also provides valuable lessons for financial agreement required.8 And, in that case, the plaintiff then abandoned institutions going forward when facing such an onslaught of its pursuit of that claim at trial. litigation. Financial institutions would do well to remember these Some investors, such as those who pursued the bulk settlement lessons: strategy discussed above, rather than pursuing litigation chose to Traditional legal principles should win out, but may take time. The negotiate with servicers for improved servicing practices as part of litigation unleashed by the financial crisis emerged in waves. At a global resolution of claims. times, the “bad facts” of the crisis overwhelmed the ability of Claims Against Trustees financial institutions to fight back. But, ultimately, traditional Perhaps the final wave of RMBS litigation has involved claims by common law legal principles generally prevailed. Financial securitisation investors against trustees in which the investors institutions paid a significant cost for their financial-crisis litigation claimed that the trustees improperly administered the trusts. The exposure, but ultimately were able to cabin it and move forward. allegations in these cases often highlighted trustees’ failures to bring Legal innovation and creativity will emerge. The legal system set repurchase claims within the strict statute of limitations discussed up for the mortgage industry was not built in anticipation of the above. mass defaults and related claims that resulted from the financial Investors asserted both contract and negligence claims against crisis. Lawyers on both sides of the “v.” were able to develop trustees, as well as statutory claims under the federal Trust Indenture innovative ways to resolve these cases and judges were open to Act. Because the trustee’s duties are set out by the relevant contract, adopting them as long as they did not stray too far from legal negligence claims were often dismissed in light of the familiar rule principles. Many of those innovations will be part of the litigation that a breach of contract is not a tort unless a duty independent of the arsenal going forward. contract was breached. Under New York law, an indenture trustee’s Financial institutions need to think carefully through the legal duties are strictly defined and limited to the terms of the indenture. structures that they build for new products and services and the As such, contract claims brought against trustees flow from the long-term risk of going into new business areas. The regulatory provisions of an indenture or a pooling and servicing agreement for environments faced by financial institutions in the mortgage-related particular lapses, such as the failure to notify investors of breaches, product area changed forever as a result of the financial crisis. But

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the financial industry is constantly changing and a product that 5. See ACE Sec. Corp. v. DB Structured Prods., Inc., 36 N.E.3d looks safe in good times may pose unexpected legal risk when times 623 (N.Y. 2015). turn bad. The mortgage legal structure was not built for the mass 6. See, e.g., Ambac Assurance Corp. v. Countrywide Home litigation that resulted from the financial crisis. Well-run financial Loans, Inc., 106 N.E.3d 1176 (N.Y. 2018). institutions now spend more time thinking through the risks posed 7. U.S. Bank, Nat’l Ass’n v. UBS Real Estate Sec. Inc., 205 F. by new products and expansion, and more frequently involve Supp. 3d 386 (S.D.N.Y. 2016). counsel and risk personnel in the decision-making process. 8. Assured Guar. Mun. Corp. v. Flagstar Bank, FSB, 892 F. We can all hope that no similar financial crisis will soon emerge. If Supp. 2d 596, 607 (S.D.N.Y. 2012). one does, the 10-year course of financial crisis-related litigation 9. See Ret. Bd. of the Policemen’s Annuity and Benefit Fund of fortunately teaches that the legal system should have the tools and the City of Chicago v. Bank of New York Mellon, 775 F.3d 154 flexibility to address the resulting legal fallout. (2d Cir. 2014). 10. See, e.g., Royal Park Inv. SA/NV v. Deutsche Bank Nat’l Trust Co., No. 14 Civ. 4394 (AJN) (BCM), 2018 WL 4682220, at Endnotes *5 (S.D.N.Y. Sept. 28, 2018).

11. See, e.g., Royal Park Inv. SA/NV v. Deutsche Bank Nat’l Trust 1. In re Citigroup Inc. S’holder Derivative Litig., 964 A.2d 106 Co., No. 14 Civ. 4394 (AJN), 2018 WL 1750595 (S.D.N.Y. (Del. Ch. 2009). Apr. 11, 2018). 2. See United States ex rel. O’Donnell v. Countrywide Home

Loans, Inc., 822 F.3d 650 (2d Cir. 2016). 3. See Fed. Hous. Fin. Agency v. Nomura Holding America, Acknowledgment Inc., 104 F. Supp. 3d 441 (S.D.N.Y. 2015). The authors are very grateful for the assistance of their colleague 4. Walnut Place LLC v. Countrywide Home Loans, Inc., 96 Justin L. Brooke in preparing this chapter. A.D.3d 684 (N.Y. App. Div. 1st Dept. 2012).

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Elaine P. Golin Jonathan M. Moses Wachtell, Lipton, Rosen & Katz Wachtell, Lipton, Rosen & Katz 51 West 52nd Street 51 West 52nd Street New York, NY 10019 New York, NY 10019 USA USA

Tel: +1 212 403 1118 Tel: +1 212 403 1388 Email: [email protected] Email: [email protected] URL: www.wlrk.com URL: www.wlrk.com

Elaine P. Golin is a partner of the firm’s Litigation Department. Her Jonathan M. Moses is co-chair of the firm’s Litigation Department, practice includes contracts, corporate governance, RMBS and which he joined in 1998. He has represented clients in diverse securities litigation, as well as other types of complex commercial industries, including banks and financial institutions, media companies litigation. Ms. Golin also focuses on the negotiated resolution of and industrial firms. His practice includes complex commercial and complex matters. securities litigation, government investigative proceedings, and international arbitration. Recently, Ms. Golin has represented Bank of America, PNC and other financial institutions in numerous disputes concerning mortgage-related Prior to joining the firm, Mr. Moses served as an attorney for the New matters. Representations include Bank of America’s groundbreaking York Daily News, where he worked on First Amendment issues. Mr. settlement of claims relating to Countrywide mortgage-backed Moses is also a former journalist, having served, among other securities and related litigation, Bank of America’s multi-faceted positions, as a staff reporter for The Wall Street Journal. resolutions with FHFA, MBIA, FGIC and AIG, Bank of America’s global Mr. Moses received an A.B. from Harvard University in 1988 and a J.D. RMBS agreement with the DoJ, and PNC in mortgage litigation with from Columbia Law School in 1996, where he was an editor of the Law RFC. Review and a James Kent Scholar. Following graduation from Ms. Golin received a B.A. from Yale College, a diploma in Literature Harvard, Mr. Moses was the recipient of a Fulbright Fellowship in Hong from the University of Edinburgh, and a J.D. from Columbia Law Kong. Mr. Moses also served as a law clerk to the Honorable Stephen School, where she was an articles editor of The Columbia Law Review F. Williams of the United States Court of Appeals for the District of and a James Kent Scholar. She clerked for the Honorable Judge Columbia Circuit following graduation from law school. Sandra Lynch of the United States Court of Appeals for the First Circuit. Among other professional recognitions, Ms. Golin has been named by Lawdragon as one of the 500 leading lawyers in the United States and by Benchmark Litigation as one of the top 250 women in litigation. Ms. Golin serves on the board of the Sadie Nash Leadership Project, a non-profit providing leadership education to high-school and college women.

Wachtell, Lipton, Rosen & Katz is one of the most prominent business law firms in the United States. The firm’s pre-eminence in the fields of mergers and acquisitions, takeovers and takeover defence, strategic investments, corporate and securities law, and corporate governance means that it regularly handles some of the largest, most complex and demanding transactions in the United States and around the world. The firm also handles significant white-collar criminal investigations and other sensitive litigation matters and counsels boards of directors and senior management in the most sensitive situations. It features consistently in the top rank of legal advisors. Its attorneys are also recognised thought leaders, frequently teaching, speaking and writing in their areas of expertise.

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Jones Day Michael Legg

1.2 What remedies are most likely to be awarded? 2.1 What are the main barriers to financial service litigation for customers? Are there exclusionary clauses or duty defining clauses in customer Private litigation almost always seeks compensation for loss or contracts which prevent customers from bringing a damages incurred. However, in some circumstances, equitable case? remedies such as rescission may be sought. Regulatory actions have a range of remedies available in keeping Both legal and practical barriers face persons seeking to commence with the enforcement pyramid: criminal penalty; banning orders; court proceedings against financial services providers. Legal civil penalty; enforceable undertakings; and infringement notices. barriers may include the impact of liability exclusion clauses and

14 WWW.ICLG.COM ICLG TO: FINANCIAL SERVICES DISPUTES 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London imposed bystatute,andifnostatutorybaroncommencing Time limitstocommenceproceedingsin Australian courtsare 2.2 misfeasance onmisconductaffecting theirinterests. recipient offinancialservicesfromrealisingorfullycomprehending and itsconsequencesmay(andoftendoes)preventorhinderthe knowledge asymmetryconcerningtheserviceprovider’s conduct substantial costoflitigation).Further, theoftensubstantial resources availableto,manyclients(andtheobverse,being Practical barriersincludetheimpecuniosityof,orrestricted but cannotobstructthecommencementofthoseproceedings. clauses maydelayaparty’s commencementofcourtproceedings, exposure toliability. Further, alternativedisputeresolution(ADR) services contractsthatincludeorreduceaserviceprovider’s contractual warranties(madebyservicerecipients)infinancial Jones Day © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 relation totheinvestigation. dominant purposeofadvisingthe entityunderinvestigationin by commonlawadviceprivilege iftheywerepreparedforthe investigatory processnotbeing‘litigation’), theymaybeprotected investigations arenotprotected bylitigationprivilege(the and complyingwithobligations inthecourseofregulatory While materialspreparedforthedominant purposeofpreparingfor from beingadducedasevidenceincourtproceedings. the latterofwhichisrestrictedtopreventingprivilegedmaterials the common lawlegalprofessionalprivilegeorprescribedby between aclientandtheirlegaladvisormaybeprotectedeitherby (including representation)inlegalproceedings.Communications giving orobtaininglegaladvicetheprovisionofservices privilege overmaterialspreparedforthedominantpurposeof Parties tofinancialserviceslitigationmayassertlegalprofessional 2.3 action. factual circumstancesthatmayformthebasisofagivencause of thefactsunderlyingit,andinvestigationmaybringtolight action accruesortheplaintiff isreasonablycapableofbeingaware noting thatalimitationperioddoesnotcommenceuntilcauseof statutory limitationperiodfromrunning.However, itisworth The commencementofaregulatoryinvestigationdoesnotstop discretionary. also bebarredbyfindingsoflachesordelay, whichare to circumventstatutorytimebars.Equitablecausesofactionmay common lawaction,soastopreventtheuseofcourtsequity periods wheretheyaresufficiently analogoustoastatute-barred to statutorylimitationperiods,butmaybesubject fraud ordeceit).Equitablecausesofactionarenotdirectlysubject exceptions, suchasincaseswherethecauseofactionisbasedon years fromthetimecauseofactionaccrued(withsome deceptive conductgenerallyhaveastatutorylimitationperiodofsix statutory causesofactionintort,contractandmisleading case inthecontextoffinancialserviceslitigation.Commonlawand proceedings exists,thereisnotemporallimitation. This, too,isthe Evidence Act 1995 Evidence Act clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices considered ‘litigation’ inthecontext ofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof

(Cth)(andapplicablestateevidencestatutes),

by variousregulatoryregimesthatsupplementandoverlapwiththe There arealsoarangeofstatutorydutiesandobligationsimposed to limitornegateliability(forexample,incasesoffraud). certain charactersuchthatacontractualexemptionwillnotoperate exemption willdefineitsscope.However, abreachmaybeof limited bycontractualagreement,andthewordingofsuchan for breachofcommonlawandequitabledutiescanbeexcludedor common lawdutyofcareandstatutoryduties.Generally, liability financial servicestotheircustomers,includingfiduciaryduties,the There areanarrayofnon-contractualdutiesowedbyproviders 2.5 context oftransactionsinvolvingsophisticatedclients. transaction andtheneedsofclients. They aretypicallyusedinthe ‘special conditions’,whichmakethemsuitedtobeingtailoreda They aresubjecttomodificationoradditionthroughtheuseof in thecontextofderivativeandassetsecuritisationtransactions. Standard formmasteragreementsarecommonlyusedin Australia 2.4 No. However, intheFederalCourt, partiestocertaincivildisputes 3.3 No, themethodofserviceproceedingsdoesnotdiffer. 3.2 are administeredbyjudgeswithcommercialexpertise. commercial litigationoftenhavespecificlistsforsuchmattersthat services litigationin Australia. However, courtsthatdealwith There arenospecialistcourtsorjudgesforfinancial 3.1 ASIC), whichisexpectedtobeinstitutedin2020. by the Association ofFinancial Advisors (withguidancefrom Code ofEthicsforFinancial Advisers iscurrentlybeingdeveloped of Australia CodeofProfessionalPractice. An ASIC-approved Advisors CodeofConductandtheFinancialPlanning Association Industry codesalsoexist,suchasthe Association ofFinancial of theseobligations:sees960A. 7.7A Division2oftheCorporations Act. Partiescannotcontractout above theirownincircumstanceswherethereisaconflict:seePart provide appropriateadviceandprioritisetheinterestsoftheirclients Services Licenceholderstoactinthebestinterestsoftheirclients, Licence regime. These include dutiesowedby Australian Financial such asthevariousdutiesunder Australian FinancialServices duties imposedonfinancialserviceprovidersunderthegenerallaw, 3 they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howaretheytreated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour consequences ofnotabidingby them? jurisdiction? Ifso,whatarethey andwhatarethe be followedforfinancialservices litigationinyour Are thereanyspecificpre-trial procedures thatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase

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Australia

15 Australia 16 Australia compensatory damages. As such,misleading ordeceptiveconduct result ofmisleadingordeceptive conductmayrecover the courtonanobjectivebasis. Any personwhosuffers lossas a in misleadingordeceptiveconduct andsuchconductisassessedby Strict liabilityisimposedonacompany orindividualwhoengages to ‘financialservices’ ands18appliesbroadlyacrossthe economy. relation toa‘financialproductorfinancialservice’,s12DA applies is likelytomisleadordeceive.S1041Happliesconductin person mustnotengageinconductthatismisleadingordeceptive Australian ConsumerLaw. The relevantprovisionsprovidethata of theCorporations Act; s12DA(1)ofthe ASIC Act; ands18ofthe statutory prohibitiononmisleadingordeceptiveconduct:s1041H(1) In Australia, misrepresentationsmayalsobepursuedthroughthe negligent adviceorinformation. misrepresentation casesisthefinanciallossresultingfrom from therepresentation. The damageclaimedinnegligent representation andthatmaterialdamagetotherepresenteeresulted that therepresentorbreachedtheirdutyofcareingiving ought tohaveknownthattherepresentationwouldbereliedupon, representor owedthemadutyofcare,thattheknewor misrepresentation, therepresenteemustdemonstratethat knowledge whichisintendedtobereliedupon. To provenegligent as theyprovideinformationoradvicerequiringadegreeofskilland Financial servicesprovidersowetheirclientsa‘special’ dutyofcare 3.5 state courtshavethepowertorefermatters ADR. Australia. ADR isincreasinglypopularin Australia andalmostall ADR clausesaretypicallyincludedinfinancialservicescontracts Superannuation Complaints Tribunal (SCT). the CreditandInvestmentsOmbudsman(CIO) services firms,replacingtheFinancialOmbudsmanService(FOS), single externaldisputeresolutionschemeavailabletofinancial the Australian FinancialComplaints Authority (AFCA)becamethe that providefinancialproductsandservices.On1November2018, dispute resolutionschemeisalicenceconditionoffinancialfirms Corporations Act. Membershipofan ASIC-approved external standards andrequirementsprovidedins912A(2)(a)(i)ofthe Internal disputeresolutionproceduresmustcomplywiththe administrative action. this obligationisinbreachofitslicenceandcanbesubjectto resolution procedures. A financialfirmthatdoesnotcomplywith resolution framework,consistingofinternalandexternaldispute Licensees providingservicestoretailclientshaveadispute The Corporations Act requiresall Australian FinancialServices 3.4 cost ordersattheconclusionofproceedings. resolve thematterpriortoinstitutingproceedings,asthismayaffect outlining thenatureofanintendedcauseactionandseekto It isconsideredgoodpracticetoissueanoticeofintentionclaim steps weretaken. taken toresolvetheissuesindisputeorreasonswhynosuch are requiredtofilea‘genuinestepsstatement’,outliningthe Jones Day © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypicallyincluded regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling

negotiation. of bargaining powerof theconsumerandopportunityfor form contracts,determinationofwhichlargely turnsonthedegree The ASIC Act requiresunfairtermstobecontainedwithinstandard services andtheupfrontpricepayablemustnotexceed$300,000. contract; itmustbeacontractforthesupplyoffinancialgoodsor business employingfewerthan20people. Again, thefocusison term protectionsinthe Act alsoapplytosmallbusinesses;thatis,a domestic orhouseholduseconsumption. The unfaircontract the contractiswhollyorpredominantlyacquiredforpersonal, individual whoseacquisitionoffinancialproductsorservicesunder the individual. A ‘consumercontract’ isacontractwhereatleastone consumer intermsofthecharacteristicscontract,ratherthan regime inthefinancialservicescontext. The ASIC Act definesa Part 2Divisionofthe ASIC Act setsouttheunfaircontracts 3.6 orders fornon-partyconsumersandnon-punitiveorders. conduct mayalsoleadtoothercivilremediesincludinginjunctions, cases includingclassactions. A findingofmisleadingordeceptive is acauseofactionthatregularlyemployedinfinancialservices is notopentothe public. may alsomakeordersforaclosed courthearing,wherebythe to preventprejudicetheproperadministration ofjustice. A court clarified thehighthresholdtotest –theordersmustbenecessary diminished byitsdisclosureinapublic forum. The HighCourt has where thenatureandvalueof informationwouldbealteredor commercially sensitiveorconfidential information,especially publication orotherwise.Suchordersmaybemadeinrelationto orders’ prohibitor restrict thedisclosureofinformationby prohibit orrestrictthepublicationofinformationand‘suppression proceedings andinformationtothepublic.‘Non-publication’ orders Secondly, thecourtsmaymakeorderslimitingdisclosureofcourt individuals arealsoboundbytherule. counsel, witnessesandthedirectorsofcorporatelitigants. These or impliedundertaking.Reasonableusesincludedisclosureto which theinformationwasobtained. This isknownasthe‘Harman’ only beusedforpurposesreasonablyrelatedtotheproceedingsin Confidential informationobtainedbydiscoveryorsubpoenamay the information. about anindividualmust,onrequest,givethataccessto APP 12providesthatanentitywhichholds‘personalinformation’ collection, use,storageanddisclosureof‘personalinformation’. the Australian PrivacyPrinciples(APPs),whichgovernthe These arecontainedinthe must complywiththegeneralrulesapplicabletodataprotection. All privateorganisations, including financialservicesinstitutions, 3.7 detriment causedtotheotherparty. how necessarythetermistoprotectadvantagedparty, andthe parties’ respectiverightsandobligationsarisingunderthecontract, Whether atermis‘unfair’ dependsonthefactualequalityof ICLG TO: FINANCIAL SERVICESDISPUTES 2019 jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt

Privacy Act 1988 Privacy Act

(Cth). The Act contains Australia

such aswhereaclaimordefencehadnochanceofsuccess. may ordercostsonahigherindemnitybasisincertaincircumstances, has discretiontoawardonlypartofthesuccessfulparty’s costsorit pay thereasonablecostsofsuccessfulparty. However, thecourt so thatacostsorderwillbemaderequiringtheunsuccessfulpartyto The usualpositionisthatcostsfollowtheevent,or‘theloserpays’, In Australian litigationthecourthasawidediscretiontoawardcosts. 4.2 and thescopeofappealdependsontermslegislation. instance decision. The rightofappealisderivedfromlegislation Yes, Australian courtsprovideforarighttoappealfromfirst 4.1 Jones Day © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Australian courts are,ingeneral,mindfulofthe importanceof 5.2 issues, suchasprivilegesagainstself-exposuretocivilpenalties. Information. These sharing arrangementssometimesraisefurther Concerning ConsultationandCooperationtheExchangeof the IOSCO’s MultilateralMemorandumofUnderstanding regarding theexchangeofinformationandcooperation,including ASIC hassignedmemorandaofunderstandingwithotherregulators which litigantscangatherinformationlocatedabroad. Convention andHagueEvidenceConvention,whichprovidewaysby implemented thestructuresrequiredfor, theHagueService explained inquestion5.2below). Australia isasignatoryto,andhas overseas toobtaininformationforusein Australian proceedings(as and havesometimesbeenrestrictiveinlitigants’ useofprocesses Australian courtsaregenerallyprotectiveofproceedingsbeforethem country, anynon-monetaryoutcomemaynotbeenforced). in whichassetsarelocatedand,dependingonthelawsofforeign money judgmentwillneedtobeenforcedintheforeignjurisdiction overseas entitywithno Australian assetsmaybedifficult (asany leave ofthe Australian court),enforcementofanyoutcomeonan party). Evenifserviceiseffected (includingoverseas,withthe subsidiary (anditissufficient thatthesubsidiarybejoinedasa (or arbitration)clauseintherelevantcontract,orthereisalocal unless thedisputeiscontractualandthereasubmissiontoforum Service onanoverseasfinancialinstitutionmaybeproblematic information betweenregulatorybodies. information (includingevidence)locatedabroadandthesharingof processes) andenforcementofordersonoverseasentities,obtaining include thoserelatingtoserviceofdocuments(includingoriginating Issues thattypicallyariseincross-borderfinancialservicesdisputes 5.1 5 4 how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues services disputes? How doesthecourtdealwithcostsinfinancial disputes? Is therearightofappealinfinancialservices Post Trial disputes (includinginvestigations)? regulatory bodiesorofficialsin financialservices jurisdiction toco-operatingwith foreigncourtsor What isthegeneralapproachof thecourtsinyour

the appropriateforum,includingwherethereisajurisdictionclause foreign partyisinvolved.Insituationswherethereadisputeasto although, asmentionedabove,theremaybeattendantissueswhena Australian lawinvolvingatleastonenon-Australianparty, Australian courtsregularlyhearfinancialservicesdisputesunder 5.3 where theydidnotfirstseekthe Australian court’s procedures inUScourtsunder28USC§1782circumstances and otherwise)litigants’ useoftheinformation-gathering which Australian courtshavedisallowed(byanti-suitinjunctions processes. Forexample,therehavebeenarecentlineofcasesin Australian courtstendtobeprotectiveoftheintegritytheirown Australian court’s approvalbeforeobtainingforeignassistance,as Litigants in Australian proceedingsshouldbecarefultoseekthe financial servicesregulator). penal character, suchasfinesorcivilpenaltiesarisingoutofa there maybedifficulties inseekingtoenforcejudgmentswitha money judgmentsaccordingtotherelevantprocedures(although those treaties. Australian courtscanalsoenforcecertainforeign to requestsfromothercountriesundertheproceduressetdownin Evidence ConventionandHagueServiceConvention,accedes issues. Australia hasenteredintoandimplementedtheHague international comityinmakingdecisionsinvolvingcross-border Financial services disputesareregulatedby ASIC and AFCA. ASIC 6.1 ASIC Act andthe caught, andheldvoid,bytheunfaircontracttermsregimein Unilateral jurisdictionclausesmay, forexample,beliableto account relevantfactors,includingmandatorylawsoftheforum. Australian courtcandecidenottoenforcetheclause,takinginto judicial supportforthem. With alljurisdiction clauses,however, the They areinprincipleenforceable,andtherehasbeenatleastsome typically theborrowerisrequiredtosubmitonanexclusivebasis). exclusive jurisdictionofaspecifiedforum(infinancialcontracts, jurisdiction clauses,whichrequireonlyonepartytosubmitthe have beenfewerdecisionsonunilateral,orasymmetrical, routinely consideredandgiveneffect toby Australian courts. There Jurisdiction clauses(bothexclusiveandnon-exclusive)are 5.4 to assistinitscomplianceandenforcementactivities. ASIC workswithforeignregulatorsandlawenforcementagencies are currentlybroadexemptionsthatapplytooverseasentities. easily, evenbyfinancialinstitutionsbasedabroad,althoughthere Australian FinancialServicesLicencearecapableofbeingmet the conditionsuponsatisfactionofwhichapersonmustholdan laws thatarecapableofextra-territorialapplication.Forexample, although therearecertainaspectsof Australian financialservices Australian lawsdonotgenerallyhaveextra-territorialapplication, (for example,forstatutorymisleadingordeceptiveconduct). claiming remediesthatmayonlybeavailableunder Australian law in therelevantcontract, Australian courtstakenoteifapartyis 6 your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin services disputesinyourjurisdiction? What bodies,apartfromthecourts, regulatefinancial Regulated Bodies enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand Competition andConsumer Act 2010

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imprimatur Australia

(Cth).

17 Australia 18 Australia appealing thedecision. complainant wouldbecommencing proceedingsratherthan elect nottoacceptthedetermination. However, in thisinstance,the complainant mayelecttopursuethe claimthroughthecourtsifthey appeal thedeterminationthrough thecourts.Similarly, the A financialfirmpartytoadetermination by AFCA mayelectto 6.4 submissions andtherelevantmaterial. apply. The ASIC delegatewillmakeadecisionbasedontheparties’ hearing isconductedinformallyandtherulesofevidencedonot following an ASIC administrativehearing. An ASIC administrative ASIC, abindingdecisionwillbemadebyan ASIC delegate regulation offinancialservicessuchaslicensing.Inrelationto ASIC hasthepowertoconductadministrativehearingsrelating accept thedetermination. complaint. These determinationsdonotrequirethecomplainantto reasons fortheirdeterminationinrelationtothesuperannuation and substitutetheirowndecision. AFCA isobligedtoprovide decision backtotheoriginalmakerorsetaside decision ofasuperannuationprovider, varythedecision,remit superannuation provider, AFCA hasthepowertoeitheraffirm the complaints. After acomplainthasbeenmadeto AFCA abouta A separateprocedureisfollowedinrelationtosuperannuation courts. determination, theycanpursuetheirclaimfurtherthroughthe report suchfailureto ASIC. Ifthecomplainantdoesnotaccept determination. Ifthefinancialfirmdoesnotcomply, AFCA will stipulated inthecomplaintwithintimeframeoutlined which isthesubjectofcomplaintmustcomplywithremedy the complainantdoesacceptdetermination,financialfirm accepting thedetermination(ornotdetermination).If superannuation complaints,thecomplainanthasoptionof considered tobeabindingdecision.Forallcomplaintsotherthan process undertakenby AFCA isadetermination,which through formalmethods. The finalstageofthedisputeresolution AFCA dealswithdisputesthroughnegotiation,conciliationor 6.3 kept bythefinancialfirm. relevant informationsuchaspolicydocumentsandrecordsorfiles attend interviewsorexaminationsrequestthatthepartiesprovide financial complaint.Forexample, AFCA canrequirepartiesto AFCA hasabroadrangeofpowerstoassistitwhenconsidering certain documents. has thepowertoapplyforandexecutesearchwarrantsobtain examination toanswerquestionsandprovideassistance. ASIC also to provideitwithdocumentsandinformationorattendan under the ASIC Act whichenable ASIC torequirepersonsorentities ASIC hasanumberofinformation-gatheringpowersprovidedfor 6.2 referred toinquestion3.4above. services. AFCA istheexternaldisputeresolutionprovideras is the Australian governmentregulatorinrelationtofinancial Jones Day © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon

7.1 the Gazette. instances, ASIC mayalsoberequiredtopublishordersitmakesin undertakings andaninfringementnoticesregister. Incertain a registerofotherregulatoryactionssuchasenforceable then theappealjudgmentispubliclyavailable. ASIC alsomaintains itself isnotpublished.Ifthe ASIC delegate’s decisionisappealed, are conductedeitherpubliclyorprivately, althoughthedecision but doesnotpublishfulldecisions. ASIC administrativehearings AFCA publishesbothcasestudiesandanonymiseddeterminations, 6.5 being made. Administrative Appeals Tribunal within28daysofthedecision Parties toadecisionby ASIC canappealthedecisionto protected disclosures. persons protectedundertheCorporations Act andtherangeof tabled beforetheCommonwealth Parliamentwhichbroadensthe information. Additionally, whistleblowerlegislationhasbeen revoke licences,anduseseizedinterceptedmaterial regulator’s powerstobanindividualsfromfinancialservicesroles, civil andcriminalpenaltiesintheCorporations Act andincreasethe The Australian Governmenthasannouncedplanstogreatlyincrease in linewiththelegislation. adoption processassomesmallerbanksareyettoimplementpolicies stable, resilientbankingsystem.BEARiscurrentlystillinthe possible aspartofabroadergoaltoengendermarketconfidencein seeks tomaketheseexpectationsandtheirpenaltiesasclear liability forpersonswithsharedaccountability. The regimealso out responsibilitiesofofficers andtheirreportinglines,joint obligations includethesubmissionofan‘accountabilitymap’ setting institutions, theirdirectorsandexecutives.Examplesofnew obligations ofaccountabilityandtransparencyonfinancial Regime (BEAR)wasintroducedin2018toimposeheightened increased accountability. The BankingExecutive Accountability Recent reformstotheindustryhaveexpandedregulatorypowersand banks afteradmissionsofmisconductintheRoyalCommission. action hasbeenrecentlyfiledagainstoneof Australia’s largest banking andfinancialservicesindustry. Bywayofexample,aclass institutions aswellstatutoryandnon-statutoryreformstothe volume ofcasesbeingbroughtagainstbanksandfinancial Commission isexpectedtoleadanincreaseinthevarietyand 2018. The finalreportisdueinFebruary2019. The Royal throughout 2018theinterimreportwaspublishedinSeptember established. After lengthyandhighlypublicisedhearings Banking, SuperannuationandFinancialServicesIndustrywas In December2017theRoyalCommissionintoMisconductin 7 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly against financialserviceproviders?).

Australia

and efficiently andfailingtohaveadequateprocedurestraining things necessarytoensurethattheirserviceswereprovidedfairly their Australian FinancialServicesLicencebyfailingtodoall including onethatwenttotrialandfoundthebankbeinbreachof manipulation oftheBankBillSwapReferenceRate(BBSW) ASIC pursuedclaimsagainstanumberofbanksinrelationto 7.3 favour thebetterresourcedparty. causes ofaction.However, thecostsrulesforlitigationtendto customer-friendly duetothearrayofstatutoryprotectionsand From acomparativeperspective, Australia isrelativelymore 7.2 Jones Day © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 requirements. for compliancewith Australian FinancialServicesLicence in place. The BBSW enforcementactionshaveemphasisedtheneed drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe

No, theyhavenotcausedanychanges. 7.4 and charities. complex financialproductsthatwerepurchasedbylocalcouncils proceedings for$215millioninrelationtothecreditratingsgiven compensation wasdemonstratedbythesettlementofsixrelated The abilityofclassactionstoextractsignificantsums future. class actionpressureinthefinancialservicessectornear misconduct intheRoyalCommission,andforeshadowsustained actions werefiledagainst AMP, triggeredbyadmissionsof incidence ofclassactionfilingsin2018.Fiveshareholder The financialservicesandbankingsectorexperiencedthehighest the penaltyreflectsseriousnessofbreach. future thecourtsmustbesatisfiedthatacontraventionoccurredand settlements agreedwithregulators. This casesuggeststhatinthe departure fromthecourts’ pastroutineapprovalofcivilpenal settlement agreedbetween ASIC andabank. The decisionmarksa Protection2009 Act applications andallegedbreachofthe In acivilpenaltycasedealingwiththeassessmentofhomeloan jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

(Cth),thecourtrejecteda$35million

National ConsumerCredit WWW.ICLG.COM

Australia

19 Australia 20 Australia Jones Day © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM He hasanationalreputationforhisexperienceandoutstandingrecord disputes (“bet-the-company”level),andgovernment/regulatorlitigation. John’s corepracticeareasareclassactiondefence,majorcommercial institutions, andgovernment. interests ofglobalandmajordomesticcorporations,financial 30+ years’ experienceinhigh-stakeslitigation representingthe John Emmerigisoneof Australia’s leadinglitigationlawyers.Hehas Australian lawandprovidingmarket-leadingcapabilitiesonawiderangeofservicesforclients. Sydney andopenedoffices in:Perthin2014;Brisbane2016;andMelbourne2018. There arenowmorethan85JonesDaylaw Jones Dayhaslongrecognisedthegrowingroleof Australia intheglobaleconomy. The Firmexpandedto Australia in1998with jurisdictions; andsharedprofessionalvaluesthatfocusonclientneeds. client service;themutualcommitmentto,andseamlesscollaborationof,atruepartnership;formidablelegaltalentacross Jones Dayisagloballawfirmwithmorethan2,500lawyersin43offices acrossfivecontinents. The Firmisdistinguishedby also the as amemberoftheEditorialBoardboth (one onClass Actions andtheotheronPractice andProcedure), member oftwoFederalCourt Australia national liaisoncommittees Chair ofthe Transnational LitigationCommittee. Healsoservesasa Chair oftheClass Actions CommitteeoftheLawCouncilandCo- Dame Australia, aFellowofthe Australian Academy ofLaw, theCo- including asan Adjunct ProfessorofLawattheUniversityNotre Mr. Emmerigholdsanumberofotherdistinguishedappointments, commercial litigation,andinmajortestcases. complex matterslitigatedin Australian superiorcourts,ininternational involves himrepresentingkeypartiesinsomeofthelargestandmost John’s workinotherhigh-stakescommercialdisputesroutinely in eachofthesefields. Journal ofCivilLitigationandPractice

Australia Sydney NSW2000 Level 41,88PhillipStreet Aurora Place Jones Day John Emmerig URL: Email: Tel:

www.jonesday.com [email protected] +61 282720506

. Journal ofEquity

and

Professor attheUniversityofNewSouthWales in Sydney, Australia. Securities andInvestmentCommissioninvestigations.Heisalsoa commercial disputes.Hehasrepresentedclientsin Australian focuses onclassactions,regulatoryproceedings,andcomplex having practisedin Australia andtheUnitedStates.Hispractice Michael LeggisOfCounselandhas20years’ experience asalitigator ICLG TO: FINANCIAL SERVICESDISPUTES 2019 URL: Email: Tel: Australia Sydney NSW2000 Level 41,88PhillipStreet Aurora Place Jones Day Michael Legg www.jonesday.com [email protected] +61 282720500

multipledisciplinesand : asingulartraditionof

itsfirstoffice in yers practising Australia

Chapter 5 Austria Holger Bielesz

Wolf Theiss Florian Horak

1 Bringing a Claim – Initial Considerations payment order in time. After the taking of evidence has been concluded by the court, the proceeding will be closed and a judgment will be issued. In Austria, it is most common that the 1.1 What are the most common causes of actions taken judgment will be issued in writing. by or against financial institutions and service In addition, there is the possibility to file a request for interim providers in your jurisdiction? remedies, e.g. preliminary injunctions. Such request may be filed before filing a lawsuit or even during litigation proceedings. A In Austria, the most common causes of actions taken in financial preliminary injunction will only be issued by the court if: service disputes are: i. the defendant will prevent or endanger the enforcement of a ■ investors’ claims for wrongful advice or wrongful prospectus potential judgment by destroying, concealing or transferring information; his assets; or ■ loan or mortgage lawsuits; and ii. the judgment would otherwise have to be enforced in a state ■ lawsuits against immoral or severe disadvantageous terms in which enforcement is not guaranteed by international and conditions from financial service entities. treaties or the laws of the European Union.

1.2 What remedies are most likely to be awarded? 1.3 Who has a right of action in financial services disputes? Does it make a difference if the customer is an individual or a commercial entity? Civil proceedings are commenced by filing a lawsuit with the competent court. Within the lawsuit the plaintiff has to include the Under Austrian law, there are no procedural restrictions as to who relief or remedy sought. Under Austrian law, there are three types of may initiate proceedings. Thus, it is not relevant whether the lawsuits: customer is an individual or a commercial entity. ■ suit for performance; ■ Declaratory Action; or 1.4 Is third-party funding available in financial services ■ suit for the creation, amendment or cancellation of a legal litigation (crowdfunding, maintenance, champerty, relationship. etc.)? Does litigation insurance operate in your Most common in financial service disputes are suits for jurisdiction and, if so, what are the implications for performance, e.g. investors’ claims for wrongful advice and loan or this? mortgage lawsuits. In case of a sole monetary claim, which does not exceed the amount Third-party funding to obtain the necessary monetary funds to of EUR 75,000, a payment order will be issued by the court. The initiate proceedings is allowed in Austria. Third-party funders will, defendant may file an objection to the payment order within four however, regularly only be interested in funding the case, if: weeks after its service. In case no objection is filed in time, the i. the aggregate amount in dispute is big enough to cover its payment order becomes final and enforcement proceedings may be compensation; initiated. ii. the litigation is successful; and For non-sole monetary claims or claims which exceed the amount of iii. the opponent is expected to dispose of the funds required to EUR 75,000, the defendant will be ordered to file a statement of satisfy a future court judgment. defence. The statement of defence has to be filed within four weeks In Austria, litigation insurance is available too. Litigation insurance after the service of the claim, which is combined with the order to companies will not only cover the own costs of litigation file a statement of defence. proceedings but also the opponent’s attorney fees and the court fee In case a sole monetary claim exceeds the amount of EUR 75,000, in case the proceeding is lost. As the main barrier for customers are or in case of non-sole monetary claims, the ordinary proceeding will the expected costs of litigation proceedings (see question 2.1), be initiated only if a statement of defence has been filed in time. litigation insurance may determine whether a customer decides to This also applies in case the defendant files an objection to the bring/defend a case against a financial service entity or not.

ICLG TO: FINANCIAL SERVICES DISPUTES 2019 WWW.ICLG.COM 21 © Published and reproduced with kind permission by Global Legal Group Ltd, London 22 Austria 2.3 be broughtbeforethecourt. 3.4). To preventaclaimfrombeingtime-barred,proceedinghasto process doesnotinhibitthestatuteoflimitation(butseequestion financial servicesdisputes. Thus, thecommencementofaregulatory There arenoregulatorybodiesin Austria, whoarecompetentfor the competentcourtandifplaintiff properlypursueshisclaim. statute oflimitationissuspendedoncealawsuithasbeenfiledwith at thetimerightcouldhavebeenexercisedforfirsttime. The damage claims. The period forthestatuteoflimitationcommences short statuteoflimitationthreeyears,whichisapplicablefor, e.g., general, thestatuteoflimitationis30years.Inaddition,therea substantive lawwhichisapplicabletotherespectiveclaim.In Under Austrian law, thestatuteoflimitationissubjectto limitation hastobeobservedinadvanceoffilingalawsuit. proceeding ifitisnottime-barred. Therefore, thestatuteof disputes. However, aclaimcanonlybeenforcedwithinlitigation There arenospecifictimelimitswithregardtofinancialservices 2.2 considered nullandvoid. customers inadvanceofadisputefrombringingcase,wouldbe Under Austrian law, aclauseincustomercontracts,whichprevents to initiateproceedingsordefendacase. winning party(seequestion4.2). Thus, customersmaybereluctant losing partyhastoreimbursethecostsofproceeding costs oflitigationproceedings. According to Austrian law, the The mainbarrierstofinancialservicelitigationforcustomersarethe 2.1 is currentlyworkingonadirectivesettinguprulesforclassactions. parties whoassignedtheirrightstosuchentities. The EUCommission organisations toinitiatemodelproceedingsbybringingclaimsfor However, thereisthepossibilityfor–mostfrequentlyconsumer mainly duetotheresistanceofdomesticentrepreneurship. Justice didnottranslateintoanylegislativeinitiative,whichwas for classactionlawsuits. Attempts atthelevelofMinistry No, the Austrian civilprocedurallawdoesnotprovidethepossibility 1.5 Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM Austrian attorneys areboundtoprofessionalsecrecyin accordancewith 2 Before CommencingProceedings class actionsuitspostthefinancialcrisis? services litigation?Hastherebeenanincreasein jurisdiction? Ifso,hasthisimpactedfinancial Are classactionlawsuitsavailableinyour considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulated bodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialservices litigationavailof clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary What arethemainbarrierstofinancialservice

and insuchcasetheywillbedeclarednullvoid. The ISDA considered asimmoralorseverelydisadvantageoustothecustomer contract. Nevertheless,suchtermsandconditionsmaybe conditions areagreedon,theydeterminingtheof terms andconditionstoallcontractualrelationships.If In Austria, itisstandardforfinancialserviceentitiestoapplytheir 2.4 “ Section 321oftheCodeCivilProcedure(“ In civillawproceedingstheattorney-clientprivilegeisregulatedin employees ofthelawyerorseizingcommunications. prohibits circumventingthisprincipleby, forexample,interrogationof relationship (“ authority, ifthiswouldresultinadisclosureofsecretsouttheclient right andtheobligationtodenytestifyingincourt,orbeforeanyother matters beingintheinterestofclient. Therefore, alawyerhasthe or herinhisfunctionascounsel;thenon-disclosureofsuch duty ofconfidentialityregardingallmattersthatweredisclosedtohim (“ Lawyers Act obligations forlawyers. Thus, Section9,paragraph2ofthe Austrian secrecy forlawyersisconsideredasoneofthemostimportant the Attorney’s CodeofProfessionalConduct.In Austria, professional legal relevance). The SupremeCourt’s decision isfinal. certain limitationsaimingtolimitthe thirdinstancetocasesofbroad Court maybeappealedtothe Austrian SupremeCourt(subjectto the appealdecisionofRegional CourtortheHigherRegional As the Austrian legalsystemisbasedon athree-instanceproceeding, proceeding takesplacebeforetheHigher RegionalCourt. Court wascompetentasthecourt offirstinstance,theappellate Regional Courtactsastheof Appeal. IncasetheRegional In caseadecisionrenderedbytheDistrictCourtisappealed, competent RegionalCourt. exceeds thisamount,theproceedinghastobeinitiatedat claims uptoanamountindisputeofEUR15,000.Iftheclaim services litigation,DistrictCourtsarecompetentformonetary and RegionalCourtsasthecourtoffirstinstance.Forfinancial The Austrian courtsystemdistinguishesbetweenDistrictCourts 3.1 claims, i.e.theyexistirrespectiveofacontract. Further, claimsbasedonprospectusliabilityareconsideredtort significant roleindamageclaimsforallegedwrongfuladvice. Regulation). The potential breachofsuchdutiesusuallyplaysa contractual bothunder Austrian lawandEU( in viewofthefutureconclusioncontract,areconsiderednon- institution hastoobservewhenenteringintocontactwithcustomers Yes. E.g.thepre-contractualdutiesof care,whichanyfinancial 2.5 Master Agreement isusedby Austrian banksaswell. ZPO 3 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 ”). ISDA Master Agreement)? Howaretheytreated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare

attorney-client privilege Rechtsanwaltsordnung

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RAO ”) setsforththelawyer’s Zivilprozessordnung

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3.2 judges. financial serviceslitigationandthusmaybeconsideredasspecialist commercial mattersonly, theyalsohavealotofexperiencein Vienna andtheCommercialCourt Vienna arespecialisedin As thejudgesfromDistrictCourtforcommercialmattersin which onlydealswithlabourandemploymentorsociallawmatters. Besides, thereisalsoaspecialLabourandSocialCourtin Vienna, Court Vienna. with theDistrictCourtforcommercialmattersorCommercial service provideragainstaconsumerascustomermaynotbefiled the defendantisanentrepreneur. E.g.aclaimfiledbyfinancial special Viennese Courtsonlydealwithcommercialmatters,incase the CommercialCourt Vienna (“ (“ special DistrictCourtforcommercialmattersin Vienna and labouremploymentlawmatters.In Vienna, thereisa competent foranyandallmattersofcivillaw, e.g.commerciallaw With theexceptionofcity Vienna, all Austrian courtsare Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 mediation hasbeen implementedintothe Austrian legal systemby settlement talksatthebeginning oflitigationproceedings. As disputes. However, Austrian lawencouragesjudges toinitiate experience theyarenotcommonly usedtoresolvefinancialservices included infinancialservicescontracts andaccordingtoour In Austria, alternativedisputeresolution clausesarenottypically mandatory andtheproceedingisfree ofcharge fortheparties. Keditwirtschaft the “ regard tofinancialservicesdisputes,thecompetentarbitrationbodyis dispute resolutionproceedingsbeforespecialarbitrationbodies. With Economic Area. The AStG providesforproceduralrulesofalternative a countrywhichissignatorytothe Agreement ontheEuropean entrepreneur andaconsumerwithhisplaceofresidencein Austria or applicable forcontractsenteredintobetweenan Austrian-based force on14 August 2015. The provisionsofthe AStG areonly Affairs (“ The Federal Act on Alternative DisputeResolutioninConsumer 3.4 filing alawsuit(seequestion3.4). non-mandatory alternativedisputeresolutionproceedingbefore that mustbefollowed.However, thereisthepossibilitytoinitiatea No, therearenospecificpre-trialproceduresunder Austrian law 3.3 act withauthority. service ofthedocumentinstitutingproceedingsisconsideredasan regulated intheServiceofDocuments Act (“ financial serviceslitigation.Ingeneral,theserviceofproceedingsis No, therearenospecialrulesfortheserviceofproceedingsin Bezirksgericht fürHandelssachenWien consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypically included regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR)

Gemeinsame SchlichtungsstellederÖsterreichischen Alternative-Streitbeilegung-Gesetz

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observed, damagedinvestorsmayalsofileclaimsbasedonthe Besides, incaseswherepublicationrequirementshadtobe the investorseeksredressforamisledinvestmentdecision. governed byapplicableCapitalMarketlawand/orcivillaw, where misstatement/mis-selling maybeprospectusliabilityclaims as othercivilandcommerciallawdisputes.Inpractice,claimsfor procedural lawperspective,i.e.theyarehandledinthesameway There arenospecificsapplicableinsuchdisputesfroma 3.5 (“ Enforcement Act court willberegardedasenforceableaccordingtothe Austrian litigation proceeding.Suchasettlementbeforeanordinary Austrian mediation proceduremayalsoconcludeasettlementwithinthe terms. Inaddition,partieswhoagreedtoawrittensettlementin can beinitiatedinordertorenderanarbitrationawardontheagreed settlement isreachedthroughmediation,arbitrationproceedings proceedings oracombinationofarbitrationandmediation.If There isthepossibilitytoconducteitherstand-alonemediation a mediationproceeding. and thepartieshavetopayfeesformediatoriftheyagreestart court hearing.However, takingpartinmediationisnotmandatory possibility forajudgetoassignmediatorwhowillbepresentatthe the LawonMediationinCivilMatters,thereisalso Judicial proceedings arepublicin Austria, which limitsthe 3.7 specific transactionwithinthecourseofbusiness. KSchG, bearstheburdenofproofthatitdidnotenterinto contract. The person,whowantstorelyontherightsunder which isnotpartofhis/herbusiness,consideredtobeaconsumer business”. Thus, anytransactionofanindividualoralegalentity, person whodoesnotenterintothetransactionincourseofhis According toSection1oftheKSchG,aconsumerisdefinedas“a (“ the strictprovisionsof Austrian ConsumerProtection Act declared nullandvoid.Ifapartytotheproceedingisconsumer, immoral orseverelydisadvantageoustothecustomerwillbe Terms andconditionsincontractswhichareconsideredtobe 3.6 interpretation andsubjecttoassessmentintheindividualcase. an informationrequirementexistsisamatterofcontract duty tocomplywithinformationrequirements. To whatextentsuch contractual orpre-contractualdutiesofcare,whichincludesthe misstatement/mis-selling maybedeductedfrombreachesof Finally, withincontractualrelationships,damageclaimsfor divest becauseofamisleading file claimsforredress,iftheymadeaninvestmentoromittedto considered protectivelaws,whichiswhydamagedpartiesmay breach of Konsumentenschutzgesetz dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling dealt withinthecontextofdiscovery ordisclosure? commercially sensitiveorconfidential information services customeraccesstheir personaldata?Howis with infinancialserviceslitigation? Canafinancial How isdataprotection/freedom ofinformationdealt jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted ad hoc Exekutionsordnung publicityrequirements.Suchdutiesare

”, “ KSchG ad hoc ”) applytothecase. notice. ”, “

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Austria

23 Austria 24 Austria pro rata However, ifeitherpartypartlyprevails,thecosts aredividedona party isentitledtocostreimbursement bythelosingparty. According tothe Austrian CodeofCivil Procedure,thewinning the generalrulesofcostreimbursement arealsoapplicable. There arenospecialrulesoncosts infinancialservicesdisputesbut 4.2 conditions). Supreme Courtwithinfourweeksafteritsservice(subjecttocertain The decisionoftheCourt Appeal mayalsobeappealedtothe of Appeal willtakeupevidencebyitself. decided onbasisofthecourtfile.OnlyinveryrarecasesCourt in thefirstinstanceproceedings. Appellate proceedingsaremainly allowed toaddanyallegationsintheappealwhichwerenotraised the firstinstancejudgmentisfourweeksafteritsservice.Itnot Under Austrian procedurallaw, thedeadlinetofileanappealagainst proceeding. decision, e.g.thepartydidnotcompletelyprevailwithin proceeding hasarightofappealasitwasadverselyaffected bythe in financialservicesdisputesthereisarightofappeal. A partytoa Yes, asthegeneralrulesofcivilprocedural lawarealsoapplicable 4.1 in orderforthecourttomakeitsdecision. request ofapartytheproceedingiftradesecrethastoberevealed paragraph 2ZPO,thepublicmaybeexcludedfromoralhearingsupon Civil ProceduralCodewasamended. According toSection172, acquisition, useanddisclosure,on28December2018,the Austrian how andbusinessinformation(tradesecrets)againsttheirunlawful Parliament andoftheCouncilonprotectionundisclosedknow- Finally, inaccordancewithDirective(EU)2016/943oftheEuropean lead toanunfavourableinferencebythecourt. comply withacourtordertodisclosespecificdocumentmayonly third partiesareenforceable,whereasafailureoftheotherpartyto the contentsofdocument. Also, onlydisclosureorderstowards very specificandtheapplicantmustshowarighttolearn document bywayofacourtorder. However, suchrequestmustbe means tocompeltheotherpartyorathirddisclosespecific documents andinformationitdeemsusefulforitscase. There are limited disclosure.Practicallyspeaking,eachpartypresentsthe Within the Austrian legalsystemthereisnodiscoveryandonlyvery access hispersonaldataheldbythefinancialserviceentity. of possibletrustees. A financialservicescustomerisentitledto intended businessrelationship,theoriginoffundsandidentity beneficial interestsheld,theircostumers’ identity, thepurposeof beneficial ownershipoftheircustomers,includingthedetails service providershavetoobtainandverifyinformationonthe financing reasons. To complywiththeseprovisions,financial diligence oncustomersforanti-moneylaunderingandterrorist Financial serviceprovidersareobligatedbylawtoperformdue customer. towards acertaincustomerincaseofdisputeagainstthisvery service providersarenotboundbystatutorybankingsecrecy possibility tokeeppersonaldataconfidential.Inaddition,financial Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM 4 services disputes? How doesthecourtdealwithcostsinfinancial disputes? Is therearightofappealinfinancialservices Post Trial basis.

5.1 decision. deadline tofilesuchanappealistwoweeksaftertheserviceof judgment isonlyappealedwithregardtothecostdecision, decision mayalsobeappealedseparatelybythelosingparty. Ifthe The decisiononthecostsisincludedwithinjudgment. The cost fee agreement(e.g.hourlyrates). to reimbursehigherfeespaidtheattorneyaccordingaseparate the Act on Attorney’s Tariffs. Thus, thelosingpartyisnotobligated dispute. Subjecttocostreimbursementarefeesonlyaccording (“ Attorney feesareregulatedinthe Act on Attorney’s Tariffs appeal orarevision. filing theclaim.Furthercourtfeeswillbetriggereduponan the amountindispute.Courtfeeshavetobepaidadvanceupon Court Fees(“ witnesses, translationcosts).Courtfeesareregulatedinthe Act on disbursements (e.g.expertopinions,travelcostcompensationfor disputes, mainlyconsistofcourtfees,attorneyfeesand Under Austrian law, costsforlitigation,includingfinancialservices Additional protective rulesapplyiftheparties opt outofthe services (Article6,paragraph4, letterdRomeIRegulation). securities andunitsincollective investment, otherthanfinancial financial instrumentandother aspects relatedtotransferable clause withrespecttotherightsand obligationswhichconstitutea law clause. This doesnotaffect thevalidityofachoicelaw the consumerapplicableinthatMember Statebywayofachoice commercially active,mustnotdeviatefromthemandatoryrightsof consumers inanEUMemberState,whichtheentrepreneuris Article 6RomeIRegulationprovidesthatcontractsenteredintoby the plaintiff’s sideinfinancialservicesdisputes.Inthefirstplace, contractual relationshipsinvolvingconsumers,whichareoftenon freely decideontheapplicablelaw, thischoiceislimitedin domestic conflictoflawsrules,generallyallowforthepartiesto particular theRomeIandIIRegulationsincluding Austrian While theapplicableprivateinternationallawframework,in of jurisdiction(Article25). 7.3). Morerarely, claimsarebroughtonthebasisofanagreedplace should clarifythejurisdictionalissuestosomeextent( and recentlytheSupremeCourtissuedseveraldecisions,which referrals totheECJforpreliminaryrulingsby Austrian courts regulation. These alternative placesofjurisdictiontriggered where thedamageoccurredpursuantto Article 7,no.3ofthe based ontortmaybefiledattheplaceofdamagingeventor sue attheplacewhereconsumerisdomiciled.Finally, claims et seq. Depending onthecircumstances,consumersmayrely Article 17 bringing anactionattheplaceofperformanceacontract. Article 7,no.1oftheBrusselsIaRegulation,whichallowsfor place oftheirrespectivedomicile.Plaintiffs dosoonthebasisof suit againstnon-domesticfinancialinstitutionsin Austria atthe A cross-bordersituationtypicallyarisesif Austrian customersfile respect todisputesfiledbyconsumers. Further, conflictoflawsquestionscomeup,inparticularwith years –beencharacterisedbyextensivedisputesonjurisdiction. Cross-border financialservicesdisputesin Austria have–inrecent Rechtsanwaltstarifgesetz 5 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 ofthesaidregulation,whichprovidesforadditionalrightsto how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues

Gerichtsgebührengesetz

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simplifying andacceleratingjudicialassistancerangingfrom No. 1206/2001. The regulationprovidesforavarietyofmeasures enactment andseveralyears’ practicewiththeEvidenceRegulation proceedings hasbeensubstantiallyimprovedfollowingthe the EuropeanUnion,mutualjudicialassistanceincivillaw purposes ofconductingproceedingsbeforethem.Especiallywithin use oftheopportunitytoobtainevidencefromforeigncourtsfor and commerciallawdisputes.Likewise,the Austrian courtsmake judicial assistanceuponrequestofforeigncourtsdealingwithcivil financial servicesdisputes.Generally, the Austrian courtsgrant There arenospecificrulesforinternationaljudicialco-operationin 5.2 respective contract(Section13aKSchG). and validityrequirements,nomatterwhichlawisapplicabletothe terms havetocomplywiththegeneral Austrian lawtransparency law. Finally, Austrian lawexplicitlyforeseesthatgeneralcontract otherwise applicablelawofanEEA MemberStateintoathird-state Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 the contractpartnersarenotdomiciled intheEUatall. the prerequisitesof Article 17 place wheretheyaredomiciledagainst theircontractpartnersunder claim. Further, consumersbasedintheEUmayfile alawsuitatthe based ontheplaceofoccurrence ofadamagegivingrisetotort reasons, e.g.basedontheplaceofperformanceacontractor within theEU)maybesuedbeforean Austrian courtforvarious the BrusselsIaRegulation,foreigncompanies(basedelsewhere any additionalconnectionto Austria. Further, withinthescopeof Austria, becausethedefendanthasassetsthere,withoutrequiring Austrian lawstillforeseesthepossibilitytosueadefendantin outside thescopeofBrusselsIaandLuganoConventions, considered aspureexamplesofextra-territorialjurisdiction).E.g. a strongextra-territorialnexus(eventhoughtheymaynotbe reaching competencesofthe Austrian courtstodecideoncaseswith Depending onthecircumstances,theserulesmayleadtofar- establish an Austrian placeofjurisdiction. competent if–basedontheapplicablelawclaimantcan procedural law, the Austrian courtsarenowadaysdeemed Austrian seizedcourthadjurisdictionbasedonapplicablecivil independently assessedandcouldtheoreticallybedenied,evenifan former times,this“sufficiently strongconnectionto Austria” was is asufficiently strongconnection to Austria. However, whilein disputes, the Austrian courtswouldonlyassumejurisdictionifthere jurisdiction arelimited.Generally, regardingfinancialservices The meansforthe Austrian courtstoexerciseextra-territorial 5.3 accordance withthediplomaticstandards. generally grantsjudicialassistancetoanyrequestingstatein Even intheabsenceofanyinternationallawinstrument, Austria facilitated bywayofbilateralagreementswithnumerousstates. 1970 onthe Taking ofEvidence).Finally, judicialassistanceis international judicialjurisdiction(butnottheHagueConventionof the HagueConventionof1954onCivilProcedurerelatingto examination ofwitnessesresidingabroad.Further, Austria ratified documentary evidencelocatedoutsidethecourt’s jurisdictionorthe service ofprocesstoevidence-taking,inparticularcollecting your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour et seq. BrusselsIaRegulation,evenif

arbitral tribunals.Incontrast,thediversetasksof Austrian Financial servicesdisputesaresolelydecidedbythecourtsand 6.1 and notsolelywithaviewtotheforumclause. light oftheoverallrightsandobligationscontractualparties than tothecounterparty, butthiswilllikelyhavetobeconsideredin they confertoonepartyaparticularlystrongercontractualposition that, insomeinstances,thecourtsmayviewthemasproblematic,if not excludeunilateraljurisdictionclauses.Itcannotberuledout To theextentabovelimitationsdonotapply, Austrian lawdoes place wheretheconsumerisdomiciled(Section14KSchG). their domicileandcontractpartnershavetofilelawsuitatthe procedural lawconsumersareentitledtofilelawsuitattheplaceof et seq. the regime(andprerequisitesofabove-mentioned Article 17 (financial services)contractstowardsconsumers,becauseunderboth In general,unilateraljurisdictionclausescannotbevalidlyagreedin 5.4 resolve financial services disputes. The Austrian regulatoryauthoritiescannot issuesanydecisionsto 6.3 financial servicesdisputes. institutions arefairlywide,thesepowersdonotextendtoresolving FMA andthe Austrian NationalBank–overthesupervisedfinancial While thepowersofabove-mentionedregulatorybodies– 6.2 banks andtheircustomers. interfere withtheindividualcontractualrelationshipsbetween generally doessotogetherwiththeFMA. Again, thesetasksdonot the conductofbanksactivein Austria. The Austrian NationalBank The Austrian NationalBankalsoassumesasupervisoryroleasto relationship betweenthefinancialinstitutionandcustomer. FMA isnotallowedtointerferewiththeindividualcontractual the FMA’s standardshavenotbeenobservedinthespecificcase. The courts maydrawanegativeinferenceonthebankifdisputearisesand no bearingonspecificdisputeswithcertaincustomers,althoughthe for customersandthebanks. These minimumstandardshave,however, assist thegradualreductionofrisksstemmingfromsuchloansboth foreign currencyloanstheFMA issuedminimumstandardsinorderto which thefinancialinstitutionshavetoobserve.E.g.incontextof dealing withcustomersingeneral. This supervisionmayleadtorules, institutions inprovidingcustomeradviceandinformation,when The supervisionoftheFMA alsoextendstotheconductoffinancial the supervisionofsecurities. supervision ofbanks,insurancecompaniesandpensionfunds (“ financial regulatorybodies(mainlytheFinancialMarket Authority FMA 6 ) oftheBrusselsIaRegulationandunder Austrian domestic services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand parties toafinancialservicesdispute? Are thedecisionsofregulatory bodiesbindingonthe have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ ”) andthe Austrian NationalBank)relatetothegeneral

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25 Austria 26 Austria greater riskexposure includingloansatexcessiveinterest rates. perspective andclaimthatsmall customers maybeluredintoa in themarket.Someraiseconcerns fromaconsumerprotection financial servicessector, whichdoesnotonlyincrease competition “Fintech” companiesarecurrently fightingformarketsharesinthe services litigationwork.Notvery different fromotherregions, challenges, whichislikelytohave aneffect onfuturefinancial Further, digitalisation inthefinancialmarketindustrybringsabout protection rules. hardship ontheindustrytoensurecompliancewithallconsumer Supreme Courtdevelopedafairlystrictregime,whichimposes “non-transparent” contractualtermscouldbenoticed. The Austrian against financialinstitutionschallengingpurportedlyunlawfulor the sametime,moredisputesinitiatedbyconsumerassociations Currently, investors’ claimsforwrongfuladvicearedeclining. At by investorsforwrongfulinvestmentadvicegoingforward. regulatory lawrulesintoconsiderationwhenassessingclaimsfiled yet tobeseen,butitcanexpectedthatthecourtswilltakethese changes oftherecentyearson Austrian courts’ caselawremains which wasdueby3January2018. The impactofthelegislative implementation oftheMiFiDIIdirectivebyEUMemberStates, financial products. A majorrecentmilestonewasthe financial institutionswhenadvisingontherisksinvolvedwith the nationallegislatorincreaseddutiesofcareincumbenton significant degree.Intermsoflegislativechanges,boththeEUand of courtdisputes,whichdidaffect thefinancialservicessectortoa The aftermathofthefinancialmarketcrisisledtoamassiveincrease 7.1 of thesedecisionsconcernindividualfinancialservicesdisputes. withdrawal ofconcessions,etc.InviewthetasksFMA,none regarding theregulatorystatusofsupervisedinstitutions, the impositionofsanctionsonaffected financialinstitutions,decisions including administrativelawdecisionsonitswebsite. These include The FMA isrequestedbylawtopublishcertainrelevantinformation 6.5 regulatory bodies. and donotrequireorallowtheinterferenceofmentioned all financialservicesdisputeshavetoberesolvedbythecivilcourts institution basedonapplicableregulatorylaw. Incontrast,anyand relate totherightsandobligationsofaffected financial Constitutional Court( Administrative Court( Instance Administrative Court( the administrativeprocess,anappealprimarilyleadingtoFirst The decisionsoftheregulatorybodiesaresubjecttoappealswithin 6.4 Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM 7 Are decisionsofregulatorybodiespublicly exist? What rightsofappealfromregulatorydecisions against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible?

Verfassungsgerichtshof Verwaltungsgerichtshof Verwaltungsgerichte ). Yet, thesedecisions

) includingthe

) andthe

one particularside.Itisfairtosaythatthecourtsdoexpectacertain light oftheirindividualfactsanddonotseemtoweighinfavour considered themtime-barred.Othercasesmustbein widely in Austria yearsago,wererejected,becausethecourts banks, e.g.inthecontextofFXloanswhichhadbeenmarketedvery pursuing damageclaims. A sizeablenumberofcasesfiledagainst towards claimantsinthecontextoftimelimitationperiodsfor by theSupremeCourt.Incontrast,caselawbecamefairlystrict in linewiththeequivalenceandtransparencyrequirementsimposed service providersarestrugglingtobringtheirtermsandconditions institutions isclearlyinfavourofconsumers,whilethefinancial law ongeneralcontracttermsusedbybanksandotherfinancial which makeageneralanswerdifficult. The above-mentioned case The caselawdifferentiates betweenthetypesofcasesaffected, 7.2 proceedings hassofarnotbeenimplemented. in particular, whereaspecificstatutoryregimeforcollectiveaction institutions. This wouldbringaboutsignificantchangesin Austria filing oflawsuitsbyalarger numberofcustomersagainstfinancial disputes inthedomainoffinancialservicesandmayfacilitate consumers. As thingsstandtoday, thedirectiveshallalsoinclude representative actionsfortheprotectionofcollectiveinterests Finally, theEUCommissionplanstoimplementadirectiveon ■ exhaustive list: examples whichweconsiderillustrative,withoutprovidingan including prospectusliabilityclaims.Belowwesetoutsome damage claimsfiledbyretailinvestorsbasedonwrongfuladvice general contracttermsusedbybanks.Otherproceedingsconcern A majorpartofcasesconcernsrepresentativeactionschallenging The caselawinthefieldoffinancialservicesdisputesisabundant. 7.3 compliance withitsadvisoryduties. product, theharderitisforrespondingserviceprovidertoprove financial products.Incontrast,themorecomplex degree ofdiligenceevenfromconsumerswithrespecttosimple ICLG TO: FINANCIAL SERVICESDISPUTES 2019 customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe establish asufficiently strongconnectionof theclaimto recently confirmedthatunderspecific conditions,which the non-contractualnatureofprospectus liabilityclaims),it case C-375/13, consumer contractjurisdictionacouple ofyearsearlier(in jurisdiction ofthe Austrian courtsbased oncontractand Regulation. While theECJhadalreadydenied against aninternationalbankbased ontheBrusselsIa underlying factsconcernedoneoutofabundlelawsuits ECJ, whichwasrenderedinSeptember2018. The the SupremeCourtrequestedapreliminaryrulingfrom subsequent cases,thefactsweremorecomplex. Therefore, investment outside Austria aswell.Inacoupleofother dispute hadbeenissuedabroadandtheinvestormade jurisdiction ofthe Austrian courts,sincetheprospectusin In acasedecidedinJuly2017theSupremeCourtdenied purposes of Article 7(2)BrusselsIaRegulationinsuchcases. identifying “theplaceofthedamagingevent”for prospectus liability. The casesdealtwiththedifficulties determination oftheplacejurisdictionforclaimsbasedon Recently, the Austrian SupremeCourthadtodecideonthe drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding

Kolassa v. Barclays Bankplc

, withaviewto Austria

■ ■ Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 ■ customers incaseofnegativeinterestrates: their customermaybeobligatedtopayinterest decisions clarifyingwhetherbankswhichprovidealoanto Further, the Austrian SupremeCourtrenderedacoupleof Supreme Court. by theECJ,litigiousclausewasfoundimpermissible the serviceprovider’s website.Basedonthepreliminaryruling draw thecustomer’s attentiontonewinformationavailableon adequate period.Further, theserviceproviderneedstoactively the customermayaccessitandreproduceunchangedforan with theDirectiveifcommunicationisstoredinawaythat The ECJruledthattheelectronictransmissionisincompliance institutions toprovidesuchinformationina“durable”manner. interpretation ofDirective2007/64/ECrequiringthefinancial and statementsonlyelectronically. The issuetiedintothe the customer’s consentthebankwasallowedtosendnotices whether ageneralcontractclausewasvalidstatingthatupon notifications tocustomersviae-banking.Itwasquestionable bank concerningaclauseinthebank’s generaltermsregarding (“ September 2017,the Austrian Consumers’ Association In anothercasedecidedbythe Austrian SupremeCourton28 PLC domicile (ECJC-304/17, prospectus liabilityclaimbasedontortattheplaceofhisown place oftheclaimant’s domicile,theclaimantmayfilea VKI bank. result inaninterestclaimofthecustomertowards even thoughthenegativeinterestratewouldtheoretically was allowedtofreezetheinterestrateatzeropercent, for borrowingmoneyfromthebank. Therefore, thebank the bankcannotbeexpectedtopayinterestacustomer loan contractandthemutualunderstandingofparties, Supreme Courtruledthatinviewofthenormaltermsa In twocasesdecidedinMarchand April 2017the ). ”) hadfiledarepresentativeactionagainstan Austrian

Helga Löberv. Barclays Bank

customers. Although theFMA isnotpermittedtointerferewith by thefinancialmarketcrisisbothforbanksandtheir Obviously, the Austrian regulatorreactedtothedifficulties caused not seemtohavebeencompensatedbynewcases. increased riskofbeingrejectedastime-barred. This declinedoes are indeclineasmanycasesnotyetfiledwiththecourtunder these litigationcasesin Austria after2008.Nowadays,suchclaims lawsuits andtheircomplexnaturecontributedtothesignificanceof capacity restraintsbeforethecourts. The sheernumberofthese advice orwrongfulprospectusinformationwereresponsiblefor particular, damageclaimsfiledbyretailinvestorsforwrongful litigation playedasignificantrolebeforethe Austrian courts.In In theyearsfollowing2008financialcrisis,services 7.4 FMA forconsumers. widespread in Austria beforetheywerepracticallybannedbythe Swiss francloans,whichusedtobeaveryfavourableand example isthemeasurestakenbyFMA inthecontextof general problemsbetweenthebanksandtheircustomers.One individual disputes,theauthorityissuedguidelinestoaddress jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany ■ confirmed thesedecisionsinacoupleofsubsequentcases. interest ratecomponentaccordingly. The SupremeCourt variable interestratemaythereforereducethefixed component, whichtheSupremeCourtdenied. A negative entitled tocharge thecustomerfixedinterest being negative. The bankclaimedthatitwasatleast variable interestcomponent,therate assessed, wheretheinterestrateconsistedofafixedand In twomorecasesdecidedinMay2017aloanhadtobe

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Austria

27 Austria 28 Austria Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM For moreinformationgototheinteractivewebprofilebyfollowingthislink: international networkofoffices, weworkcloselywithourclientstohelpthemsolveproblemsandcreateopportunities. We haveconcentratedourenergiesonauniquepartoftheworld:complex,fast-developingmarketsCEE/SEEregion. T Construction; Regulatory&Procurement;Retail;and Tax. Renewables; Infrastructure;IntellectualProperty&Information Technology; International Arbitration; InvestmentFunds;LifeS Crime; CapitalMarkets;Competition& Antitrust; Compliance;Corporate/Mergers & Acquisitions; DisputeResolution;Employment Over 80%ofourworkinvolvescross-borderrepresentationinternationalclients.Ourfullrangeservicescovers:Banking backgrounds, workinginoffices in13countriesthroughouttheCEE/SEEregion. of unrivalledlocalknowledgeandstronginternationalcapability. Ourteamnowbringstogetherover340lawyersfromadivers Wolf Theiss isoneoftheleadinglawfirmsinCentral,EasternandSouth-EasternEurope(CEE/SEE).We havebuiltourreputati law firminBrussels. depth professionalexpertiseinEUlawatahigh-profileinternational of EuropeanUnionlaw. BeforejoiningWolf Theiss, Holgergainedin- College ofEurope,ahighlyreputedacademicinstitutioninthedomain before theEuropeanCourtofJustice.Heisapostgraduate general commercialdisputes.Holgeralsoactedasparty’s counsel internal investigations,briberyandcorruptioncases,aswell regularly advisesclientsinrelationtofinancialservicesdisputes, also representsclientsinhigh-profilewhite-collarcrimecases.Holger He specialisesincivilandcommerciallitigationarbitration, Holger BieleszisamemberoftheDisputeResolutionteaminVienna. Austria 1010 Vienna Schubertring 6 Wolf Theiss Holger Bielesz URL: Email: Tel:

www.wolftheiss.com [email protected] +43 1515105620

http://brochures.wolftheiss.com/de/zudhJrSO/short-firm-profile He hasalawdegreefromtheUniversityofVienna. experience inbothcourtlitigationandout-of-courtdisputeresolution. cases, aswellgeneralcommercialdisputes.Florianhasextensive services disputes,internalinvestigations,briberyandcorruption compliance. Florianregularlyadvisesclientsinrelationtofinancial collar crimedisputes,includingbriberyandcorruption,fraud His mainpracticeareasarecivilandcommerciallitigationwhite- Florian HorakisamemberoftheDisputeResolutionteaminVienna.

ICLG TO: FINANCIAL SERVICESDISPUTES 2019 URL: Email: Tel: Austria 1010 Vienna Schubertring 6 Wolf Theiss Florian Horak

www.wolftheiss.com [email protected] +43 1515105623

cience; RealEstate& &Finance;Business on acombination

Law;Energy& hrough our e rangeof Austria .

Chapter 6 Brazil Giuliana Bonanno Schunck

Trench Rossi Watanabe Advogados Gledson Marques De Campos

Judicial disputes involving large commercial debtors are rare, but Third-party funding is available to financial services litigation in the when a dispute arises it usually involves a challenge to the form of same sense it is available to any other kind of dispute. Litigation calculation of interest rate (e.g., accrual) and other alleged unfair, insurance is available but not usually used in Brazil. excessive or non-transparent practices in respect to calculation of interest and costs and charges. It is also common to have arbitration in more sophisticated contracts. 1.5 Are class action law suits available in your jurisdiction? If so, has this impacted financial services litigation? Has there been an increase in 1.2 What remedies are most likely to be awarded? class action suits post the financial crisis?

Customers that feel damaged by any action of financial institutions Yes, class actions and other collective claims can be filed by certain may: class entities, the District Attorney and other persons ‘in ■ seek damages; substitution’ (or on behalf) of the customers or the damaged parties. ■ request the termination of the agreements; Regulatory authorities (such as the Brazilian Securities and Exchange Commission – CVM – which is the regulatory agency in ■ request the specific performance of an obligation, or the charge of the regulation of public offering of securities, registering performance of any obligation by the financial institution, if applicable; or listed companies, securities public trading, custody of securities and supervision of publicly traded companies, among other things ■ request injunctive reliefs (e.g., to stop payments until a final (pursuant to Law No. 4,595/64, only a licensed financial institution decision on the merits of the case). may perform banking and finance activities such as the collection, These are the most common remedies, but customers may also seek intermediation and investment of its own or third parties’ funds)) other remedies, if applicable, depending on the case. may act as assistant to the plaintiffs or defendants, in the role of

ICLG TO: FINANCIAL SERVICES DISPUTES 2019 WWW.ICLG.COM 29 © Published and reproduced with kind permission by Global Legal Group Ltd, London 30 Brazil understanding ofthecaseand partyholdstheinformation, information isreallynecessary forthecomprehensionor the informationbecauseitisconfidential orsecret.Ifthatpieceof be spoiled. The partycannotsimplyallegethatitwillnotpresent access tothatinformation,andthe confidentiality orsecrecywillnot the lawsuitwillbesealedsothatonly thepartiesinvolvedwillhave and industrysecrets)isprotected,ifitmustbepresentedincourt information thatissecretorconfidential(suchasbanking,business ordered topresentinformationincourtifnecessary. This isbecause Brazil, butitdoesnotpreventfinancialinstitutionsfrombeing exchanged withlawyers. Also, bankingsecrecyisrespectedin Privilege canbeavailedbythepartiesconcerningcommunications 2.3 customer allegationor10years–thegeneralruleofCivilCode. limitations mayvary. Itmaybethreeyearsdependingonthe occurred. Ifclaimsdonotinvolveconsumers,thestatuteof from themomentspecificfactthatgaverisetolawsuit is fiveyearsfromthemomentconsumersuffered thedamageor statutes. Forclaimsinvolvingconsumers,thestatuteoflimitations The timelimitisrelatedtothestatuteoflimitationsprovidedin 2.2 (according totheBrazilianCivilCode). will apply)orinterpretedinthemostfavourablewaytocustomer individual and,insuchcase,therulesofBrazilianConsumerCode clauses theywillbeeitherdisregarded(especiallyifthecustomerisan change ordiscussthelanguagebeingproposed,soincaseofabusive institutions’ agreementsarestandardforms,usuallycustomerscannot abusive andsodisregardedbycourts. As mostofthefinancial Brazilian lawstandpoint,provisionsinthisregardmaybeconsidered clauses preventingcustomersfrombringingacaseas, can provethattheycannotsupportthecourtcosts.Itisraretohave Court costsmayalsobeavoidedifthecustomerisanindividualand are noobstaclesforcustomerstofilefinancialserviceslitigation. to Statebutmaybeequivalent1%oftheamountindispute),there In general,exceptforcourtcoststhatmaybehigh(itvariesfromState 2.1 finance andderivatives). more problematicduringthefinancialcrisisof2008(e.g.,realestate financial systemhadbeenalreadyregulatedintheareasthatproved No, thefinancialcrisishasnotimpactedlitigationasBrazilian of thelaw). ‘ Trench RossiWatanabeAdvogados © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM party willneedto presentit(andmayrequestthecase tobesealed amicus curiae 2 case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary What arethemainbarrierstofinancialservice Before CommencingProceedings considered ‘litigation’ inthecontext ofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices

’ (i.e.,thepersonthatisassistingwithapplication

2.4 publicly available. between themmaynotbedisclosedtothirdpartiesandare bodies arecoveredbybankingsecrecylaws. The dataexchanged Communications betweenfinancialinstitutionsandregulatory to providethatpieceofevidence. allowed toholdadverseinferencebecauseofthefailurethatparty interpretation ofthefacts,butthatdidnotoccur, thejudgeis a documentorpieceofinformationthatwasimportanttothe However, ifthejudgeunderstandsthatapartycouldhavepresented voluntarily disclose. simply takeinformationthattheotherpartydoesnotwantto required toproduceevidenceinitsfavour, butthepartycannot expeditions, etc.)doesnotapplyinBrazilianlaw. Eachpartyis The discoveryconcept(asitisdefinedincommonlaw, withfishing dismissed justbecausetheinformationisconfidential. specific professionals(forexample,doctors)willthetestimonybe third partieswillhaveaccesstoit.Onlyinthecaseofcertain regarding confidentialinformation,thecasewillbesealedandno The samehappenswithwitnessevidence.Ifthetestifies that specificpartybecausetherightwasnotproperlyevidenced. to guaranteeconfidentiality);otherwise,thecasemaygoagainst ■ ■ only financial).Infact,theBrazilian CivilCodesetsforth: In Brazil,thereisanimplieddutyofgoodfaithinallcontracts(not 2.5 form agreementsincludearbitrationasmeansfordisputeresolution. sophisticated agreements. Thus, mostofthemorecomplexstandard clients generallyrelyonarbitrationclausesincaseofmore literal constructionoftheagreement,financialinstitutionsandtheir decisions thataredetrimentaltoobjectivebasedonthe general principlesofcivillaw, whichmayleadtoequitable objective standpoint.However, becauseoftheriskthatcourtsapply balanced mannerandinterprettheagreementfromamoreliteral agreements), courtsmayconstruetheseagreementsinamore (such asInternationalSwapsandDerivatives Association and sophisticated,havecertainconditionssubjecttonegotiation In respecttostandardformagreements,whicharemorecomplex relationship causingdamagetothecustomer. clause oranythatmaybeviewedasjeopardisingthe the BrazilianConsumerCodeisappliedtooverruleanyconflicting adhering agreementsaremorefavourabletothepartyand these agreementsareviewedas‘adheringagreements’. These standard formsarenotnegotiatedbytheparties;oncontrary, products (suchasbankaccounts,consumerloans,etc.),such and isdeterminedtobeachievable.Inagreementsusedformass parties withadequatecapacitytocontract. Their purposeislawful enforced, totheextentthattheyhavebeenvalidlyenteredintoby Yes, standardformmasteragreements areusuallyacceptedand ICLG TO: FINANCIAL SERVICESDISPUTES 2019 ISDA Master Agreement)? Howarethey treated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour contract andinits performance. principles ofprobity andgoodfaith,bothinentering intothe in article422thatthecontracting partiesshallobservethe place inwhichtheywereformed; and interpreted accordingtogoodfaith andthepracticeof in article113 thatthecontractsortransactionshallbe they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare

Brazil

in thebestinterestsofcustomers(especiallycasefunds, and thedutyofcare,meaningthatfinancialinstitutionshallact encompass, dependingonthespecificproduct,fiduciaryduty For financialinstitutions,thedutyofgoodfaithmayalso Institute fortheUnificationofPrivateLawPrinciples. the PrinciplesofEuropeanContractLawandinInternational origins inGermanlawandisalsoverysimilartowhatprovided The good-faithdutyincontractssetforthBrazilianlawhasits the commonlawconceptofestoppel). will beinterpretedasabreachofthedutygoodfaith(similarto behave consistently, sothatunexpectedchangesintheirbehaviour The dutyofgoodfaithalsodeterminesthatthepartiesshould article 113 mentionedabove. parties involved,thepracticesofspecificmarket,etc.,asper The characteristicsofgood-faithdutiesmayvaryaccordingtothe contract hasalreadybeenconcludedorterminated. the contract),atperformanceofcontractandafter observe goodfaithbeforeexecution(i.e.,duringthenegotiationsof our scholarsandcourtdecisionsunderstandthatthepartiesshall execution ofthecontractandafterperformanceisconcluded, Although article422doesnotmentionthephasespriorto Trench RossiWatanabeAdvogados © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 court willhearthe case). they donotinvolveconsumercontracts (insuchcases,theregular issues ingeneralthatwillhearfinancial cases,particularlywhen case willbeheld,therearesomespecial Statecourtsforcorporate jurisdiction tohearfinancialcases. Dependingonthecitywhere financial servicesdisputes. The regularStatecourtsentertain No, Brazildoesnothavespecialist courtsorotherarrangementsfor 3.1 agreement. law doesnotauthorisethepartiestoexcludethemfroman possible toverifyifthepartiesactedaccordingthem)Brazilian beforehand (i.e.,onlyafteracertainsituationoccurswillitbe As thedutiesthatariseoutofgoodfaithcannotbedescribed ■ ■ services litigationarenormallyassociatedwith: Thus, insummary, theeffects ofthedutygoodfaithonfinancial manner. condition asaconsumerwithmoreflexibilityandinlessstrict knowledge ofthefinancialmarket,judgestendtointerprettheir On theotherhand,whencustomerissophisticatedorhasgreat accurate andcompleteinformation. greater obligationstotheserviceproviderintermsofdisclosure certain conceptsoftheBrazilianConsumerCode. This provides stricter astheconsumer, consideredtobevulnerable,isprotectedby In suchcases,theinterpretationofdutiesgoodfaithiseven article 2oftheBrazilianConsumerCode). products orservicesasthefinaladdresseebeneficiary(asper contracts, asmostofthetimecustomerpurchasesoruses portion ofthecontractsmayfallintocategoryconsumer In addition,forfinancialinstitutionsandtheircustomers,alarge among otherthings). 3 financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase customer). the dutyofcare(i.e.,toactdiligentlywithresources considered consumers);and institution tothecustomer(mainlywhentheymaybe complete andaccurateinformationprovidedbythefinancial

3.4 litigation. No, therearenospecificpre-trialproceduresforfinancialservices 3.3 Brazilian CodeofCivilProcedure. No, serviceofprocesswillfollowthegeneralrulesprovidedby 3.2 by theBrazilianPresidentaftercertainotherspecificapprovals. (the finalcourttodecideonconstitutionallaw),whoareappointed (the finalcourttodecideonfederallaws)andintheSupremeCourt are specialrequirementsforjudgesintheSuperiorCourtofJustice All Brazilianjudgesstarttheircareerinpublicexaminations. There correctly presentingthecase,etc.). procedure applyforsuchcases(meaningpaymentofcourtcosts, institution tobeheardincourt. The generalrequirementsforcivil There arenospecificrequirementsforacaseagainstfinancial customer because mostofthetimeunfairtermsare contemplated in Unfair termsincontractsareusually interpretedtothebenefitof 3.6 threatening. apply tolitigationotherthancertaincriminaloffences thatarelife- laws donotallowclaimsforpunitivedamages,andjurytrials caused directlybytheactionoromissionofdefendant.Brazilian proven andquantified. Also, damagesmustbeproventohavebeen may exposethedefendanttodamages,whichinallcasesmustbe related toloancontracts.Claimsbasedonbreachoffiduciaryduties faith whenapplyingabusiveinterestrates,orregardingotherissues common toseecustomersallegingthatbanksdidnotactingood customers thattheycouldstoplosses.Inconsumercases,itisalso customers) andlackofdiligencethebankininforming customer, i.e.,whetherthebankhasfullydisclosedriskto good-faith duty(lackofaccurateandcompleteinformationtothe Claims ofmisstatement/mis-sellingtypicallyinvolvebreachthe 3.5 in general(notonlyforfinancialservicesdisputes). contracts. Arbitration isveryseriousandwellrecognisedinBrazil contracts, thepartiesusuallyincludearbitrationprovisionsin disputes. As mentionedabove,especiallyformoresophisticated No, thegeneralrulesof ADR alsoapplytofinancialservices regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecifically toconsumers?How in yourjurisdiction? Are thereanycausesofaction or How haveunfairtermsincontractsbeeninterpreted dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypically included

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31 Brazil 32 Brazil between private parties. Usually, suchcasesinvolvecriminal It isnotusualtohavecross-border litigationinvolvingdisputes 5.1 financial aidandbeexemptedfromcosts. plaintiff allegesthatitcannotsupportcourtcosts,canbegranted in dispute),costsforanexpertinvestigation,etc.However, ifthe pays courtcoststocommencethelawsuit(around1%ofamount Costs followthegeneralrules. The plaintiff isnormallytheonethat 4.2 Court of Appeals. trial courtandinsomecasesevenafteradecisionisissuedbythe Yes, inBrazil,thepartiescanappealafter adecisionisissuedbythe 4.1 apply inBrazilianlaw. it isdefinedincommonlaw, withfishingexpeditions,etc.)doesnot Also, asmentionedinquestion2.3above,thediscoveryconcept(as allegations. confidential informationincourttosupporttheirinterestsand past). The GDPL willstillallowfinancialinstitutionstouse (its effectiveness maybechanged, ashasalreadyoccurredinthe which isnotineffect yetand willlikelybeinforce August 2019 Note thatBrazilhasanewGeneralDataProtectionLaw(GDPL) financial institutionstopresenttheirdata. Customers canaccesstheirdataandmayrequestcourttoforce for moredetails. information incourtifnecessary. Pleaserefertoquestion2.3above does notpreventfinancialinstitutionsfrombeingorderedtopresent As mentionedabove,bankingsecrecyisrespectedinBrazil,butit 3.7 Consumer Codeare,insomecases,moreprotectivetoindividuals. be consideredconsumers.However, theprovisionsofBrazilian is notrelevantifthecustomeranindividualorentity, bothcan uses theproductsorservicesasfinaladdresseebeneficiary. It Consumer Code,theconsumeriscustomerthatpurchasesor is anyinterpretationdispute. According toarticle2oftheBrazilian unfair termmaybeinterpretedtothebenefitofcustomerifthere governed bytheBrazilianConsumerCodebutCivil to theBrazilianConsumerCode.Incontractswhicharenot either disregardedorinterpretedtofavourtheconsumer, according general forms.Incaseofconsumerdisputes,theunfairtermcanbe Trench RossiWatanabeAdvogados © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM 5 4 dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt how aretheycateredforinyour jurisdiction? or investigationsinvolvingfinancial institutionsand What issuestypicallyariseincross-border disputes Cross-Border Issues services disputes? How doesthecourtdealwithcostsinfinancial disputes? Is therearightofappealinfinancialservices Post Trial

party (withsuchclause)decidestodisputetheclauseandfact clauses couldbeaccepted.However, ifthepotentiallydamaged foreign courts).Inviewofthat,intheorysuchunilateraljurisdiction Brazilian courtsagreedtohearcasesevenwhenthepartieschose foreign venues(thiswasdiscussedinthepastandsometimes became effective inMarch2016,thepartiesarenowfreetochoose Based onchangestotheBrazilianCodeofCivilProcedurethat 5.4 Extra-territorial jurisdictionisnotgenerallyassertedinBrazil. 5.3 requests donotoffend Braziliansovereignty. Brazilian courtswillcooperateaccordingtotreatiesandifthe 5.2 or investigationsbutsovereigntyshallnotbejeopardised. issues. Braziliancourtstendtocooperateincross-borderdisputes and purchasingpoweroftheBrazilian currency, aswellto CMN. The maingoaloftheCentralBankistopromotestability and enforcementoftheregulations andguidelinessetforthbythe policies). The CentralBankisresponsiblefortheimplementation currency affairs (includingmonetaryandforeignexchange regulations andguidelinesforpublic policyconcerningcreditand the PresidentofCentralBank,anditsmainroleistoissue composed oftheMinistryFinance,Planningand respectively. The CMNisan statutory lawsenactedbytheBrazilianCongressandCMN, activities andfinancialservicesareregulatedbystatutoryinfra- depending ontheirsize,roleorsystemicimportance.Banking institutions, whichmayrequirealicencefromtheCentralBank payment serviceshavebeenregulatedandarecarriedby finance activitiesaswellcapitalmarkets.Morerecently, Financial servicesisabroaderconceptthatincludesbankingand but isnotconsideredwithintheBrazilianfinancialsystem. institutions andpaymentinstitutions.Insuranceisalsoregulated, Economic andSocialDevelopment,thepublicprivatefinancial the CentralBankofBrazil(CentralBank),Nationalfor financial systemconsistsoftheNationalMonetaryCouncil(CMN), activities suchfinancialinstitutionsmayundertake. The Brazilian financial institutionsthatareallowedtobelicensed,andwhat Brazilian statutorylawsandregulationsestablishthetypesof financial system,whichisstrictlyandextensivelyregulated. The bankingsectorandcapitalmarketsintegratetheBrazilian 6.1 may disregardtheclause,decidingtohearcaseinBrazil. that thislackofbalancebetweenthepartiesisnotacceptableand that itmaynotbeconsideredbalanced,Braziliancourtsdecide 6 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies

ad hoc regulatorybodythatis

Brazil

6.2 to sanctionsimposedbylaw. regulation exposestheentityorindividuals,ascasemaybe, imposing specificconflictandsuitabilityrules.Breachofthis agreements andothersecuritieslistedintheapplicablelegislation), shares, bonds,unitsofinvestmentfunds,collective financial institutionsthatdistributeandsellsecurities(suchas Specifically, theCVMissuedInstruction554/14,directedto been regulatedbytheCVMinamoresystematicmanner. mentioned above.Oneexceptionisthesaleofsecurities,whichhas Suitability isdecided,inadiversemanner, byalloftheregulators licences tofinancialinstitutions,includingsecuritiesbrokers. enacted bytheCMN. The CentralBankisalsocompetenttogrant provided byLawNo.4,595/1964andseveralotherspecificrules foreign investmentsandinflowoutflowofcapitalinBrazil,as implementing monetarypolicies,aswellexercisingcontrolover financial institutions. The CentralBankisresponsiblefor strengthen thelocalmonetarysystemandsuperviseconductof Trench RossiWatanabeAdvogados © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 year. The Brazilian financialsystemhasbeenalready regulatedin We donotexpectlegislativedevelopmentsinthisareathecoming 7.1 They areusuallyconfidential. 6.5 the proceedings. regulations. As ageneralrule,regulatorybodiesallowappealsin The rightsofappealarenormallyprovidedforinthespecificbody’s 6.4 customers. the financialinstitutionsandnottoprivaterelationshipswith decisions aremuchmorerelatedtosuitabilityand/ortheactivitiesof disputes involvingcustomers. Thus, asageneralrule,their As mentionedabove,regulatoryauthoritiesarenotentitledtodecide 6.3 disputes relatedtocustomers. financial institutions.Regulatorsarenotinvolved,asarule,in breaches ofsuitabilityorspecificrulesthesectorimposedto sanctions butnotrelatedtoprivatedisputesratherinvolving Normally, suchregulatorybodiescaninvestigateandenforce 7 parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ against financialserviceproviders?). amount andtypeofcasesbeing broughtbyand reaction tothecrisis?Hasthere beenachangeinthe increase inthepowersofregulatory bodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describe anypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly exist? What rightsofappealfromregulatorydecisions

therefore shouldbedisregarded. The feescharged bybanksrelated costs associatedwithabankingcorrespondent,areabusiveand request reimbursementtotheconsumer, and(ii)reimbursementof (i) servicesrenderedbythirdpartiesandwithwhichthebanks understands thatcertainprovisionswhich,amongothers,relateto appeals thatdealwiththesameissues. The SuperiorCourt considered repetitiveifthedecisionwillapplytoseveralother On December2018,theBrazilianSuperiorCourtruledanappealis 7.3 a trendofcourtsbeingprotectivetoconsumers. the casesaregovernedbyBrazilianConsumerCodeandthereis In general,Braziliancourtsaremorecustomer-friendly asmostof 7.2 amount andtypeofcasesdisputed. an increaseinthepowersofregulatorybodies–neither 2008 (e.g.,realestatefinanceandderivatives),sotherehasnotbeen the areasthatprovedmoreproblematicduringfinancialcrisisof chapter. of theircolleague,Jose Augusto Martins,inthepreparationofthis The authorswouldliketoacknowledgetheinvaluablecontribution Acknowledgment payment forms,etc. We currentlyseelawsuitsinvolvingnewproducts,suchas 7.4 etc. suppliers, especiallyregardingdutyofinformation,transparency, Code isveryprotectiveandsetsforthsevereobligationsto consumer relationships. As statedabove,theBrazilianConsumer deals withconsumerdisputesandfeescharged bythebanksin to suchprovisionsshouldnotbeallowed. The decision,however,

drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

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Brazil

33 Brazil 34 Brazil Trench RossiWatanabeAdvogados © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM Dispute Resolutionin2015,2016and2017. and insolvency. Shewasrecognisedby contract lawandseveralarticlesaboutlaw, procedurallaw (including restructuring).Sheistheauthoroftwobooksrelatedto intellectual property, corporatelaw, insolvencyandbankruptcy litigation. Sheregularlyparticipatesincasesinvolvingcontractlaw, Giuliana hasmorethan15years’ experienceincivil andcommercial Alegre, wecansteeryouwithknowledgeandconfidencethroughBrazil’s laws,legalsystemsandpragmaticbusinessvision. them tomanagetheirbusinessinanethicalandefficient way. With400practitionersinthekeycities ofSãoPaulo,Brasília expertise inallareasoflaw. Foundedin1959, the Firmprovideslegalservicestonationalandinternationalclientsacross Considered oneofthelargestlawfirmsinBrazil, Trench RossiWatanabe Advogados hasacomprehensiveandcutting-edgeoperati Brazil 04711-904 SãoPaulo,SP 31º floor–EZ Towers Building– Tower A Arquiteto OlavoRedigdeCamposStreet,105 Trench RossiWatanabe Advogados Giuliana BonannoSchunck URL: Email: Tel:

www.trenchrossi.com [email protected] +55 11 50915831 Chambers andPartners

for

professor ofCivilLawatFMU( books relatedtothenewProceduralCivilCode. Additionally, heisa Gledson hasmorethan20publishedarticlesandistheauthoroftwo litigation, involvingglobalcorporationsandmultiplejurisdictions. debt restructuring.Gledson’s practicefocusesprimarilyoncomplex of internationallitigation,arbitrationandbankruptcy/insolvency Gledson hasmorethan20yearsofexperienceandadeepknowledge ICLG TO: FINANCIAL SERVICESDISPUTES 2019 URL: Email: Tel: Brazil 04711-904 SãoPaulo,SP 31º floor–EZ Towers Building– Tower A Arquiteto OlavoRedigdeCamposStreet,105 Trench RossiWatanabe Advogados Gledson MarquesDeCampos Faculdades MetropolitanasUnidas

www.trenchrossi.com [email protected] +55 11 30486968 , RiodeJaneiroandPorto several markets,helping

Brazil on, with

Chapter 7 Canada

Blake, Cassels & Graydon LLP Alexandra Luchenko

1 Bringing a Claim – Initial Considerations 1.2 What remedies are most likely to be awarded?

1.1 What are the most common causes of actions taken A number of remedies are available in financial services disputes in by or against financial institutions and service Canada. providers in your jurisdiction? In the civil context, financial awards remain the most commonly- awarded remedy in the event liability is established and the plaintiff Canadian financial service providers are governed by a number of can establish damages. Awards vary widely but tend to be relatively federal, provincial and self-regulating bodies (“SROs”). Financial small in comparison to jurisdictions such as the United States. institutions may face: (a) civil claims by individual plaintiffs, For consumer disputes, the OBSI may recommend the financial or consumer protection organisations, or in the context of class actions, investment institution pay damages up to $350,000 or remedy the a number of affected parties; (b) regulatory sanction by SROs; or (c) mistake. other provincial bodies as well as complaints by customers to other The provincial securities commissions, IIROC and the MFDA may bodies as set out below. In some cases, these proceedings will order monetary penalties but may also make orders affecting firms overlap. and individuals operating in the market when they breach securities For consumers not inclined to commence proceedings before the laws. These orders may include, but are not limited to, halting trade, Courts, the Ombudsman for Banking Services and Investments ceasing trade and restitution orders, as well as fines and sanctions. (“OBSI”) offers dispute resolution services. Banks in Canada have Securities commissions may also, amongst other things, place an obligation to advise clients about the OBSI dispute resolution additional restrictions on firms operating in the securities market. process. The most common complaints about financial products Regulatory breaches may also result in a firm or individual being made to the OBSI in 2017 were about credit cards, mortgage loans placed on a list of disciplined registrants. and transaction accounts (Ombudsman for Banking Services and Investments, Year in Review – Annual Report 2017, p. 25 [OBSI, AR 2017]). The most common investment complaints were about 1.3 Who has a right of action in financial services disputes? Does it make a difference if the customer is the suitability of the investment, fee disclosures and the suitability an individual or a commercial entity? of margin or leverage for the investor (OBSI, AR 2017, p. 31). It would be reasonable to assume that claims in the civil context are most commonly seen in similar areas. Legal persons (whether corporations or individuals) may commence civil proceedings in Canada. Whether a proceeding is commenced The Financial Consumer Agency of Canada (“FCAC”) is a federal by a corporation or individual does not have a material impact on body that monitors federally regulated financial institutions to such proceeding. Some provincial-territorial jurisdictions in ensure they comply with the consumer protection measures. The Canada also allow consumer organisations to commence legal FCAC investigates and, where necessary, sanctions financial proceedings on behalf of consumers with their consent. institutions on the basis of complaints received. Additionally, the Bank Act requires domestic and foreign authorised 1.4 Is third-party funding available in financial services banks to have their own internal dispute resolution process as well litigation (crowdfunding, maintenance, champerty, as an external complaints body (“ECB”) that customers can elevate etc.)? Does litigation insurance operate in your their complaint to once they have exhausted the bank’s internal jurisdiction and, if so, what are the implications for dispute resolution process. this? Issues relating to, amongst other things, breaches of disclosure, suitability or fiduciary obligations may also bring regulatory action A wide variety of third-party funding is available in Canada. Available (concurrently or otherwise) by provincial securities commissions sources include crowdfunding, litigation financing agreements, and certain SROs (most notably the Investment Industry Regulatory contingency fees arrangements and litigation insurance. Securities Organization in Canada (“IIROC”) and the Mutual Fund Dealers crowdfunding is governed by each province’s securities commission. Association of Canada (“MFDA”)). Canada also permits companies to offer litigation funding.

ICLG TO: FINANCIAL SERVICES DISPUTES 2019 WWW.ICLG.COM 35 © Published and reproduced with kind permission by Global Legal Group Ltd, London 36 Canada 2.2 OBSI providesanalternativemechanismtoaddresssuchissues. such awardmayapproachorevenoutstriptheoverallaward. The award isworthpursuingincircumstanceswherethelegalcoststowin litigants withstrongcasesmustdecidewhetherthepotentialdamage of thelegalcostsassociatedwithpursuingaclaim. Accordingly, even civil litigation,theamountofsuchawardoftenonlycoversafraction While anawardofcostsisgenerallyavailabletoasuccessfulpartyin litigation forconsumersremainsthecostofcivilinCanada. However, anevenlarger prohibitivebarriertofinancialservice almost allcases. of financialinstitutionsandserviceproviderstotheirconsumersin Account-holder disclosuredocumentationcircumscribestheduties 2.1 financial crisis. of classactionsuitsbeingadjudicatedbytheCourtssince There doesnotappeartohavebeenadrasticincreaseinthenumber multiple Canadianjurisdictions. involving essentiallythesamesubjectmatterbecommencedin possible, andrelativelycommon,thatseparateclassactions Court. Suchprocessisoftentime-consumingandexpensive.It With theexceptionofQuebec,aclassactionmustbecertifiedby such proceedings. Financial institutionsandserviceprovidersarecommontargets of Class actionsarewellestablishedintheCanadianlegallandscape. 1.5 may alsobediscoverableincivillitigation. that theinsuredpartyissuccessful.Litigationinsurancepolicies expenses areproperlyrecoverableasadisbursementintheevent insurance hasproceduralimplicationsincludingwhethersuch litigation isalsoavailableinCanada. The existenceoflitigation Litigation insurancetocoverlegalcostsandexpensesduring fee amountstypicallyrangebetween30to33.33percent. permitted, theyareuncommonincommerciallitigation.Permissible by Canada’s provincesandterritories. While contingencyfeesare Contingency feearrangementsarealsoavailable. They areregulated claim, theCourtsmaymodifyorsetasideagreement. litigant whoisotherwisefinanciallylimitedfrompursuingtheir contracted foreffectively nullifiesanyaccesstoanawardfora interest rateintheagreementisconscionable. Where theinterest Courts mayreviewtheseagreementstodeterminewhetherthe Blake, Cassels&GraydonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM Civil proceedings aresubjecttotherelevantprovince’s legislation 2 clock’? the commencementofaregulatory process‘stopthe before aregulatorybodyor thecourts?Does depending onwhetherproceedings arebrought disputes mustbecommenced? Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary What arethemainbarrierstofinancialservice Before CommencingProceedings class actionsuitspostthefinancialcrisis? services litigation?Hastherebeenanincreasein jurisdiction? Ifso,hasthisimpactedfinancial Are classactionlawsuitsavailableinyour

is met. of successfulclaimslitigationprivilegewherethenecessarytest Investigations conductedbyregulatorybodieshavebeenthesubject purposes oflitigation(whichmayincluderegulatoryproceedings). the dominantpurposeforcreationofdocumentwas litigation privilegedependsonwhetheritispossibletodemonstrate context. Whether documentsareconsideredtobesubject covered bylitigationprivilegeinboththecivilandregulatory Yes. Any documentsmadeinpreparationforlitigationwillbe 2.3 have implicationsforthediscoverabilityofagivenclaim. impact civillimitationsperiods,althoughsuchproceedingsmay The commencementofregulatoryproceedingsdoesnotgenerally the complainttoensurenorelevantlimitationsperiodsaremissed. contact alawyerintheprovinceorterritorywheretheyarebringing periods. These organisations cautionconsumerswith a complaintto commission, theMFDA andIIROCallhavetheirownlimitations limitations periodcanvarygreatly. Eachprovincialsecurities Where proceedingsarebroughtbeforearegulatorybody, the from thetimeclaimwasdiscovered. governing thelimitationsperiod. Typically, thisperiodistwoyears Canada continue to beincreased. to increaseprotectionsfortheconsumers offinancialproductsin may ornotbecontractedoutof. This isespeciallysoas efforts becoming increasinglystrictwith respect tothetypesofdutiesthat fiduciaries tolimittheirliability. However, Canadianlegislationis contracted outof,insomeinstances, CanadianCourtshaveallowed unlikely thattheentiretyofaparty’s fiduciaryobligationscanbe and thenatureofpartiestheirrelationship. While itis reliance, discretion,confidence,complexityofthesubjectmatter, contextual analysisbasedonfactorssuchasvulnerability, trust, Whether theproviderowesacommonlawdutyinvolveshighly interest. registrants, undertheact,afiduciarydutytoactinclient’s best law, professionalorganisations orSROswillalsoimposeupon common lawfiduciarydutiestotheircustomers.Often,securities In Canada,financialserviceprovidersmayowestatutoryor 2.5 94-101 – be exemptfromtheclearancerequirementsinNationalInstrument mandatory clearablederivativebetweenaffiliated counterpartiesto contract, suchasanISDA Master Agreement, iscrucialfora contract. Insomeinstances,thepresenceofastandardform agreements aretreatedlikeanyotherstandardformcommercial schedule ofnegotiatedandmaterialtermsisappendedtoit. These Agreement. Typically, theISDA maintainsastandardformand and Derivatives Association Inc.’s (“ Canadian financialinstitutionsoftenusetheInternationalSwaps 2.4 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howarethey treated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour

Mandatory CentralCounterpartyClearingofDerivatives

ISDA

”) standardformMaster

Canada

No. The methodofserviceforcivillitigationinvolvingthefinancial 3.2 securities commissions,theOBSI,FCAC,IIROC,andMFDA. other regulatoryanddisputeresolutionprocessesoffered bySROs, As mentionedabove,consumersmayalsoavailthemselvestothe civil proceedings). Court (asopposedtoprovincialCourt,whichpresidesovermost federal government,certainlitigationwilltakeplaceinFederal governed bythefederal that hearsspecificbusinessdisputes.Becausefinancialinstitutions services litigation,althoughsomeprovinceshaveacommerciallist There arenospecialistCourtsorjudgesthathandlefinancial 3.1 Blake, Cassels&GraydonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 are oftencost-prohibitive. selling. While claimsforbreachesdooccurinthecivilcontext, they place toprotectconsumersfrom negligentmisstatements/mis- Canada hassignificantregulatory andlegislativeprotectionsin 3.5 processing mechanism,amongstothers. FCAC andtherequirementthatbankshaveaninternalcomplaint through themechanismsnotedaboveincludingOBSI, rare. Instead, ADR isbuiltintothefinancialservicesindustry Arbitration clausesbetweenfinancialprovidersandconsumersare 3.4 more significantthanarelativelysmalladversecostaward. significant powerstorequirecompliancebutrarelyorderanything events varywidelybyjurisdictionandCourtsoftenretain avoided. Consequencesofnotattendingsuchmandatorypre-trial one ofthepartiestolitigation)andparticipationcannotbe are mandatory(andmayariseeitherautomaticallyorbyelectionof conferences) aswellproceduralconferences.Manysuchsteps dispute resolution(“ Canada, manyCanadianCourtshaveintroducedpre-trialalternative While theprocessvariesindifferent provincesandterritoriesin 3.3 regarding service. OBSI, theFCAC,IIROCandMFDA havetheirownprocesses proceeding isfiled.Similarly, SROs,securitiescommissions,the method ofservicewillbedictatedbytheCourtinwhich services industryisthesameasothercivillitigationinCanada. The 3 consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypicallyincluded regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR)

ADR Bank Act

”) (suchasmediationandsettlement inCanadaareregulatedbythe

of interestinthefinancialservicesindustry. Section347(1)of example, contractsthatamounttothedebtorpayingacriminalrate Additionally, contractsforillegalactsmaynotbebinding.For absence ofasufficiently serious breachofthebank’s duties. disputes, Courtshavebeenreluctanttofindunconscionabilityinthe substantially unfairbargain resulted.Inthecontextoffinancial show thattherewasunequalbargaining powerandthata The doctrineofunconscionabilityapplieswhereaconsumercan used byconsumersincontractdisputesrelatingtofinancialservices. Common lawdoctrinesofillegalityandunconscionabilitymaybe 3.6 participating inthesecuritiesmarket. sanctioned, ororderedtotemporarilypermanentlystop or applicableruleseithertheMFDA orIIROCmaybefined, MFDA andIIROC.Individualsorfirmswhobreachsecuritieslaws promotional materials. Additional regulationisalsodonebythe governing falseandmisleadingstatements,advertising province’s orterritory’s securitieslegislationalsohaslaws are notmakingmisstatementsorengaginginmis-selling.Each The FCACensuresfederallyregulatedfinancialservicesproviders information thebank hasaboutthem(oraskthatcertain information (“ Personal InformationandProtection ofElectronic Documents Act requests. Federallyregulatedbanks inCanadaaregovernedbythe Consumers mayalsoavailthemselves tofreedomofinformation reluctant tomakesuchorders. to thepartiesinvolvedinlitigation,althoughmanyCourtsare commercially sensitiveorconfidentialinformationisonlydisclosed sealing order. Sealingordersmaybeavailabletoensure in Courtbyeitherparty, itwillbeavailabletothepublicabsenta confidentiality betweenlitigants,butifsuchdocumentispresented disclosed inlitigationissubjecttoanimpliedundertakingof comprehensive disclosure. At thediscoverystage,information level ofnecessityisdifficult asCanadianCourtstendtofavour confidential informationdoexist,althoughestablishingtherequisite Exceptions preventingthedisclosureofcommerciallysensitiveor disclosure obligations.Financialserviceslitigationisnoexception. Civil litigationinCanadagenerallybringswithitbroaddocument 3.7 framework willbe. As BillC-86isnotyetinforce,itunclearhowexpansivethisnew will extendtoanylegalpersonwhoconsumesafinancialservice. not adefinedterm,thepurposeofBillC-86suggestsdefinition Implementation Act, 2018No. 2 29, 2018,thefederalgovernmentintroducedBillC-86, The definitionofconsumerinCanadaisbroadening.OnOctober private investmentcompanieshavebeenfoundtodoneso. charge acriminallyhigh interest rate.However, somesmaller Federally regulatedfinancialinstitutionsinCanadaareunlikelyto an agreementforortoreceivepaymentofcriminalinterestrates. Canada’s PIPEDA jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt Criminal Code ”). Generallyspeaking,customers canobtainpersonal

makesitanindictableoffence toenterinto

(“ Bill C-86

”). While “consumer”is WWW.ICLG.COM Canada

Budget

37 Canada 38 Canada recognised inagivenCanadianCourt. Court wherebyordersofcertain reciprocatingjurisdictionare provisions existunderthevarious provincial andterritorialrulesof commonly usedinthecontextof gatheringevidence).Finally, Courts cangrantrequestsforassistance fromforeignCourts(most rules ofmanyCanadianCourtsincludeprovisionswherebythose counterparts abroadinthecontextofinvestigations.Further, the Canadian regulatorybodiesgenerallycooperatewiththeir 5.2 integrity ofthesecuritiesmarketanditsinvestors. North America andmanyotherjurisdictionsabroadtoprotectthe In theregulatorycontext,thereisahighlevelofcooperationin 5.1 incurred. accounts fortheamountoflegalcostanypartyhasactually order otherwise. The quantum ofcostsawardsinCanadararely costs. However, inmostprovinces,Courtshavethediscretionto above, thesuccessfulpartyincivillitigationisgenerallyawarded rules willbedeterminativeofhowcostsareallocated. As noted rules governingtheirprovincialandsuperiorlevelCourts. These In thecivilcontext,eachprovinceorterritoryhastheirownsetof 4.2 cases, leavetoappealmustfirstbegranted. applicable provincialCourtof Appeal asaright;however, insome In thecivilcontext,finalordersmaygenerallybeappealedto 4.1 their websites. own individualprivacycodesthatcanbeaccessedbythepublicon In additiontoPIPEDA,mostmajorbanksinCanadaalsohavetheir which theconsumermaythenappealtoPrivacyCommissioner). would revealconfidentialbusinessinformation(anassessment resolution process. A bankmayalsorefuseaccessifdisclosure personal informationgeneratedinthecourseofaformaldispute by solicitor-client privilege,nordoesitrequireabanktodisclose PIPEDA doesnotsanctionthedisclosureofinformationprotected litigation. Information obtainedthroughthismechanismcanbeusedincivil obtain informationabouthowtheirhasbeenused. branch oroffice wheretheydotheirbanking.Customerscanalso be removedfromthebank’s data)bymakingawrittenrequesttothe Blake, Cassels&GraydonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM 5 4 disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues services disputes? How doesthecourtdealwithcostsinfinancial disputes? Is therearightofappealinfinancialservices Post Trial

different jurisdiction. clause andcouldsimplyresultinthechosenlawbeingapplieda that achoiceoflawclausewillnotoperateasunilateraljurisdiction other isalarge financialservices provider. Itisalsoimportanttonote especially sowhereonepartyisanunsophisticatedconsumerandthe convince theCourtitwouldbeunjusttoenforceclause. This is jurisdiction clausewillbeupheld.However, apartytodisputemay Typically, wherethepartiesareequallyassophisticated,achoiceof whether ornotaunilateraljurisdictionclauseisvalidandenforceable. Canadian Courtsengageinacontextualanalysisdetermining 5.4 and enforcementinCanadaofcertainforeignjudgments. international tradeorcommerceandinrespectoftherecognition relating tomeasuresofforeignstatesortribunalsaffecting information forthepurposesofproceedingsinforeigntribunals, orders relatingtotheproductionofrecordsandgiving territorial jurisdictionarehandled.FEMA authorisesthemakingof 1985, c.F-29(“ Canada hasthe 5.3 make decisionsgoverningtheirmembers. Mortgage Brokers,andtheSuperintendent ofFinancialInstitutions Columbia, RealEstateCouncilof BritishColumbia,Registrarof in BritishColumbia,SROssuchas theInsuranceCouncilofBritish financial servicesunrelatedtothe securitiesmarket.Forexample, At aprovinciallevel,SROsgovernprofessionalswhoprovide income products. oversees dealersthatdistributemutualfundsandexemptfixed IIROC regulatesindividualdealersinCanadawhiletheMFDA provide oversightandoperationalreviewstoIIROCtheMFDA. legislation. The CSA andindividual securitiescommissionsalso in eachprovinceorterritoryadheretothatjurisdiction’s securities securities commissionsareresponsibleforensuringdealers the CSA investigateorregulatesecuritiesdealers. The individual coordinating thesecuritiesregulationsacrossCanada.Membersof The CanadianSecurities Administrators (“ get involvedwithindividualdisputes. FCAC doesnotprovideredressorcompensationtoconsumers to federalregulationswhenreviewingcustomerdisputes. The institutions. ItalsomonitorsECBstoensuretheyareadhering As notedabove,theFCACmonitorsfederallyregulatedfinancial quality ofitsriskmanagementpractices. oversight. Italsoassessesaninstitution’s materialrisksandthe and loancompanies,privatepensionplanssubjecttofederal supervises andregulatesfederallyregisteredbanks,insurers,trust The Office oftheSuperintendent ofFinancialInstitutions services. There areseveraldifferent bodies inCanadathatregulatefinancial 6.1 6 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies

FEMA

Foreign ExtraterritorialMeasures Act

”), whichgovernshowassertionsofextra-

CSA

”) areresponsiblefor

Canada

, R.S.C.,

voluntarily subscribetotheirpowers. bodies differ somewhatinthatfinancialserviceproviders The OBSIandECBsalsohaveinvestigativepowers,althoughthese or restitutionbutcanlevyfinesandsanctionsonitsmembers. investor’s loss. The MFDA doesnotmakeordersforcompensation orders requiringthefinancialservicesprovidertorepay market. The commissionsandIIROCcanalsomakerestitution fines andpenalties,restricttheparty’s abilitytooperateinthe investigation andhearing,thesebodiescanissuesanctions,impose document disclosureandinterviews. At theconclusionofan commissions, IIROCandtheMFDA havethepowertocompel MFDA andtheFCAChavebroadinvestigativepowers. The Each province’s securitiescommission,aswellIIROC,the 6.2 complaint-handling procedures. Finally, inmanycases,financialinstitutionsmusthavetheirown Blake, Cassels&GraydonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 weathered the2007/08 financialcrisiswell.Since thecrisis,there Broadly speaking,theCanadian financialservicesindustry 7.1 to complywitharecommendation. decisions andrecommendations,itdoespublishwhenafirmrefuses FCAC; andtheMFDA. While theOBSIdoesnotpublishits available: eachprovincialsecuritiescommission;IIROC;the The decisionsofthefollowingregulatorybodiesarepublicly 6.5 question andmayalsovarybyjurisdiction. body toappealalsodependsonthespecificregulatoryin appeal) dependsontheregulatorybodyengagedbydispute. The Whether anappealexistsasaright(ratherthanrequiringleaveto Appeals maygenerallybetakenfromregulatorydecisions. 6.4 recommended remediation. instances inwhichasubscribertotheOBSIfailedmake binding ontheparties,in2017,OBSIreportedthattherewereno dispute, thoughtheymaybeappealed. While OBSIordersarenot the MFDA andtheFST are binding onthepartiestoafinancial The decisionsofSROs,securitiescommissions,theFCAC,IIROC, 6.3 7 exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ against financialserviceproviders?). amount andtypeofcasesbeing broughtbyand reaction tothecrisis?Hasthere beenachangeinthe increase inthepowersofregulatory bodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describe anypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly

requirements forregulatingthedisclosureofinformationtobank “consumers”, suchascommercialentitiesandmoreprescriptive protections forcustomersthatarenottypicallyconsideredtobe protection frameworkforbanks. This frameworkwillprovide New legislationhasalsoproposedanexpandedfinancialconsumer have startedoffering financialincentivestowhistleblowers. in thesecuritiesorbankingindustry. SomejurisdictionsinCanada Canada isalsomakingchangestoitslawsrelatingwhistleblowers investors. promotional practicesthataremanipulativeormaymislead The CSA alsorecentlycautionedcompaniestoavoiddisclosureand Exchange Commission’s Proposed Transaction FeePilot. would runconcurrentlywiththeUnitedStatesSecuritiesand trading feerebatestodealersforasamplesetofequitysecurities.It including exchangesandalternativetradingsystems,frompaying implemented, itwouldtemporarilyprohibitCanadianmarketplaces, trading feesandrebatesonthebehaviourofmarketparticipants.If proposed Trading FeeRebate PilotStudytoevaluatetheimpactof Recently, theCSA publishedforcommentastaff noticeoutlininga potential regulatorychangesthatmightresultfromthem. about newproblemsthathavecometotheCSA’s attentionand informing theCanadianpublicandsecuritiesdealersgenerally In thesecuritiesmarket,CSA regularlyreleasesstaff notices well regulatedgoingintothefinancialcrisis. Canadian banks;however, theywerealreadywellcapitalisedand have beenminorincreasesincapitalandliquidityrequirementsfor literacy ofseniors. the FCAChasdevelopedanational strategytoenhancethefinancial relating toagingandtheprevention offinancialexploitationwhile IIROC andtheMFDA havealsopublished guidelinesonmatters Strategy Securities CommissionpublishedStaff Notice11-779 – the financialservicesindustry. Forexample,in2018,theOntario working togethertodevelopbestpracticesreduceelderabusein Several CanadianSROsandfederalgoverningbodiesarealso on potentialregulatoryresponses. digital assetsthroughthecreationofaworkinggrouptocomment taking stepstoincreaseregulationofblockchainapplicationsand has indicateditwillconsidersubstanceoverform.IIROCisalso captured bysecuritieslawsisacontextualanalysiswheretheCSA cryptocurrency offerings. Whether ornottheoffering willbe registration and/ormarketplacerequirementsmayapplyto initial tokenandcoinofferings. The noticenotesthatprospectus, Offerings The CSA publishedStaff Notice 46-307– Canada isalsoslowlyincreasingitsregulationofcryptocurrencies. securities regulationsinitsjurisdiction. due diligencetoensurethetarget companyfollowsthecannabisand company inthecannabisindustryneedtocarefullyconducttheir those companiesseekingtolendto,amalgamatewith,ortakeovera province, andthenotablelackofcomplianceinindustrythusfar, in thecannabisindustry. Giventhevariedregulationsineach effectively conductduediligence ontheconsumersoftheirproducts are beingdevelopedtohelpestablishedfinancialservicesproviders varied regulationsineachprovinceandterritory. Newbestpractices services markethasbeenevolvingtoadaptthenewandwidely for regulatingthedistributionofcannabis. As such,thefinancial as Canadalegalisedcannabisin2018.Eachprovinceisresponsible Additional changestothefinancialservicesindustryareanticipated contemplated. customers. An enhancedcomplaint-handlingregimeisalsobeing toincreaseprotectionforelders using financialservices. , whichoutlineshowsecuritieslawrequirementsapplyto

WWW.ICLG.COM

Cryptocurrency Canada

Seniors

39 Canada 40 Canada individuals severalpartiesremovedfromthetipping“chain”. The appropriate testfordetermininginsidertrading/tippingliability Ontario SecuritiesCommission In early2018,theOntarioCourtof Appeal published regulation wouldtakeeffect. implemented, significantchangestoCanadiansecuritieslawand would beadoptedbyallparticipatingprovinces.Ifthe Authority is Markets Stability Act The Authority wouldadministertheproposedfederal Yukon). OtherCanadianjurisdictionsopposeanationalregulator. Saskatchewan, NewBrunswick,PrinceEdwardIslandandthe (currently thegovernmentsofOntario,BritishColumbia, provincial andterritorialgovernmentsthatagreetoparticipate receive delegatedpowersfromthefederalgovernmentand regulator –theCapitalMarkets Authority (“ of acentralisedsecuritiesregulator. Underthissystemasingle securities regulator. Canadaisalsoconsideringtheimplementation This openedthedoorfordevelopmentofapan-Canadian cooperative capitalmarketsregulatorysystemwasunconstitutional. reversing theQuebecCourtof Appeal’s decisionthatthe Reference re Pan-CanadianSecuritiesRegulation In November2018,theSupremeCourtofCanadareleased 7.3 integrity ofthefinancialservicesmarketinCanadagenerally. ECBs, seekingtoprotectnotonlyindividualconsumers,butthe are anumberofnewlawsandinitiatives,aswellSROs framework inthefinancialservicesindustry. As notedabove,there Canada isincreasinglyexpandingitsconsumerprotection 7.2 Blake, Cassels&GraydonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe andauniform

, 2018ONCA 61,whichclarifiedthe Capital Markets Act Authority , 2018SCC48, Finkelstein v. ”) –would

Capital which

Canadian regulators.Increasingphishingandcyber-attacks on Additionally, changesinfinancialtechnologycreatechallengesfor participants toincreasepost-tradetransparency. of over-the-counter derivativetransactiondatabymarket the CanadianReportingRequirementswhichrequirereporting counter derivativesmarket.In2014,Canadianprovincesadopted beginning in2014,Canadaincreaseditsregulationofover-the- implemented. Forexample,inresponsetothefinancialcrisis, well regulated.However, somechangescontinuetobe As notedabove,theCanadianfinancialservicesmarketisstableand 7.4 was deniedinlate2018,bringingthiscasetoanend. securities market.LeavetoappealtheSupremeCourtofCanada commissions byappellatecourtsduetotheirspecialisationinthe reiterated thesignificantdeferenceaccordedtosecurities to haveknown”.Inengaginginthisanalysis,theCourtof Appeal information wasa“specialperson”.Itissufficient thatthey“ought knowledge thatthepersonwhosharedmaterial,non-public for insidertrading/tippingevenwheretheyhavenosubjective legislation. The Courtconcludedthatapersonmaybefoundliable relationship withanissuer”asprovidedforbyOntario’s securities Court of Appeal reviewedthedefinitionofa“personinspecial her assistancewiththepreparationofthischapter. The authorwouldliketothankDevonLuca(anarticledstudent)for Acknowledgment and securitiesindustry. increased regulationinthisareawillhaveontheCanadianbanking respond toagrowingcryptocurrencymarketandtheeffect Additionally, itremainstobeseenhowCanadianmarketswill hygiene” sothatconsumers’ privateinformationarekeptsafe. financial providersareleadingtoanincreasedfocuson“tech ICLG TO: FINANCIAL SERVICESDISPUTES 2019 jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

Canada

Blake, Cassels&GraydonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 interdisciplinary, Blakeshandlestransactionsofallsizesandlevelscomplexity. spectrum ofcapabilitiesinvirtuallyeveryareabusinesslaw. Whetheranissueislocalormulti-jurisdictional,practice- Serving adiversenationalandinternationalclientbase,ourintegratednetworkofoffices worldwideprovidesclientswithacc since 2008. Blakes wasalsonamedasoneofCanada’s BestDiversityEmployersfor2018byMediacorpCanadaInc.,anhonourwehavereceived leading guidetolawyers. In addition,manyofourlawyersarecontinuouslyrecognisedasleadersintheirrespectivefields number ofrankedlawyersanyCanadianlawfirmforthesecondyearinarow Brand Index.We werealsoawardedCanadaLawFirmofthe Year by Thanks toourclients,in2018,Blakeswasnamedtheleadinglawfirmbrandforfourthtimeandthirdyearrunning Acrit Canada andaroundtheworld. As oneofCanada’s topbusinesslawfirms,Blake,Cassels&GraydonLLP (Blakes)providesexceptionallegalservicestoleading Kong. matters includingintheUnitedStates,KingdomandHong addition todomesticproceedings,sheregularlyassistsincross-border to allegationsofdisclosureviolationsaswellinsidertrading.In Alexandra’s experienceinregulatorycomplianceincludesresponding Dealers Association ofCanada. Industry RegulatoryOrganizationofCanadaandtheMutualFund including theBritishColumbiaSecuritiesCommission,Investment Canada, aswellbeforeanumberofadministrativetribunals, the BritishColumbiaCourtof Appeal andtheSupremeCourtof Alexandra hasappearedbeforetheBritishColumbiaSupremeCourt, health sciencesandtechnologycompanies. working onbehalfoffinancialinstitutionsaswellmining,resource, investigations andcrisismanagement.Shehassignificantexperience matters focusingonregulatorycompliance,transactionallitigationand Alexandra focusesoncomplexcommercialandsecurities-related

URL: Email: Tel: Canada Vancouver, BC,V7X1L3 P.O. Box49314 595 BurrardStreet Blake, Cassels&GraydonLLP Alexandra Luchenko

www.blakes.com [email protected] +1 6046314166

Who’s WhoLegal

Chambers Global:TheWorld’s LeadingLawyersforBusiness forthe10 The CanadianLegalLexpertDirectory th consecutiveyearandreceivedthehighest WWW.ICLG.COM as’ CanadianLawFirm ess totheFirm’s full area specificor businessesin eighttimes Canada , Canada’s .

41 Canada Chapter 8 China Wen Qin

Rui Bai Law Firm Juliette Ya’nan Zhu

1 Bringing a Claim – Initial Considerations the litigants may elect representatives to participate in the proceeding. If the number of individuals cannot be ascertained at the time of filing of a lawsuit, the court may issue a public 1.1 What are the most common causes of actions taken announcement, stating the facts and claims, and notify the potential by or against financial institutions and service plaintiffs to register with the court within a stipulated period. The providers in your jurisdiction? judgment or ruling is binding on all the parties which participated in the proceedings. For those who do not register with the court, the The most common causes of actions are financial contracts disputes, judgment or ruling will also apply if they bring claims before the securities disputes, trust disputes, insurance disputes, disputes in court within the statute of limitations. relation to futures trading, disputes in relation to instruments, and disputes in relation to letters of credit. 2 Before Commencing Proceedings

1.2 What remedies are most likely to be awarded? 2.1 What are the main barriers to financial service litigation for customers? Are there exclusionary Damages and specific performance are the most likely remedies to clauses or duty defining clauses in customer be awarded. contracts which prevent customers from bringing a case? 1.3 Who has a right of action in financial services disputes? Does it make a difference if the customer is There are no significant barriers for customers. However, as the an individual or a commercial entity? standard contracts of the financial institutions are used and the jurisdiction clauses often favour the financial institutions, it tends to Any party to the financial services contract has a right of action. It cause inconvenience to some of the customers to bring up litigations does not make a difference if the customer is an individual or a in a court far from their own domiciles. commercial entity. 2.2 Is there a time limit within which financial services 1.4 Is third-party funding available in financial services disputes must be commenced? If so, is it different litigation (crowdfunding, maintenance, champerty, depending on whether proceedings are brought etc.)? Does litigation insurance operate in your before a regulatory body or before the courts? Does jurisdiction and, if so, what are the implications for the commencement of a regulatory process ‘stop the this? clock’?

There is no specific restriction on third-party funding; in fact, there The general time limit (three years) applies to financial services are no such rules on third-party funding. Litigation insurance does not dispute resolutions. Regulatory bodies only have the power to deal exist in China. However, when applying for property preservation, an with financial services disputes by means of alternative dispute insurance policy is acceptable as a security deposit according to the resolution (“ADR”), such as mediation, which is not enforceable. latest court rules. The clock will stop when one party brings up litigation or arbitration, requests the other party to perform its obligation, or the other party agrees to fulfil its obligation. 1.5 Are class action law suits available in your jurisdiction? If so, has this impacted financial services litigation? Has there been an increase in 2.3 Can parties in financial services litigation avail of class action suits post the financial crisis? litigation and/or legal advice privilege? Are investigations conducted by regulated bodies considered ‘litigation’ in the context of privilege? There is no specific rule on class actions under Chinese law. According to Civil Procedure Law, where the subject matter of litigation is common, and there are multiple persons (including The concept of privilege does not exist under Chinese law and there individuals and organisations) comprising one party to the lawsuit, is no specific rule on litigation and/or legal advice privilege.

42 WWW.ICLG.COM ICLG TO: FINANCIAL SERVICES DISPUTES 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London unless itisotherwiseprescribedbylaw. to inquireabout,freezeordeductindividualsavingsaccounts, Commercial bankshavetherighttorefuseanyentityorindividual handling individualsavingsdepositsinsecretfordepositors. deposit andfreewithdrawal,payinginteresttodepositors China. Commercialbanksshallfollowtheprinciplesofvoluntary and lowerlimitsfordepositinterestssetbythePeople’s Bankof shall determineitsowninterestratesinaccordancewiththeupper According totheLawonCommercialBanks,commercialbanks 2.5 international masteragreementsarenotwidelyused. Financial institutionstendtousetheirownstandardformcontracts; 2.4 Rui BaiLawFirm © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 There isnospecific ruleonnegligentmisstatement/mis-selling. 3.5 arbitration issubjecttotheautonomy ofthecontractingparties. rules forfinancialdisputesin2015,butwhethertochoose Arbitration Commissionformulatedandadoptedspecificarbitration services disputes. The ChinaInternationalEconomicand Trade There arenouniformed ADR regulationsthatapplytofinancial 3.4 There isnospecificprocedureruleforfinancialservicelitigation. 3.3 There isnospecificprocedureruleforfinancialservicelitigation. 3.2 Congress on27 April 2018. decree oftheStandingCommitteeNationalPeople’s Court, whichisanintermediatelevelcourt,wasestablishedbythe The firstspecialisedfinancialcourtinChina,theShanghaiFinancial 3.1 3 financial servicelitigation? Does themethodofserviceproceedingsdifferfor financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howaretheytreated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypicallyincluded regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust

entitled toincreasecompensationifbusinessoperatorsproviding According totheLawonProtectionofConsumers,aconsumeris transactions byvirtueoftechnicalmeans. financial consumers,oranyunreasonabletermssuchascompulsory consumers, restrictorexcludethelegitimaterightsandinterestsof of thefinancialinstitution,aggravateliability not containanystandardclausesthatmitigateorexempttheliability the legitimaterightsorinterestsoffinancialconsumers,andshall contain anymisleadingorfraudulentinformationthatinfringeson standard contractprovidedbyafinancialinstitutionshallnot Interests (“MeasuresofProtectionFinancialConsumers”),a China fortheProtectionofFinancialConsumers’ Rightsand According totheImplementingMeasuresofPeople’s Bankof be invalid. standard contractcontainstermsmentionedabove,suchshall business operators’ liability, etc.bywayofstandardclauses.Ifa aggravation ofconsumerliability, mitigationorexemptionof consumers suchaseliminationorrestrictionofconsumerrights, operators shallnotimposeunfairandunreasonabletermson According totheLawonProtectionofConsumers,business 3.6 An appealtoafirst instancejudgmentisasofright andcanbe 4.1 law andthereisnospecificruleaboutdiscoveryordisclosure. The conceptofdiscoveryordisclosuredoesnotexistunderChinese illegal meanssuchpersonalfinancialinformation. illegally copy, store,use,selltoothersordisclosebyanyother information theyaccessintheirbusinessoperation,andshallnot relevant employeesshallkeepconfidentialthepersonalfinancial conditions ofaparticularindividual.Financialinstitutionsandtheir financial transactionsandotherinformationthatcanreflectcertain information onpersonalidentity, property, accounts,creditand carrying outbusinessorthroughotherchannels,includingthe processed andpreservedbyfinancialinstitutionsintheprocessof financial information”referstothepersonalinformationacquired, of legitimacy, reasonablenessandnecessity. The term“personal personal financialinformationshallbecollectedundertheprinciple According totheMeasuresofProtectionFinancialConsumers, 3.7 the financialproductsandservicesprovidedbyinstitutions. financial consumersrefertothenaturalpersonswhopurchaseanduse According totheMeasuresofProtectionFinancialConsumers, by theconsumerorfeeofservicereceivedconsumer. shall bethreetimestheamountofpricegoodspurchased goods orservicescommitfraud;theincreasedcompensationamount 4 jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted disputes? Is therearightofappealinfinancial services Post Trial dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt

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China

43 China 44 China to investigateandcollectevidence, questiontheconcernedparties, In mediationproceedings,theregulatory bodiesshallhavetheright 6.2 services disputesbymediation,whichisnotenforceable. regulatory bodiesonlyhavethepowertodealwithfinancial Commission arethemainregulatorybodiesinChina.However, the China andtheBankingInsuranceRegulatory The FinancialConsumerProtectionBureauofthePeople’s Bankof 6.1 Unilateral jurisdictionclausesaregenerallyvalidandenforceable. 5.4 Extra-territorial jurisdictionisnottypicallyassertedinChina. 5.3 treaties exist. international treatiesorthroughdiplomaticchannelswherenosuch courts indisputesresolutionisthroughthechannelsstipulated The generalapproachofthecourtstoco-operatingwithforeign 5.2 and legalised. evidence formedoutsidetheterritoryofChinaneedstobenotarised typical issuewhicharisesincross-borderdisputesisthatany In additiontojurisdiction,serviceandchoiceoflaw, themost 5.1 outcome ofthejudgment. will bebornebythelosingpartyorproratedcourtper Litigation feespayabletothecourtareadvancedbyplaintiff and 4.2 be appealed. judgment isserved. A secondinstancejudgmentisfinalandcannot initiated byfilinganoticeofappealwithin15daysaftersuch Rui BaiLawFirm © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM and consultcopy theinformationrelatingto disputes. 6 5 or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues services disputes? How doesthecourtdealwithcostsinfinancial have? enforcement/sanctions) dothese regulatorybodies What powers(investigative/inquisitorial/ services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour how aretheycateredforinyourjurisdiction?

7.1 Such decisionsarenotpubliclyaccessible. 6.5 within thestatuteoflimitations. proceedings whenthereisavalidarbitrationclauseatanytime either partymaycommencelitigationproceedingsorarbitration Since thedecisionsmadebyregulatorybodiesarenotbinding, 6.4 The decisionsarenotbindingontheparties. 6.3 Company Ccommenced alitigationagainstInsurance Company A Company B Company Cvs.Insurance A & Policyholder DuetotheFailure toFulfiltheDutyofDiligence– Case 1: The InsuranceBrokerage isLiabletoIndemnifythe 7.3 jurisdiction ismorefinancialinstitution-friendly. no specialprotectiontofinancialconsumers,onecansaythatour impose anyspecialburdenonparties,inanotherwords,thereis Since thereisnospecificruleonfinancialservicesdisputesthat 7.2 disputes involvingalarge group ofinvestorsemerge frequently. disputes, especiallyinthefieldofP2P networkloancases,and problems frequentlyoccurred,resultinginarapidincrease system, marketaccess,industryself-discipline,remediesandsoon, internet financialindustryinChina,duetothelackofsupervision trend. Inthepastthreeyears,afterrapiddevelopmentof influence oftheeconomy, financialcasesshowarapidupward over financialconsumptionwithconsumers.Underthe arbitration andothernon-litigationmethodstoresolvethedisputes research. Financialinstitutionsareencouragedtousemediation, Financial supervisionhasalwaysbeenthefocusoffinanciallaw 7 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa Over theProperty InsuranceContract

Insurance Brokerage

China

which playsanactiveroleinregulatingthedevelopmentof for thelosscausedbyfailuretofulfildutyofdiligence, insurer. Itisclearthattheinsurancebrokershallbearliability legal relationshipamongthepolicyholder, insurancebrokerand Law ontheinsurancebroker’s dutyofdiligence,andclarifiesthe judgment ofthiscaseconformstotheprovisionsInsurance information imbalancebetweentheinsuredandinsurer. The terms tothepolicyholderinatimelymannereliminate duty ofdiligence.Inaddition,theagentshallexplaininsurance of thepolicyholder, isnotconfinedtodeal-making,butfulfilthe industry. The dutyoftheinsurancebrokeragecompany, astheagent part inthefreightinsurancebusinessduetotraitsofshipping Keynote: Insurancebrokeragecompaniesalwaysplayanimportant be relievedfromtheliability. Company C(thepolicyholder),andthusInsurance A can to InsuranceBrokerageCompanyB,whichistheagentfor Company A hasmadeaclearstatementabouttheexemptionclause to informCompanyCoftheexemptionclauses.Insurance Company Cforitslossesasithadfailedtofulfildutyofdiligence ruled thatInsuranceBrokerageCompanyBshouldcompensate of cargo transportationinsurancejointlyandseverally. The court and InsuranceBrokerageCompanyBfortheindemnityobligations Rui BaiLawFirm © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 financial markethascontributedtotheirrationalbehavioursofsome principal andintereststotheinvestorunconditionally)in (refers totrustproductsthatrequirethecompanydistribute Keynote: Overthepastfewyears,so-called“rigidredemption” 100,000 fordamagesandoverruledotherrequestsmadebyShen. “Radical”. The courtruled thatBank A shallpayShenRMB test forShenandtheCustomer’s RiskLevelforShenwas Before theinvestment,Bank A conductedarisk-takingassessment RMB 226,000)intheinvestmentofonehigh-riskfundproduct. Shen commencedalitigationagainstBank A forhisloss(around Bank A Assessment Test ShallBear the Assumption ofRisk– Case 2:FinancialConsumersMisrepresented inRisk-taking insurance brokerindustry. over FinancialServiceContract

Shen vs.

of theShanghaiFinancialCourt. improvement ofthefinancialtrialsystem,suchasestablishment Global economicchangeshavepromotedtheformationand 7.4 return tohealthydevelopment. financial transactions,whichisconducivetoinstitutions’ the principleofgoodfaithandspiritcontractsinmodern should beresponsibleforfinanciallosses. This judgmentreveals purchase productsprudentlyfortheirownreasons,consumers have fulfilledtheirobligations,iffinancialconsumersdonot manage financialconsumers’ eligibility. When financialinstitutions periodically discloseproductsperformanceduringtheirterm,andto beforehand, toassessfinancialconsumers’ risktolerance,to and thusfinancialinstitutionsareobligatedtodiscloseproductrisks order tocompensatefortheasymmetries,“thesellerisresponsible”, “ institutions, thejudgmentofthiscaseemphasisesprinciple of acomprehensivereviewtheresponsibilitiesfinancial return fromfinancialinstitutionshasbeenbroken.Onthepremise coming intoeffect, thepracticeof“rigidredemption”withexpected financial consumers. With newregulations oncapitalmanagement circumstances fromyourusualcontactorotheradvisers. action, pleaseensurethatyouobtainadvicespecifictoyour vary widelybasedonthespecificfactsinvolved.Beforetakingany law andpracticeschange. The applicationandimpactoflawscan partners andlawyershavenoobligationtoupdatetheinformationas Bai LawFirmoritspartnersandlawyers.Rui rendering oflegal,taxorotherprofessionaladviceservicebyRui It isnotmeanttobecomprehensiveanddoesconstitutethe The informationcontainedinthischapterisofageneralnatureonly. Note caveat emptor

jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany ” offinancialconsumers.Generallyspeaking,in

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45 China 46 China Rui BaiLawFirm © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM speaker andisfluentinEnglish. University ofPoliticalScienceandLaw. Wen isanativeChinese corporate law. ofLawdegreefromChina Wen obtainedaMaster’s specialises inemploymentlaw, taxlaw, disputeresolutionandgeneral Bai LawFirm,Wen wasapartneroflocallawfirminBeijing.He and amemberofthePwCglobalnetworkfirms.PriortojoiningRui Wen isaPartnerofRuiBaiLawFirm,whichanindependentlawfirm common languagewiththeclient. practice lawfirmexperiencewithin-depthunderstandingandknowledgeworkingin-house.We putourselvesinourclients’ shoe Our lawyerscombinelocalmarketknowledgeandinternationalexperienceintoauniqueskillset.alsoexten solutions tothemostchallengingbusinessendeavour. and equipmentleasing,litigation,arbitrationdisputeresolution,labouremployment,taxresolution.We a We candeliverintegratedsolutionsincludingspecialistsinbankingandfinance,corporate,M&A,regulatorycompliance,intell corporate finance,forensicaccounting,valuationandotherserviceteamswithinthePwCglobalnetwork. and territoriesin Asia-Pacific. Uniquelyamong law firms,weprovideclientswithintegratedlegalservices,workingclosely extensive PwCgloballegalservicesnetworkofover3,500lawyersin90countriesandterritories,including20offic Rui BaiLawFirmisanindependentChinalawfirmandamemberofthePwCglobalnetworkfirms.We haveaccesstothemo global aspectsofacase”. his clientssayingthat“hehasasoundunderstandingoftheCHINA and Chambers andPartners In 2015,hewasrankedasoneofthe“EminentPractitioners”by Chambers andPartners and recognitionorganisationsinthelegalprofession,suchas recommended asoneoftheleadinglawyersbywell-knownranking have beenpraisedbyclients. As aresult,hehasbeencontinuously As alegalcounseltoforeigninvestmententerprises,Wen’s services , . The Legal500 China Chaoyang District,Beijing100020 5 DongsanhuanZhongRoad Unit 01,6/FFortuneFinancialCenter Rui BaiLawFirm Wen Qin URL: Email: Tel: Chambers andPartners

www.ruibailaw.com [email protected] +86 1085404653

and

Asialaw LeadingLawyers alsoquotesoneof

etc. SheisfluentinbothChineseandEnglish. foreign jointventures,directinvestment,internationalsaleofgoods, arbitration andlitigation,coveringvarioussubjectssuchasChinese- dispute resolution,includinginternationalanddomesticcommercial (LL.M.) fromtheUniversityofHamburg.Herpracticeareafocuseson degreeinEuropeanandInternationalLaw Law degreeandaMaster’s of from ChinaUniversityofPoliticalScienceandLawwithaMaster’s firm andamemberofthePwCglobalnetworkfirms.Shegraduated Juliette isan Attorney ofRuiBaiLawfirm,whichisanindependentlaw ICLG TO: FINANCIAL SERVICESDISPUTES 2019 URL: Email: Tel: China Chaoyang District,Beijing100020 5 DongsanhuanZhongRoad Unit 01,6/FFortuneFinancialCenter Rui BaiLawFirm Juliette Ya’nanZhu

www.ruibailaw.com [email protected] +86 1085404659 with tax,humanresources,

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China

Chapter 9 England & Wales Simon Hart

RPC Daniel Hemming

1 Bringing a Claim – Initial Considerations 1.4 Is third-party funding available in financial services litigation (crowdfunding, maintenance, champerty, etc.)? Does litigation insurance operate in your 1.1 What are the most common causes of actions taken jurisdiction and, if so, what are the implications for by or against financial institutions and service this? providers in your jurisdiction? Third-party litigation funding has become increasingly common over A non-exhaustive selection of the more common causes of action the last 10 years. This allows a claim to be progressed without any taken by or against financial institutions and service providers are: financial expenditure by the claimant receiving the funding. The 1. Breach of contract for express or implied contractual terms. funding arrangements can also incorporate protection against 2. Negligent misrepresentation under s. 2(1) of the adverse costs orders in the event a claim is unsuccessful. The Misrepresentation Act 1967 (and/or negligent misstatement funding is usually provided on a non-recourse basis, meaning that the in tort). funder will recoup its funding and receive any return only out of the 3. Other claims in the tort of negligence, for example relating damages recovered on the conclusion of a successful claim; where to the provision of advice. there is no recovery there is no repayment to the litigation funder. 4. Claims under s. 138D of the Financial Services and The conduct of the litigation must remain with the claimant, being Markets Act 2000 (FSMA) which creates a right of action the party who has received the funding. In accordance with the rules for ‘private persons’ who have suffered loss as a result of of champerty and maintenance, if a professional funder attempts to breaches of specified rules made by the Financial Conduct exercise control over the litigation or is in a position to recover Authority (FCA) / Prudential Regulation Authority (PRA). disproportionate sums, a court can hold the funding agreement to be unenforceable. 1.2 What remedies are most likely to be awarded? There are various forms of litigation insurance. After the event (ATE) insurance is an indemnity for future adverse costs awards in There are a range of remedies available to the English courts. The a civil dispute that has already arisen. Before the event (BTE) main ones likely to be awarded in financial services disputes are: insurance is taken out in order to cover the legal costs of various 1. Damages – compensatory in nature. legal scenarios before they arise. An insurer may agree to a deferred 2. Injunctions – require a party to do or refrain from doing a premium arrangement, where it is only paid a premium if the funded specified action. case is successful. 3. Restitution – reverses an unjust enrichment by returning any Litigants can also manage the costs and risk of litigation using: benefit or enrichment to the claimant. ■ conditional fee agreements (CFAs) under which the lawyers 4. Rescission – restores the parties to the position they were in make some or all of their fees conditional upon success, in before the contract was entered into. return for an additional uplift payable upon success (calculated as a percentage of the fees incurred); and ■ damages-based agreements (DBAs) under which the lawyers’ 1.3 Who has a right of action in financial services fees are limited to a share of the proceeds of successful disputes? Does it make a difference if the customer is an individual or a commercial entity? litigation.

An individual and a commercial entity have the same rights of 1.5 Are class action law suits available in your action in financial services disputes although the claims available jurisdiction? If so, has this impacted financial may be different (e.g. the right of action under s. 138D of FSMA is services litigation? Has there been an increase in class action suits post the financial crisis? only available to ‘private persons’, which means individuals (with limited exceptions)). Broadly speaking, class actions (or collective actions as they are more commonly known) in the UK are opt-in regimes which mean that a claimant has to take active steps in order to join any collective action.

ICLG TO: FINANCIAL SERVICES DISPUTES 2019 WWW.ICLG.COM 47 © Published and reproduced with kind permission by Global Legal Group Ltd, London 48 England & Wales terms ofwhichsuspendtherunning ofthelimitationperiodforan Parties indisputeareabletoenter intoastandstillagreementthe relevant period. which determineswhetheraclaim hasbeenbroughtwithinthe suffered. The issuing ofaclaimformatcourtistheproceduralstep years fromthedatedamagecausedbytortiousactwas a claim,andfortortiousclaims,theclaimmustbebroughtwithinsix contract aclaimanthassixyearsfromthedateofbreachtobring Subject tocertainexceptionsineachcase,forclaimsrespectofa prescribed bytheLimitation Act 1980. as thoseforanyothertypeofcivildispute. These timelimitsare The timelimitsforbringingfinancialservicesclaimsarethesame 2.2 there wasadviceanditnegligentlygiven. different. This wouldoperateasabartosuccessfulclaimevenif to beestopped(i.e.prevented)fromassertingthatthetruefactswere provider asinvestmentadvice.Suchclausesmaycauseacustomer relied onanyinformationgiventothembythefinancialservices representing thattheyareasophisticatedinvestorandhavenot contracting. Forexample,thismayinvolvethecustomer liability orsetoutanagreedbasisuponwhichthepartiesare providers andcustomerswhichpurporttoexcludeorrestrict There arefrequentlyclausesincontractsbetweenfinancialservices previous agreement/actions. customer fromassertinganythingthatisinconsistentwithits financial servicesproviders.Estoppelcanoperatetopreventa (particularly mis-selling-typeclaims)broughtbycustomersagainst Contractual estoppelisoneofthemaindefencestoclaims 2.1 actions arebecomingmorecommoninfinancialservicesdisputes. As aresultoftheincreasinguselitigationfunding,collective on anopt-inoropt-outbasis. for infringementsofcompetitionlaw. CPOscanbeorderedeither Competition Appeal Tribunal. A CPOisaformofcollectiveaction Collective ProceedingsOrders( claimants andconsolidationofmultipleindividualclaims. informal proceduressuchastestcases,theabilitytonamemultiple the claimwiththosetheyrepresent,onanopt-outbasis)andmore by representativeswhoareconsideredtohaveasharedinterestin CPR Part19suchasrepresentativeactions(claimsbegunorpursued be case-managedtogether. There areotheroptionsavailableunder claims whichgiverisetocommonorrelatedissuesoffactlaw ( the primaryproceduralmechanismisGroupLitigationOrder Procedure Rules( Various typesofcollectiveactionsareavailableundertheCivil RPC © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM GLO 2 ). A GLOisanorderunderCPRPart19whichprovidesfor clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary What arethemainbarrierstofinancialservice Before CommencingProceedings

CPR ) whichgoverncourtproceedingsalthough

CPOs

) areavailableinthe

2.4 the expectedlitigation). documents createdinthecourseofinvestigationwastodefend sufficiently ‘adversarial’ (i.e.thedominantpurposeofany conducted byaregulatedbody, theinvestigationmustbeconsidered If litigationprivilegeistoapplyinthecontextofaninvestigation ■ ■ parties incivillitigationEngland& Wales: There aretwoformsoflegalprofessionalprivilegeavailableto 2.3 ‘stop theclock’. agreed period. The commencementofaregulatoryprocessdoesnot courts havebeenshowngenerally to bekeenupholdsuchclauses deemed tobereasonableiscontext-specific. Nevertheless,English the parties’ contracts. The extenttowhichsuchclausesmaybe include non-relianceclausesand/or limitation/exclusionclausesin regulatory bodiessuchastheFCA. However, itispossibleto Parties cannotcontractoutofthe rulesimposedonthemby owe adutyofcarenottomakenegligentmisstatements. and sophistication. A financialserviceproviderwillgenerallyalso including theextentofrelevantcustomer’s/s’ ownexperience The extentofthisdutycarewilldependuponthefactsanycase respect ofanyadviceitgivestocustomers,incertaincircumstances. A financialserviceprovidermayalsooweadutyofcareintort by theFCA. which conductregulatedactivitieswillbesubjecttorulesprescribed provider toitscustomer. However, financialserviceproviders There isnogeneralfiduciarydutyowedbyafinancialservices 2.5 terms acrossmarkets. implying termsintothem. This isinordertoensurecertaintyof master agreementsandotherindustrystandardformby Courts aregenerallyslowtodeviatefromtheexpresstermsof commonly used,suchasLMA agreementsforloanfacilities. for repotransactions.Otherindustrystandardformagreementsare derivatives transactionsandGlobalMasterRepurchase Agreements example, ISDA Master Agreements arecommonlyusedfor financial institutionsfordealingswithcounterparties.Bywayof Standard formmasteragreementsareusedinEngland& Wales by ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Are standardformmasteragreementsusedinyour purpose oflitigation. litigation isreasonablyincontemplationandforthedominant between eitherofthemandathirdparty, madeatatimewhen lawyer (actingintheircapacityasalawyer)andclient,or Litigation privilege context. advice aboutwhatshouldbedoneintherelevantlegal into existenceforthepurposeofgivingorreceivinglegal between aclientandclient’s lawyerandwhichhavecome Legal adviceprivilege considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howarethey treated? jurisdiction forfinancialinstitutions(forexample,the

appliestocommunicationsbetweena

appliestoconfidentialcommunications

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or raiseissuesofgeneralimportanceforfinancialmarkets. equivalent, needexpertjudicialknowledgeofthefinancialmarkets finance orbankingmattersworthmorethan£50million Cases willbeacceptedintheFinancialListiftheyrelatetocomplex division listsetuptoaddresscasesinvolvingfinancialmatters. The FinancialListwasintroducedin2015asaspecialistcross- cases whichinvolvebankingandfinancialservices. complex nationalandinternationalbusinessdisputes,including the HighCourtofJustice. The CommercialCourtspecialisesin specialist courtwhichispartoftheBusinessandPropertyCourts commenced intheCommercialCourt. The CommercialCourtisa Claims involvingfinancialservicesmattersareprimarily 3.1 contract astheywish/ensurecertaintyofterms. on thebasisthatcommercial,sophisticatedpartiesshouldbefreeto RPC © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 5. 4. 3. 2. 1. financial serviceslitigation. does notprescribeanyspecificdifferences fortheconductof and thecourtastohowlegalproceedingsareconducted. The CPR phases, althoughthereisconsiderableflexibilitygiventotheparties Litigation inEngland& Wales willtypicallyhavethefollowing 3.3 subject totheproceduralrulesofCommercialCourt. the defaultrule).ProceedingsinFinancialListaregenerally (rather than14daysafterserviceoftheparticularsclaimwhichis of servicemustbefiledwithin14daystheclaimform courts. Forexample,intheCommercialCourtanacknowledgment started intheCommercialCourtandthoseotherdivisionsof There aresomedifferences betweentheconductofproceedings defendants insideandoutsideofthejurisdictioncourts. for serviceofclaimformsandallothercourtdocumentsupon Practice Directions( financial serviceslitigation;thesameprovisionsofCPRand The methodofservicelegalproceedingsdoesnotdiffer for 3.2 3 financial servicelitigation? Does themethodofserviceproceedingsdifferfor financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase form, theclaimant willpreparetheparticularsofclaim which Statements ofcase the claimandremedysoughtaswell asavaluefortheclaim. and servedbytheclaimantwillcontain aprecisestatementof Issuing andservingtheclaimform outlined atquestion1.4above. Funding andinsurance disputes butthereisoneforProfessionalNegligenceclaims. There isnospecificpre-actionprotocolforfinancialservices Conduct andProtocolsanyrelevantpre-actionprotocol. pre-action conduct Consideration of of aneutralthirdparty)andPart36offers tosettle. options Consideration of consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust –mediation(settlementfacilitatedbytheassistance PDs limitation issues ) apply. Part6oftheCPRsetsoutrules alternative disputeresolution (ADR) inthePracticeDirectiononPre-action –followingtheissuanceof claim

–considerationofoptionsas

, theguidelinesrelatingto –theclaimformfiled

3.4 being permittedtobefiled/servedorreliedonintheproceedings. as tocosts.BreachesoftheCPRmayalsoresultincertaindocumentsnot account bythecourtwhenmakingcasemanagementdirectionsororders necessary documentsatcourtorserviceontheparties,couldbetakeninto pertaining toeachundertheCPR,includinglatefilingofany Any non-compliancewithanyofthesestepsand/ortherelevantrules 7. 6. reference tothefollowing legislation: any contractterm isconsideredtobereasonable/fair isdecidedby be unfairarelimitationandexclusion clauses. The extentto which The twomaintypesofcontractterm whichthecourtsconsidermay 3.6 Contractual estoppelisacommondefencetoclaimsofmis-selling. breach ofdutynottomisstatenegligently). arising fromstatementsmadeinthesellingprocess(misrepresentation; advice providedbythefinancialserviceprovider;and(iii)claims misrepresentation orotherclaimsinthetortofnegligence)relatingto FSMA); (ii)claimsincontractortort(suchasnegligent claims forbreachofstatutoryduty(suchasunders.138D Mis-selling claimsencompassvariouscausesofaction,broadly:(i) in thecontextofinvestments/financialproducts. rather anumbrellatermforawiderangeofclaimswhichmayarise providers. Mis-sellingisnotinandofitselfacauseactionbut Mis-selling claimsareoftenbroughtagainstfinancialservices 3.5 to beusedpre-trialattemptsettlefinancialservicesdisputes. before commencingproceedings.However, itiscommonformediation example, makeitcompulsoryforpartiestoexploreanyformof ADR The termsoftheISDA,GMRA andLMA agreementsdonot,for ADR clausesarenottypicallyincludedinfinancialservicescontracts. may lookforevidencethatthepartieshaveconsideredit.However, ADR isoneoftheaimspre-actionprotocolsandEnglishcourts disputes specifically. There areno ADR regulationsthatapplytofinancialservices jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypically included regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) is oftenthemosttime-consumingandexpensivestageoflitigation. defined) whicheithersupportorundermineanyparty’s case. This Disclosure evidence wherenecessarytoassistthecourt. statements takenfromfactualwitnesses,and(c)expert evidence willcomprise(a)contemporaneousdocuments,(b) adduce evidencetosupporttheirclaim(s)/defence. This Evidence which casemanagementdirectionswillbemade. prepared andtherewillbeCaseManagementConferencesat counterclaim. Various otherinterimapplicationsmaybe defence withaformalreply. A defendantmayalsofilea with adefence. The claimantmaythenrespondtothe details theirclaiminfulltowhichthedefendantwillrespond jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling (expertsandwitnesses)–thepartieswillneedto –partiesmakeavailabledocuments(verybroadly

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49 England & Wales 50 England & Wales (save inrarecaseswhereappeals fromtheHighCourt‘leapfrog’ Appeals fromtheHighCourtwill beheardbytheCourtof Appeal the courtsandthereisnoabsolute right ofappeal. However, thegrantingofpermissiontoappealis at thediscretionof there isarighttoasktheappellate courtforpermissiontoappeal. wishes toappealforpermission appeal. Ifthatrequestisrefused, disputes). The partiescan ask thelowercourtwhosedecisionit a lowercourt(andthisisnodifferent inthecaseoffinancialservices Parties havetherighttoaskforpermissionappealanydecisionof 4.1 for suchredactionmaybesubjecttochallenge. before itisdisclosedtoanotherparty. The extentofandrationale information thatisirrelevanttotheissuesindisputecanberedacted In thecontextofdiscovery/disclosure,sensitiveorconfidential subject withaccesstothedata. process thedatasubject’s personaldataitmustprovidethe processes personaldatarelatingtothem.Ifthecontrollerdoes from acontrollerofdataastowhetherornotthe Under theGDPR,adatasubjecthasrighttoobtainconfirmation the termsofEUGeneralDataProtectionRegulation( financial serviceslitigation(asitisinanyothercontexttheUK)under Data protection/freedomofinformationisdealtwithinthecontext 3.7 ■ ■ ■ ■ RPC © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM directly totheSupreme Court). 4 party maybesubjectbyreasonofanypre-contract term whichwouldexcludeorrestrictanyliabilitytoa 1967 Misrepresentation Act between sophisticatedfinancialparties. legislation fortermscontainedinafinancialservicescontract ‘reasonable’ hasbeensatisfied.UCTA wouldbetherelevant there isguidanceonwhethertherequirementforatermtobe satisfies therequirementofreasonableness.Ins.11 ofUCTA liability fornegligenceexceptinsofarasthetermornotice UCTA providesthatabusinesscannotexcludeorrestrictits business liability. acting inthecourseofbusinessanditisonlyrelevantto consumer contracts,whichmeansthatthedefendantmustbe business/trade/profession andtraders).Itonlyappliestonon- contracts betweenindividualsactingoutsidethatindividual’s force, UCTA doesnotapplytoconsumercontracts(i.e. 2015 whentheConsumerRights Act 2015( Unfair Contract Terms Act 1977(UCTA) disputes? Is therearightofappealinfinancialservices Post Trial dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt business-to-business contractsarenotcaught. only appliestocontractsbetweenatraderandconsumer; to consolidateandupdateconsumerlawintheUK. The CRA CRA to consumercontractsconcludedbefore1October2015. by UTCCRs.UTCCRs(alongsideUCTA) continuetoapply (UTCCRs) Unfair Terms inConsumer ContractRegulations1999 test. effect exceptinsofarasitsatisfiestheUCTA reasonableness misrepresentation (oranyremedyflowingfromit)isofno

–on1October2015,theCRA wasintroducedinorder

–until1October2015UCTA wassupplemented

–thisprovidesthatacontract

–from1October

CRA

GDPR ) cameinto

costs tobeassessed. amount tobepaidwiththepayingpartyorapplycourtfor Once acostsawardismade,thereceivingpartycaneitheragree nature andisonlyorderedbythecourtincertaincircumstances. receiving party. The indemnitybasisisintendedtobepunitivein resolve anydoubtwhichitmayhaveinthatregardfavourofthe reasonably incurredandreasonableinamountbutthecourtwill proportionate inordertoberecovered. They muststillbe On theindemnitybasis in thisregardwillberesolvedfavourofthepayingparty. proportionate tothemattersinissue. Any doubtwhichitmayhave which arereasonablyincurred,reasonableinamountand On thestandardbasis issues, itispossibleforthecourttomakeanissues-basedcostsorder. being determined,andapartyisonlysuccessfulinrelationtocertain on thestandardbasisorindemnitybasis. Where multipleissuesare party paysthesuccessfulparty’s legalcosts.Costswillbeassessed civil disputesinEngland& Wales. The generalruleisthatthelosing Costs aredealtwithinfinancialservicesdisputesastheyall 4.2 protection andconfidentiality. Incross-borderdisputesthere may large amountsofdata. This cangiverisetoissuesrelatingdata means thepartieswilloftenhave tocollect,reviewanddisclose Data transfer assumptions astoapplicablelawin theabsenceofexpresschoice. choice oflawbythecontracting partiesandproviderules Both RomeIandtheConvention giveeffect toanexpress 17 December2009andthelatteronorafter2009. circumstances; theformerwithrespecttocontractsconcludedbefore set downunderRomeIand/ortheConventionapplyinsuch obligations andanycivildisputearisingfromthatcontract. The rules determine whichlawshouldbeappliedtotheparties’ contractual Applicable law service uponitoftheclaimform. jurisdiction shoulddosobymakinganapplicationfollowingthe A partysuedinEnglandthatwishestocontesttheEnglishcourt’s in thejurisdiction. outside thejurisdictionanddoesnothaveabranchorestablishment which willgenerallybenecessarywherethedefendantisdomiciled required toserveEnglishproceedingsoutsideofthejurisdiction, Save inlimitedcircumstances,thepermissionofcourtis whether ornoteitherpartyisdomiciledintheEU. regime willapplyundertheRecastBrusselsRegulationregardlessof exclusive jurisdictionclauseinfavouroftheEnglishcourt,EU the EUaswellincertainothercircumstances. Where thereisan regime willapplyincircumstanceswherethedefendantisdomiciled applies, ittakesprecedenceoverthecommonlawrules. The European Convention) andthecommonlawrules. Where theEuropeanregime Brussels Regulation,2007LuganoConventionand1968 – theEuropeanregime(RecastBrusselsRegulationalongside2001 determine whethertheEnglishcourthasjurisdictioninacivildispute Jurisdictional issues 5.1 5 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Cross-Border Issues services disputes? How doesthecourtdealwithcostsinfinancial how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes –thedisclosureobligationin civil proceedings –inacross-borderdispute,itmaybenecessaryto

–therearebroadlytwosetsofruleswhich thecourtwillonlyallowrecoveryofcosts thereisnorequirementforthecoststobe

England &Wales

5.3 and internationalcourts. in certaincircumstancesstayingproceedingsfavourofotherEU evidence totherequestingcourtforuseinjudicialproceedings)or jurisdiction toacourtinanothertakeevidence,andtransmitthe responding tolettersofrequest(abyacourtinone The Englishcourtsmaydothisinavarietyofways,suchas with foreigncourtsinordertoresolveacivildispute. The Englishcourtswillmakeallreasonableefforts toco-operate 5.2 processing andstorageofthatdata. needs topassbetweenbordersifdifferent rulesapplytothe be issuesaroundthetransferofdataincircumstanceswhere RPC © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 ■ ■ ■ The mainregulatorybodiesintheUKareasfollows: 6.1 sue theborrowerinacourtofitschoosing. can onlysuethelenderinaspecificcountrywhilst (including LMA agreements),wheretheyprovidethattheborrower courts. SuchclausesarecommoninEnglishlawfinancedocuments asymmetric jurisdictionclauses,willgenerallybeupheldbyEnglish Unilateral jurisdictionclauses,alsoknowninEnglandas 5.4 English judgments. respect ofoverseasassetstofacilitatetheenforcementunsatisfied In exceptionalcircumstancesthecourtswillappointreceiversin risk ofoppression. jurisdiction andhowitwouldbeenforced,aswellanypotential grant a WFO, thecourtswill needtoestablishthebasisofcourt’s injunctions inrespectofoverseasassets.Inconsideringwhetherto the courtsofEngland& Wales havejurisdictiontograntfreezing worldwide freezingorder( Wales willexerciseextra-territorialjurisdictionisorderinga The mostcommoncircumstanceinwhichthecourtsofEngland& 6 enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour customers, subjecttoafinanciallimit. responsibility forhandlingcomplaints fromretailbanking Financial OmbudsmanService ( the prudentialregulatorandFCA istheconductregulator. regulators intheUK. The PRA (whichispartoftheBoE) The FCA / The PRA which aretoensuremonetaryandfinancialstability. Bank ofEngland( services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies

BoE – The PRA andtheFCA aretheleadbank WFO ) – The BoEhastwomainpurposes ). That is,incertaincircumstances,

FOS

) – The FOShas

and initsroleasoverseeroffinancialmarketinfrastructures. in thecontextofcrisismanagementunderaspecialresolutionregime Prudential RegulationCommittee. The BoEalsohasvariouspowers The PRA ispartoftheBoEandexercisesitsfunctionsthrough able toimposepenaltiesonPRA-authorisedfirms. The PRA hassimilarenforcementpowerstotheFCA butisonly of anindividual’s statusasanapprovedperson. of afirm’s permissionstocarryoutregulatedactivitiesorwithdrawal disciplinary measuresatitsdisposalsuchasvariationorcancellation non-statutory privatewarning. The FCA alsohasarangeofother well asimposefinancialpenalties. Alternatively, itmightissuea takes action. The FCA canissuepublicstatementsandcensuresas has decidedtotakeactionandafinalnoticeisissuedwhentheFCA to take,thedecisionnoticeisissuedincircumstanceswhereFCA outlines totheentityinquestionactionwhichFCA proposes followed bytheissuanceofastatutorynotice. The warningnotice The FCA’s disciplinaryprocessgenerallyinvolvesaninvestigation firms andindividualsthatdonotmeettheirstandards. enforcement powerstoprotectconsumersandtakeactionagainst civil proceedings.However, theFCA hasawiderangeof The UK’s bankingregulatorybodieswillnotordinarilyintervenein 6.2 financial servicesproviders,bothas adirectresultoftheconduct The financialcrisisdidleadtoanincrease inclaimsbroughtagainst 7.1 FOS alsopublishesitsdecisionsonline. private warning,forexample,willnotbepubliclyavailable. The been issuedandtypeofactiontheregulatorhaschosentotake. A online –however, thiswilldependuponthetypeofnoticethathas Yes, mostdecisions/noticesoftheFCA/PRA arepubliclyaccessible 6.5 appealing totheUpper Tribunal (Tax andChanceryChamber). A partymaychallengethedecisionofFCA,PRA orBoEby 6.4 respect ofwhichthedecisionisissued. Yes, thedecisionsofregulatorybodiesare bindingonthepartyin 6.3 7 have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ against financialserviceproviders?). amount andtypeofcasesbeing broughtbyand reaction tothecrisis?Hasthere beenachangeinthe increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describe anypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon

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51 England & Wales 52 England & Wales introduces anarguably novelprinciplethatwhereathird party inequitable forthecreditagreements tobeenforceable. This nevertheless sufficiently affected bythebribethatitwouldbe advisor asanagentofUBSbutheldthatthebank’s consciencewas The Courtof Appeal didnotconsiderthatthebribewaspaidby bank’s agent(eventhoughthebankdidnotknowaboutbribe). advisor toadirectorofthecustomerwaspaidbyas advisor. The HighCourtheldthat abribepaidbythecustomer’s basis ofacorruptarrangementbetweenthebankandcustomer’s credit protectionagreementsbetweenabankanditscustomeronthe found thattheHighCourtwascorrecttohaverescindedcertain GmbH andothers[2017]EWCA Civ1567 UBS AG andUBSLimitedvKommunale Wasserwerke Leipzig widely welcomed. regulatory investigationsandenforcementitsreversalhasbeen decision hadpotentiallysignificantimplicationsforthosesubjectto course oftheinvestigationwereprivileged. The HighCourt its investigationandthatthedocumentscreatedbyENRCin litigation wasinreasonablecontemplationwhentheSFOinitiated for inspection. The Court of Appeal insteadconcludedthat ordered thatthedocumentsbeprovidedtorespondent,SFO, criminal proceedingsagainstENRC. The HighCourtjudgehad the dominantpurposeofresistingoravoidingcontemplated litigation privilege,astheyhadnotbeenbroughtintoexistencefor Ltd ( created bytheappellant,EurasianNaturalResourcesCorporation which thejudgehadconcludedthatcertaininternaldocuments Appeal decisionoverturnedacontroversialHighCourtin Resources CorporationLtd[2018]EWCA Civ2006 The DirectoroftheSeriousFraudOffice vEurasianNatural 7.3 significant protectionsforretailcustomersinparticular. However, theUKprovidesarobustregulatoryenvironmentwith through useofexclusionandlimitationliabilityclauses. Financial institutionsareoftenabletoavoidandresistclaims 7.2 risk basis. individuals and/orcompaniestobringthoseclaimsonano-orlow- products andthenseektoattractgroupsofpotentiallyaffected from particularconductbyfinancialservicesprovidersor This hasmadeitpossibleforpractitionerstoidentifyclaimsarising and growthofthelitigationfundingmarketinEngland& Wales. Another significantpracticaltrendarisesoutoftheliberalisation sector asaresultofthefinancialcrisis. expansion oftheregulatoryframeworkinfinancialservices springboard forcivilclaims. There hasalsobeenasignificant contexts, regulatoryfindingshaveservedastheevidential regulatory scrutinyresultingfromthecrises.Inseveraldifferent certain financialservicesprovidersinthatperiodandtheincreased RPC © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM ENRC considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding customer-friendly?

), duringanSFOinvestigationwerenotprotectedby

–theCourtof Appeal –thisCourtof

decision inrelationtocontractualestoppel,whichisoneofthemain although notitselfafinancialservicesdecision,thisisanimportant (Superstores International)Limited[2018]EWCA Civ1396 First Tower Trustees Limited &IntertrustTrustees LimitedvCDS misstate/mislead, lessthanafulladvisoryduty). ‘intermediate’ or‘mezzanine’ dutyofcare(morethananotto Court of Appeal alsodisapprovedoftheconceptabankowingan LIBOR andinsufficient evidencetoprovidemanipulation. The Swiss FrancLIBOR,therewasnosuchadmissioninrespectofGBP because althoughRBShadadmittedthatitmanipulated Yen and ( However, theCourtof Appeal heldthatProperty Alliance GroupLtd LIBOR referencerateandthatitdidnotintendtodosoinfuture. implied representationthatitwasnotseekingtomanipulatethe products, The RoyalBankofScotlandPlc( Court of Appeal foundthatinsellingtheLIBOR-linkedswap decision clarifiedanumberofaspectsthelawinthisarea. The (such thatthecustomer’s claimsfailed),theCourtof Appeal’s manipulation testcase. Whilst theappealwasdismissedinfull Appeal judgmentinthisinterestrateswapmis-sellingandLIBOR [2018] EWCA Civ355 Property Alliance GroupLtdvTheRoyalBankofScotlandPlc order toavoidwhattheyperceivebesubstantialinjustice. the courtsarewillingtoapplyequitableprinciplescreativelyin fiduciary thatitwasnotawareof. This decisiondemonstratesthat may fixthatthirdpartywithresponsibilityforabribepaidbythe dishonestly setsouttoundermineafiduciaryrelationship,equity connection betweenthedisputeand thejurisdiction. dispute resolutionjurisdictiondespitethelackofanobvious subsequently) choosingthecourtsofEngland& Wales astheir an exportproduct,withparties(eitherwhencontractingor retail customers. There hasalsobeengrowthinEnglishlitigationas relating tothepre-crisissaleofinterestratederivatives,particular financial crisisledtosignificantregulatoryscrutinyandclaims The historiclowinterestrateenvironmentwhichhasfollowedthe 7.4 potentially marksashiftintheattitudeofcourts. statutory controls.Inlightofotherrecentdecisions,thisone be liabilitythentheclauseisanexclusionsubjectto rather thanexcludingliability)–if,butfortheclause,therewould clauses’ (definingthebasisofwhichpartieswerecontracting on pre-contractrepresentationscouldbecharacterisedas‘basis The Courtof Appeal didnotacceptthatclausesexcludingreliance requirement ofreasonablenessunderUCTA, whichtheydidnot. they wereofnoeffect except insofarastheysatisfiedthe clauses fellwithins.3oftheMisrepresentation Act 1967suchthat of Appeal dismissedtheappeal,holdingthatnon-reliance that thelandlordswereliableandappealed. The Court landlords beforeenteringintotheleases. The HighCourtdecided that thetenanthadnotreliedonanyrepresentationsmadeby be leased. The leasescontained non-relianceclausestotheeffect prospective tenantinrelationtoasbestosissuestheproperties concerned misrepresentationsbytheappellantlandlordstoa defences arisinginfinancialservicesdisputes. The dispute PAG ICLG TO: FINANCIAL SERVICESDISPUTES 2019 ) hadnotprovedthattherepresentationwasfalse,inparticular jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

–thiswasamuchanticipatedCourtof England &Wales RBS

) hadmadean

–

RPC © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 You canfollowourFinancialDisputesteamon Twitter @conflictfreeRPC. in otherjurisdictions,wearepartofthe TerraLex networkandhaveaccesstoover150lawfirmsin100jurisdictionsacrosst practice hasaparticularfocuson Asia andwework closelywithouroffices inHongKongandSingapore.Whereweneedtowork RPC isabroad-basedprofessionalservicesfirmmadeupof82partners,over300otherlawyersandmorethan600peopleintota corporates, familyoffices andhigh-net-worthindividuals. Our clients,ofteninternational,includehedgefunds,pensionEuropeanbanks,privateequityfirms,investmentadvisors the CityofLondon,wecantakeoninstructionswhichmakeusadversetoinvestmentbanksandotherfinancialinstitutions. markets. We haveovertwodecadesofexperienceactingforinstitutionalinvestors,borrowersandmarketcounterparties.Unli RPC’s FinancialDisputesteamspecialisesincomplex,high-value,high-profiledisputesinvestmentbanking,fundmanagement corruption. investigations, ofacross-bordernature,oftenrelatingtoanti- Simon hasassistedcorporateclientswithregulatoryandinternal shareholder disputes. and enforcementofjudgmentsaswellcommercialcontracts multi-jurisdictional litigationinvolvingfraud,assettracingandrecovery, He alsohasmanyyearsofexperienceadvisingclientsinrelationto and insolvencyoffice holders. including hedgefunds,high-net-worthinvestors,financialinstitutions financial restructurings.Hehasactedforawidevarietyofclients advises ondisputesarisingoutofloanfacilities,tradefinanceand structured products,hedgingarrangementsandCDOs.Heregularly investment banks.Hehasactedinclaimsinvolvingderivatives, number ofcomplexbankingdisputes,oftenactingagainstthelargest Simon’s litigationpracticehasseenhimguideclientsthrougha of ourFinancialDisputesteam. Simon HartisaPartnerintheCommercialDisputespracticeandHead

United Kingdom London E1W1AA St Katharine’s Way Tower BridgeHouse RPC Simon Hart URL: Email: Tel:

www.rpc.co.uk [email protected] +44 2030606671

England. proceedings relatingtotheenforcementofforeignjudgmentsin Daniel alsohasexperienceofcomplexjurisdictionalissuesand agreements) andsecuritiesvaluations. financial transactions(includingunderindustry-standardmaster expertise indisputesrelatingtoderivativeproducts,theclose-outof and continuestoactadversethelargestinvestmentbankshas managers, hedgefundsandhigh-net-worthindividuals.Hehasacted financial servicessectorinwhichhehasadvisedbanks,asset Daniel actsforabroadrangeofclients,withparticularfocusonthe Daniel HemmingisaSenior Associate intheFinancialDisputesteam. URL: Email: Tel: United Kingdom London E1W1AA St Katharine’s Way Tower BridgeHouse RPC Daniel Hemming

www.rpc.co.uk [email protected] +44 2030606806 England &Wales

WWW.ICLG.COM he globe.

, commodityhouses,

ke mostlawfirmsin

l. Ourinternational alongsidelawyers

and capital

53 England & Wales Chapter 10 Finland Markus Kokko

Borenius Attorneys Ltd Vilma Markkola

1 Bringing a Claim – Initial Considerations If the customer is a consumer, the stricter provisions of the Finnish Consumer Protection Act (1978/38, as amended) apply. Additionally, other statutes relating to financial services impose 1.1 What are the most common causes of actions taken stricter rules on contractual relationships in which one of the parties by or against financial institutions and service is a consumer and the other one a financial institution. The court providers in your jurisdiction? procedure in state courts is similar irrespective of whether both parties are businesses or one party is a business and the other one an Typical disputes involving financial institutions are disputes individual customer. concerning the right to insurance compensation and the right of In Finland, there are also out-of-court bodies that issue recourse of insurance companies, disputes related to guarantees or recommended resolutions to disputes. Some out-of-court bodies are security, and alleged breaches of obligation to give information and only available to certain types of contracting parties. Please see the duty of loyalty. Typical actions taken against customers include section 6 on out-of-court bodies. debt collection.

Often claims by or against financial institutions are settled or 1.4 Is third-party funding available in financial services resolved in out-of-court bodies before they proceed to litigation. In litigation (crowdfunding, maintenance, champerty, the financial services sector, the competent out-of-court body in etc.)? Does litigation insurance operate in your many cases is the Finnish Financial Ombudsman Bureau (FINE). jurisdiction and, if so, what are the implications for For example, non-professional investors tend to bring cases this? concerning investment disputes to FINE rather than issue legal proceedings in court. Third-party funding is possible, and it is most commonly realised by way of insurance. Other types of third-party funding are reasonably uncommon, although they have been used in certain landmark cases 1.2 What remedies are most likely to be awarded? that concerned entire industries or cases with multiple claimants. In Finland, both private individuals and businesses may take In general, compensation for damages is typically awarded in advantage of insurance policies that cover litigation expenses. The financial services disputes. The aim is to put the suffered party in specific terms and conditions depend on the insurance product and the financial position in which it would have been if the other party the insurance company in question. Generally, parties to a contract would have fulfilled its obligations as agreed. Punitive damages as may be more eager to commence proceedings if they have an such are not available under Finnish law. Also, rescission and insurance that covers a part of the potential costs. adjustment of contracts and injunctions are possible remedies.

1.5 Are class action law suits available in your 1.3 Who has a right of action in financial services jurisdiction? If so, has this impacted financial disputes? Does it make a difference if the customer is services litigation? Has there been an increase in an individual or a commercial entity? class action suits post the financial crisis?

In general, parties to a financial services contract have a right of In Finland, class action law suits have been available since 2007. To action. Under certain conditions, third parties may also have a right this day, no class action law suits have been filed. Class actions are of action. only available to consumers in civil cases between consumers and In the financial services sector, litigation is used both in disputes businesses. between businesses and in disputes between businesses and Under the Finnish Act on Class Actions (2007/444, as amended), a individuals. In disputes between businesses, arbitration is case may be heard as a class action if: several consumers have sometimes the chosen method of dispute resolution, but litigation claims against the same defendant, based on the same or similar remains more popular in the financial services sector. Business circumstances; the hearing of the case as a class action is expedient parties may include a prorogation clause to their agreement stating in view of the size of the class, the subject matter of the claims that, for example, only one particular court or the courts of one presented and the proof offered; and the class has been defined with country have jurisdiction over a dispute. Typically, the chosen adequate precision. domestic court is the District Court of Helsinki.

54 WWW.ICLG.COM ICLG TO: FINANCIAL SERVICES DISPUTES 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London 2.2 customer contracts,apartfrommonetarylimitationsofliability. Generally, exclusionaryordutydefiningclausesarenotusedin court bodies. related tofinancialservicesareoftenresolvedamicablyorinout-of- potentially longdurationoftheproceedings. Therefore, disputes The mainbarriersarethecostriskrelatedtolitigationand 2.1 who optinwillbecomeclassmembers. the class,hasauthoritytobringaclassaction.Onlyconsumers In Finland,onlytheConsumerOmbudsman,whichalsorepresents Borenius AttorneysLtd © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 documents containing suchinformation. the subjectmatter. Similarly, apartymayrefusetoprovide secret, unlessweightyreasonsrequire thatthewitnessbeheardon Any witnessmayalsorefuseto testify regardingacommercial court proceedings,i.e.onlyactedin anadvisoryrole. produce documentswhentheattorney hasnotactedfortheclientin court canorder, undercertainconditions,anattorneytotestifyand on asawitness.In-housecounselsdonotenjoythisprivilege. The the documentcontainssomethingonwhichtheymaynotbeheard not allowedtopresentadocumentincourtifitcanbeassumedthat exemptions ofgivingatestimony. Attorneys andtheirassistantsare The rulesonprivilegeincivilproceedingsaresimilartothe 2.3 only byfilingaclaim. statutory measurethatinterruptsthelimitationperiod,inmostcases specific periodforfilingalawsuitcanonlybeinterruptedwith periods applyto,e.g.,actionsbroughtagainstboardmembers. The In somecases,therearealsospecificperiodsforfilingasuit. These a competentout-of-courtbodyinterruptsthelimitationperiod. it canbeinterruptedseveraltimes.Generally, initiatingproceedingsin new limitationperiodofequaldurationstartsaftertheinterruptionand claim beforecourtorinitiatingproceedingsinanout-of-courtbody. A statutory measurethatinterruptsthelimitationperiod,e.g.byfilinga way, e.g.byremindingtheotherpartyofobligation,orwitha Generally, alimitationperiodcanbeinterruptedeitherinaninformal contract noticesorshouldhavenoticedthebreach. based onabreachofcontractthetimestartswhenpartyto on thetypeofcase.Forexample,incasesconcerningcompensation period isthreeyears. The startingtimeofthelimitationperioddepends of LimitationsonDebt(2003/728,asamended). The generallimitation In Finland,thelimitationperiodsaregovernedby Act ontheStatute 2 clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary What arethemainbarrierstofinancialservice Before CommencingProceedings considered ‘litigation’ inthecontext ofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof

2.5 contracts governedbynationallawarealsoused. governing suchagreementsisEnglishlaw. However, derivative banks andlarge commercialcustomers.Inmanycases,thelaw Master Agreement iswidelyusedbothbetweenbanksand The InternationalSwapsandDerivatives Association (ISDA) 2.4 multilateral tradingfacility. affecting thevalueofsecurities,ortradingonaregulatedmarket information concerningmarketabuse,disclosureof concerning clientsoftheattorneys. This includestherighttoobtain information, documentsorrecordsfromattorneystheirassistants statutory duties.Inspecificcases,theFIN-FSA isentitledtoobtain and inspectinformationthatisnecessaryfortheexerciseofits notwithstanding confidentialityprovisions,certainrightstoobtain The FinnishFinancialSupervisory Authority (FIN-FSA)has, conducted byout-of-courtbodies. Generally, theaforementionedprivilegesalsoapplytoprocedures There arenospecialist courtsorjudgesforfinancial services 3.1 of goodfaithexists. damages. Additionally, duringpre-contractualnegotiations,aduty opposing partiesinterestsandassistingthatpartyinmitigating of acontract,whichincludes,forexample,takingintoaccountthe contracting parties. They mustloyallyco-operateinthecompletion General contractualprinciplesalsoimposeadutyofloyaltyon regulation normsguidefinancialinstitutionsintheiractivities. banking practiceandgoodsecuritiesmarketpractice,self- Additionally, principlesofgoodpractice,e.g. recommendatory intheirnature. and itsrecommendationsforfinancialservicesentitiesare generally includetheFIN-FSA’s interpretationsoflegalprovisions and financialservicesentitiesmustcomplywiththem.Guidelines as commencementofactivities. The regulationsarelegallybinding topics, e.g.codeofconduct,accountingandfinancialreportsaswell institutions. These regulationsandguidelinescoveravarietyof The FIN-FSA issuesregulationsandguidelinesforfinancial concerning thecommodity. information thatisnecessaryforthecustomer’s decision-making institutions mustintheirmarketingprovidethecustomerwithall Finnish Act onCreditInstitutions(2014/610,asamended),credit requirement andselectingtheappropriateinsurance.Under with informationthatisnecessaryinassessingtheinsurance Act (1994/543,asamended),theinsurermustprovideapplicant must follow. Forexample,undertheFinnishInsuranceContracts procedures andmarketingpracticesthatfinancialservicesentities In thefinancialserviceslegislation,thereareprovisionsconcerning 3 they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howaretheytreated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour financial serviceslitigation? Is thereaspecialistcourtor judgesfor Progressing theCase

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55 Finland 56 Finland Also, apoliceinvestigationmay berequestediftheFIN-FSA negligent misstatementsorpursue mis-sellingintheiractivities. or conditionalfinestofinancial marketoperatorsthatmake mis-selling. Forexample,theFIN-FSA mayissuepublicwarnings market andmayimposesanctions fornegligentmisstatementand The relevantauthoritiescloselysupervise operatorsinthefinancial 3.5 disputes, butisrelativelyrarelyusedinpractice. (2011/394, asamended)isalsoapossibility infinancialservices Civil MattersandConfirmationofSettlementsinGeneralCourts Court mediationinaccordancewiththeFinnish Act onMediationin court bodyorinstatecourts. consumer, thedispute istypicallyresolvedinanappropriateout-of- business shallbesettledinarbitration.Ifoneofthepartiesisa the disputearises,underwhichabetweenconsumerand Consumers arenotboundbyatermincontractconcludedbefore businesses. to bethepreferredmethodinresolvingdisputesevenbetween be usedincasethepartiessoagree.However, litigationcontinues ADR methods,suchasarbitrationandmediation,mayinmostcases 3.4 court exhortstheclaimanttosupplementit. application forsummonsdoesnotmeettheserequirements,the requirements setoutintheCodeofJudicialProcedure.If application forsummonsmustcomplywithcertainformal application forsummonstotheregistryofcourt. The advocacy practice. A claimisfiledwhentheclaimantsubmitsan party beforecommencinglegalaction. This isconsideredgood services disputes.Ingeneral,anadvocatemustnotifytheopposing In Finland,therearenospecificpre-trialrequirementsinfinancial 3.3 party. request ofaparty, thecourtmayentrustserviceofanoticeto principle isthatthecourtseestoserviceofproceedings. At the Finnish CodeofJudicialProcedure(1734/4,asamended),thebasic follows thecustomarymethodofserviceproceedings.Under The methodofserviceproceedingsforfinanciallitigation 3.2 financial services. Market Courtmayalsohavejurisdictionoverdisputesconcerning Administrative CourtsandtheSupreme Administrative Courtorthe regarding financialservices.Dependingonthetypeofcase, Courts, Courtsof Appeal andtheSupremeCourt,handledisputes disputes inFinland.Ingeneral,thestatecourts,whichareDistrict Borenius AttorneysLtd © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM suspects thatacriminal offence hasbeencommitted.

financial servicelitigation? Does themethodofserviceproceedingsdifferfor dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypically included regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust

parties tothecontractisaconsumer, theprovisionsofConsumer unfair contracttermsmaybeadjustedorsetaside.Ifoneofthe and void.UndertheFinnishContracts Act (1929/228,asamended), An unfairtermdoesnotnecessarilymaketheentirecontractnull weaker positionthantheotherone. mostly occurincontractualrelationshipswhichonepartyisa The evaluationismadeonacase-by-casebasis.Unfairterms govern, forexample,payments,deliveryordurationofthecontract. favour onepartytothedetrimentofotherparty. The termsmay Unfair termsaregenerallyconsideredtobethatunreasonably 3.6 contract lawandtortlaw. handled inordinarycivilproceedingsaccordingtotheprovisionsof damages basedonthemisstatementormis-selling. These claimsare The injuredpartymayclaimthecontracttobeinvalidandseek operators. may imposeprohibitionsandpenaltypaymentsonfinancialmarket Consumer OmbudsmanortheMarketCourt,dependingoncase, operators andtheiractivitiesinrelationtoconsumers. The Additionally, theConsumerOmbudsmanmonitorsfinancialmarket documents thatare notpublic. case havetherighttobeinformed aboutthecontentsoftrial proceedings arepublicunlessprovided otherwise. The parties tothe General Courts(2007/370,asamended), trialdocumentsandcourt Under theFinnish Act onthePublicity ofCourtProceedingsin 3.7 or toFINE,dependingonthetypeofcase. Consumers canalsosubmitdisputestotheConsumerDisputeBoard of accessiontotheclass. requires consumerswhowanttobelongaclasssubmitletter consumers. InFinland,classactionsfollowanopt-inmodel,which The aforementionedclassactionlawsuitisonlyavailableto households. such personsacquire,toanessentialamount,fortheirprivate are goodsandservicesthatoffered tonaturalpersonsorwhich service ispartlyutilisedinbusiness.Consumergoodsandservices or serviceisgenerallyregardedasaconsumer, evenifthegoodor or serviceacquiredisprivateuse,thepersonthatacquiresgood for auseotherthanbusinessortrade.Iftheprimaryofgood natural personwhoacquiresconsumergoodsandservicesprimarily Under theConsumerProtection Act, aconsumerisdefinedas a contract. marketing andinformationtobeprovidedpriortheconclusionof services toconsumers. These provisionsconcern,forexample, provisions havebeenimposedonbusinessesprovidinggoodsand Under theConsumerProtection Act andcertainotheracts,stricter Consumers arewidelyprotectedundertheFinnishlegislation. even bedeclaredterminated. rest ofthecontractmayalsobeadjustedorwhole terms incontractsapply. Dependingontheunfaircontractterm, Protection Act concerningadjustingandsettingasideofunfair ICLG TO: FINANCIAL SERVICESDISPUTES 2019 jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinthecontextofdiscovery ordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt

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Court of Appeal. After thejudgmenthasbeenrenderedinCourt The judgmentofDistrictCourtscanbeappealedtothecompetent In general,thereisarightofappealinfinancialservicesdisputes. 4.1 personal data. data bythesubjectapplytofinancialcustomers’ accesstotheir provisions oftheGDPRconcerningrightaccesstopersonal out intheGeneralDataProtectionRegulation(GDPR). The Further, financialinstitutionsmustcomplywiththeprovisionsset all documentsarepubliclyavailable. The courtmayorderthosedocumentstobeconfidential.Otherwise, the opposingpartyorathirdtoproducespecificdocuments. based ontherequestofapartyandundercertainconditions,order not existintheFinnishjudicialsystem.However, thecourtmay, Discovery anddisclosureasexercisedincommonlawcountriesdo Borenius AttorneysLtd © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 regulations thatare appliedincross-borderdisputes. European UnionMemberState,Finland isboundbyvariousEU judgements aretypicalindisputes involvingforeignparties. As a issues regardingjurisdictionof courtsandenforceabilityof institutions havebeenveryrarein Finland.Onagenerallevel, So far, cross-borderfinancialdisputesinvolving financial 5.1 applies todisputesbetweenbusinesses. the paymentliability. The reductionofthepaymentliabilityrarely issue arefactorsthatthecourttakesintoaccountwhenevaluating proceedings, thesituationofpartiesandsignificance of theopposingparty. The circumstancesgivingrisetothe manifestly unreasonabletorenderonepartyliableforthelegalcost court toreducethepaymentliabilityofparty, ifitwouldbe Under theCodeonJudicialProcedure,itisalsopossiblefor are evaluatedonacase-by-casebasis. of theopposingparty. The reasonablenessandnecessityofthecosts losing partyisliableforallthereasonableandnecessarylegalcosts Under theCodeonJudicialProcedure,basicprincipleisthat 4.2 Court ortotheSupremeCourt. A leavetoappealmayberequired. can generallybeappealedeithertotheSupreme Administrative cases requirealeavetoappeal. The decisionsoftheMarketCourt appealed intheSupreme Administrative Court.Certaintypesof The decisionsofthe Administrative Courtscannormallybe important reason.Inpractice,aleavetoappealisseldomgranted. for thisbecauseofaproceduralorothererror, orifthereisanother practice. A leavetoappealmayalsobegrantedifthereisareason important fortheapplicationoflaworconsistencycourt appeal. The SupremeCourt maygrantaleavetoappeal,ifthisis of Appeal, apartymaypetitiontheSupremeCourtforleaveto 4 5 services disputes? How doesthecourtdealwithcostsinfinancial disputes? Is therearightofappealinfinancialservices Post Trial how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues

5.3 States andNationalsofOther(theICSIDConvention). Convention ontheSettlementofInvestmentDisputesbetween international conventionsconcerningdisputeresolution,e.g.the Schemes (INFONetwork).Finlandhassignedandratifiedcertain and theInternationalNetworkofFinancialServicesOmbudsman networks, e.g.theFIN-NET networkoftheEuropeanCommission Finland isamemberofcertaininternationalfinancialservices matters. Member Statesinthetakingofevidencecivilorcommercial (EC) No1206/2001onco-operationbetweenthecourtsof EU MemberState,Finlandisboundby, forexample,Regulation EU legislation,internationalconventionsandnationallaws. As an There aredifferent kindsofmechanismsco-operationbasedon operate withcorrespondingbodiesinothercountries. countries. Also, out-of-courtdisputeresolutionbodiesmayco- authorities areinvestigatingcriminaloffences connectedtoforeign Co-operation withforeigncountriesoccurs,especiallywhen 5.2 disputes inwhich onepartyisaconsumer, asmall ormedium-sized companies, whilsttheBanking ComplaintsBoardexamines Board examinesinsurance-related disputesofbothconsumersand and SecuritiesComplaintsBoards. The InsuranceComplaints financial servicesdisputes. The boardsaretheInsurance,Banking and threecomplaintsboardsissue recommendatoryresolutionsto In thefinancialservicessector, themainbodyisFINE.Itsoffice dispute andthepartiesinvolved. financial disputes. The competent bodydependsonthetypeof In Finland,someout-of-courtbodiesissuerecommendationsto 6.1 only applytotheadvantageofconsumer. unilateral jurisdictionclausesislimitedandtheseusually contracts concludedbetweenbusinessesandconsumers,theuseof clauses maynotgoagainstperemptoryprovisionsoflaw. In contracting partiesarenotofequalmerit.Unilateraljurisdiction However, acourtmaymitigatesuchclauseincaseswherethe In general,unilateraljurisdictionclausesarevalidandenforceable. 5.4 issues. Extra-territorial jurisdictionisalsoappliedincertaindataprotection punishable byimprisonmentformorethansixmonths. citizens orFinnishlegalentitiesandthatunderlawmaybe outside oftheFinnishterritorythathavebeendirectedat matters, e.g.inconnectionwithcriminaloffences committed Extra-territorial jurisdictionmaybeappliedincertaincriminal 6

your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand

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57 Finland 58 Finland Market Court,thecompetentcourt dependingonthecase. the FIN-FSA canbeappealedtothe Administrative Courtorthe satisfied withtheoutcomeofbody’s decision. The decisions of possible tofileaclaimbeforecourt ifeitherofthepartiesisnot the parties,theyareassuchnotsubject toappeal.However, itis Since thedecisionsofout-of-courtbodiesarenotbindingupon 6.4 FSA arebinding. comply withtheserecommendations. The decisionsoftheFIN- only giverecommendations.However, businessesgenerallytendto FINE, itsComplaintsBoardsandtheConsumerDisputesBoard 6.3 been committed. also requestaninvestigationifitsuspectsthatacriminaloffence has administrative fines,publicwarningsandpenaltypayments.Itmay FIN-FSA mayimposeadministrativesanctions,whichinclude are necessaryforittofulfilitslegalsupervisoryobligations. The the righttoreceiveandinspectinformationdocuments,which Supervisory Authority (2008/878,asamended). The FIN-FSA has investment firms,inaccordancewiththe Act ontheFinancial markets, e.g.banks,insuranceandpensioncompanies The FIN-FSA supervisesentitiesthatoperateinthefinancial opinions ifthatisnecessaryinthecase. reasons. The bodiesmayalso acquire,attheirownexpense,expert Complaints Boardsbuttheyareconductedonlyforparticular provided bytheparties.OralhearingsarepossibleinFINEandits The examinationofdisputesisbasedonthedocumentation recommendation forcompensation. outcome iseitherarecommendationforcompensationorno recommendations arenotenforceableassuch.Generally, the parties. The partiesarenot boundbytherecommendations,and issue recommendationstothedisputesbroughtbeforethemby FINE, itsComplaintsBoardsandtheConsumerDisputesBoard 6.2 Competition Authority whencompetitionissuesareinvolved. Ombudsman, theDataProtectionOmbudsmanandFinnish practices. These include, services sectortoseeiftheycomplywithlegislationandgood authorities monitorserviceprovidersoperatinginthefinancial In additiontotheaforementionedout-of-courtbodies,certain recommended resolutionstoavarietyofconsumermatters. assist andmediatedisputestheConsumerDisputesBoardissues example, consumeradvisorswhoworkatlocalRegisterOffices Certain out-of-courtbodiesareavailableonlytoconsumers.For are generallymediation,arbitrationorlitigation. the competenceofFINE,availableoptionsfordisputeresolution If afinancialservicesdisputebetweenbusinessesdoesnotfallunder non-professional investorcustomers. Complaints Boardhearsdisputesbetweenserviceprovidersand enterprise orothercomparablecustomer. The Securities Borenius AttorneysLtd © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/

inter alia , theFIN-FSA,Consumer

FSA haveincreasedduringthepast10years.Despiteregulatory due tothefinancialcrisis. Also, thesupervisorypowersofFIN- increased andbecomemorecomplicatedovertheyearsparticularly The amountofregulationinthefinancialservicessectorhas 7.1 supervisory measures. online. The FIN-FSA publishesonlineitsadministrativesanctionsand The recommendationsarecollectedindatabasesthataccessible public versionsinsuchawaythatthepartiescannotberecognised. parties andcertainspecificdetailsofthecasearedeletedfrom Boards ofFINEarepubliclyaccessible. The personaldetailsofthe The recommendationsissuedbytheConsumerDisputesBoardand 6.5 industry. changes andincreasedinsecurity andinstabilityinthefinancial during thepastfewyears,whichis aresultoftheglobaleconomic businesses inthefinancialservice industryhasclearlyincreased resolution. Ontheotherhand, amountofregulationdirectedat There havebeennomajorchanges intermsoflitigationordispute 7.4 often settledorresolvedinout-of-courtbodies. past 12months. As statedabove,financialservicesdisputesare No particularlysignificantcaseshavebeenpublishedwithinthe 7.3 sign ofafinancialinstitution-friendlyapproach. been renderedagainstfinancialinstitutions,whichcanbeseenasa hand, thereareonlyafewcasesinFinlandwhichjudgmentshave practice thatguidefinancialinstitutionsintheiractions.Ontheother guidelines andself-regulationnormsaswellprinciplesofgood the supervisoryauthoritiesarerelativelyactive. There areseveralacts, banks, insurancecompaniesandinvestmentfirmsinFinlandalso On onehand,thereisalotoflegislationprotectingthecustomers 7.2 disputes broughtbeforecourt. changes thereisnoclearchangetobeseenintheamountortypeof 7 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe

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Borenius AttorneysLtd © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 commercial proceedings. various arbitrationrules,aswellin various industrysectors.Inadditiontocivilproceedings,BoreniusregularlyrepresentsFinnishandforeignclientsinarbit strategic planning. The disputeresolutionteamisoneofthelargestandmostrespectedinFinland.Itcombineswideexperie Borenius Attorneys Ltdoffers legalservicesinallaspectsofdomesticandcross-borderdisputeresolution,includingconflict chemicals industry, financialmarkets,internationaltrade,retailand cases relatedtoawidevarietyofbusinesssectors,suchasthe in numerousextensivecases.Hisfieldofexperienceencompasses corporate andcommercialdisputeshehasactedasleadcounsel Markus hasin-depthexperienceofdomesticandinternational clients ondisputeresolutionandcorporatecrimecases. Markus Kokkoregularlyadvisesmajordomesticandinternational at Borenius Attorneys Ltd. Markus headstheLitigation& Arbitration andCorporate Crimeteams Lawyers Chambers Global excellent reputationwhichhasbeenrecognisedbyrankingsin Markus’ efficient andclient-orientedapproachhasearnedhiman inter alia complex corporatecrimecasesandcriminalinvestigationsregarding, Markus frequentlyadvisescompaniesandexecutivesinrelationto handling abroadrangeoflitigationandarbitrationcases. wholesale andmining.Markusalsohasanexceptionaltrackrecordin . , insidertrading,environmentalviolations,corruptionandtax.

, Chambers Europe URL: Email: Tel: Finland 00130 Helsinki Eteläesplanadi 2 Ltd Borenius Attorneys Markus Kokko www.borenius.com [email protected] +358 207133482

ad hoc ,

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arbitrationproceedings.Ourexpertsfrequentlyserveasarbitratorsindomesticandinternational

and

Best

relating toemploymentandinsolvencylaw. crime-related cases,Vilma frequentlyadvisesclientsonissues both domesticandinternationallitigationarbitrationcorporate specialised inquestionsrelatedtodisputeresolution.Inaddition Vilma Markkolaisan Associate atBorenius Attorneys Ltd.Vilma is URL: Email: Tel: Finland 00130 Helsinki Eteläesplanadi 2 Ltd Borenius Attorneys Vilma Markkola www.borenius.com [email protected] +358 207133302

ration proceedingsunder WWW.ICLG.COM

nce withknowledgeof

managementand

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59 Finland Chapter 11 France Arthur Dethomas

Dethomas Peltier Juvigny & Associés Dessislava Zadgorska

1 Bringing a Claim – Initial Considerations rule applies to financial services disputes. In practice, the action may be brought by financial institutions, by their clients (individuals or legal entities) or by accredited associations. 1.1 What are the most common causes of actions taken The court having jurisdiction over a claim is determined depending by or against financial institutions and service on whether the customer is an individual or a commercial entity. providers in your jurisdiction? Where the claimant is a financial institution the claim shall be brought: ■ before the commercial court if the defendant is a commercial The most common causes of actions taken by financial institutions entity or person; or and service providers against clients relate to loan default or fraud to ■ before the civil court (tribunal de grande instance) or the the detriment of the financial institutions. small claims civil court (tribunal d’instance) if the defendant The most common causes of actions taken by clients relate to: is an individual or a non-commercial legal entity. The small ■ the breach of the financial institutions’ or service providers’ claims civil court has jurisdiction over claims worth less than general duty to inform, advise and alert their clients of the EUR10,000 and exclusive jurisdiction over consumer loans risks related to investments or associated with a specific disputes where the value of the claim is EUR75,000 or less. financial product; Where the claimant is an individual or a non-commercial legal ■ the infringement of specific regulations relating to the form entity, the claim articulated against a financial institution may be and substance of the contracts, namely governing personal brought either before the commercial court or before the civil court, loans and contracts with consumers; and at the claimant’s choice. ■ general civil liability in matters where bank wire-transfers are made. For instance, there has been a recent increase in Forex trading fraud cases (e.g. the use by individuals of false 1.4 Is third-party funding available in financial services trading schemes to defraud investors, mostly individuals with litigation (crowdfunding, maintenance, champerty, little market experience, by convincing them that they can etc.)? Does litigation insurance operate in your expect to gain a high profit. In these instances, bank wire- jurisdiction and, if so, what are the implications for this? transfers are used and the financial institutions are the only remaining potential defendants). Third-party funding is available in financial services litigation. There are no torts of champerty or maintenance as the case may be 1.2 What remedies are most likely to be awarded? in some common law systems. In practice, third-party funding is mostly used in arbitration Whether the action be founded in contract or in tort, damages are proceedings which are, in France, significantly more expensive than most likely to be awarded. state court proceedings. If the claim is based on contract, besides damages the following Although third-party funding is not subject to formal regulation, the remedies could be available, alternatively or on a cumulative basis Cour de Cassation (the French supreme jurisdiction) recognised the (if they are compatible): validity of third-party funding agreements as sui generis contracts. ■ specific performance, except where it is materially In addition, on 21 February 2017, the Paris Bar Council issued a impossible or if the cost of specific performance would resolution recognising third-party funding for both the parties and evidently be disproportionate; their counsels, providing in essence that: ■ withholding performance; ■ the attorney remains solely accountable to his client, not to ■ reduction in the price initially agreed; and/or the third-party funder; ■ termination of the contract. ■ only the client (and not the funder) enjoys the attorney-client privilege; and 1.3 Who has a right of action in financial services ■ the funded party’s attorney is required to “encourage his client disputes? Does it make a difference if the customer is to disclose the existence of such funding to the arbitrators” an individual or a commercial entity? and should warn the funded party about the possible consequences of not disclosing it (e.g. namely a conflict-of- interest issue that may result in the nullity of the award). As a general rule, any interested party may bring an action. This

60 WWW.ICLG.COM ICLG TO: FINANCIAL SERVICES DISPUTES 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London difficult toassessatthisstage. discrimination law. Their impactonfinancialserviceslitigationis relate tothebanking,realestateandhealthsectorsor Approximately 10classactionshavebeenmadepublicthusfar, and given groups(labourunions). mechanism) andmaybeinitiatedonlybycertifiedassociationsor available underconsumerlaw, whichisclosertoanopt-out action isanopt-inmechanism(exceptthe“simplifiedgroupaction”, discrimination andpersonaldataprotection. The Frenchclass disputes, healthproductliability, environmentalliability, may bebroughtinrelationtoconsumerandcompetitionlaw introduced in2014. A classaction(referredtoasa“groupaction”) Class actions,asunderstoodincommonlawjurisdictions,were 1.5 the insuredparty’s legalfeesandcourtcosts. Litigation insuranceisavailableunderFrenchlawandmaycover Dethomas PeltierJuvigny&Associés © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 limits apply. The French generalstatuteoflimitation isfiveyears, Before thecourts,dependingon causeofaction,varioustime 2.2 ■ ■ ■ a case.Inparticular, suchclauseswillbedeemedinvalid: and, therefore,donotprevent,inpractice,customersfrombringing question 3.6),suchclausesarefrequentlydeemedinvalidbycourts protection grantedbylawagainstunfairtermsofcontracts(see clauses are,inprinciple,validandenforceable.However, duetothe Limitation orexclusionofliabilityclausesaswelldutydefining is usuallygivenwithin18monthstotwoyears). to becost-andtime-related(ajudgmentinaclaimforcivilliability The mainbarrierstofinancialservicelitigationforcustomersseem 2.1 associations, namelyintheinvestmentlawsector. (ii) ajointrepresentativeactiontakenbycertainaccredited representing theirmembersforaclaimastocollectiveloss,and jointly, including(i)alegalactiontakenbyassociations In addition,severalothermechanismsenableclaimantstoact 2 case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary What arethemainbarrierstofinancialservice Before CommencingProceedings class actionsuitspostthefinancialcrisis? services litigation?Hastherebeenanincreasein jurisdiction? Ifso,hasthisimpactedfinancial Are classactionlawsuitsavailableinyour clock’? the commencementofaregulatory process‘stopthe before aregulatorybodyor thecourts?Does depending onwhetherproceedings arebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices obligations oftheparties. clause resultsinasignificantimbalancetherightsand in all“non-negotiatedcontracts”( in allcontractswithconsumersornon-professionals;and negligence; breach wasmadeintentionallyorresultedfromgross essential obligationofthecontractorwhere in alltypesofcontractswheretheclausecontradicts

contrats d’adhésion

) ifthe

2.3 interrupt timelimitsapplicabletoactionsbroughtbeforethecourts. Either way, thecommencementofaregulatoryprocessdoesnot not subjecttoanystatutoryorlegallimitationperiod. ( and licensingbanks,insurancecompaniesmutualinsurers actions broughtbytheFrenchauthorityresponsibleforoverseeing des Marchés Financiers proceedings broughtbytheFinancialMarkets Authority ( A three-yeartimelimitappliestosanctionandenforcement only beforethecourts. remedies, theclaimantinafinancialdisputemaybringanaction sensu to aregulatorymediator, individualsorentitiesmaynot, financial institutionsinrelationtoinvestmentservicesaresubmitted Before regulatorybodies,exceptincaseswhereclaimsagainst terms oftheircontract. determine thetimelimitwhichshallapplytoactionsunder parties ofacontractarealsogiventhepossibilitytoarrangeand services provided byprofessionals toprivateindividuals limitation periodwas“ against consumers. The year limitationperiodapplies,however, toclaimsbyprofessionals known thefactsenablinghimtoexercisehisright. A specifictwo- starting fromthedayholderofarightkneworshouldhave ■ secrecy cannotberaised: inspections. However, asanexceptiontothisprinciple, professional well todocumentsandinformation obtainedinthecourseoftheir that maycometotheirattentionwhenperformingdutiesas professional secrecywhichappliestofacts,actsandinformation and ACPR inspectors,controllersandemployeesareboundby Concerning investigationsconductedbyregulatorybodies, AMF judgments whichareavailabletothepublic. pending civilproceedingsarenotpubliclyaccessible,unlike privilege. However, inpractice,briefsandevidencerelatingto including financialservicescases,cannotavailoflitigation investigations). Partiestodisputesbroughtbeforethecivilcourts, criminal investigations(includingfinancialservices As regardslitigation,Frenchlawonlyprovidesforsecrecyof the communicationascasemaybeincommonlawsystems. personam France, theFrenchconceptoflegalprivilegebeingbasedonan By contrast,in-houselawyersdonotbenefitfromlegalprivilegein ■ ■ secrecy. Inthisrespect: Concerning legaladvice,Frenchlawyersareboundbyprofessional as understoodincommonlawsystems. French lawdoesnotprovideforalitigationorlegaladviceprivilege Autorité deContrôlePrudentieletRésolution , bringacasebeforeregulatoryauthorities.Inordertoobtain Can partiesinfinancialserviceslitigationavailof and entities; liquidation proceedingsbroughtagainst financialinstitutions scope ofcriminalproceedings,orin connectionwithjudicial in defenceagainstthejudicialauthorities actingwithinthe the client. covered byafulllegalprivilegewhichmaynotbewaived communications betweenlawyersandtheirclientsarealso confidential” ( confidentiality byspecifyingthatadocumentis“non- legal privilege;lawyersare,however, entitledtowaive communications betweenlawyersarecoveredbyageneral considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are approachtoconfidentialityratherthanonthecontentof

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61 France 62 France contracts. entities mustfollowstrictrulesas totheformandsubstanceof products (suchas,forexample,personal loans),financialservices sophisticated borrower. Moreover, regardingspecifically regulated liable forgrantinganinappropriate orexcessiveloantoanon- regarding theirclients’ assetsandabilitytorepay, andmaybeheld associated withloans:banksareobligedtogatherinformation to warntheclientsofpotentialconsequencesandrisks signing ofthecontract.Courtshavealsoimposedadutyonbanks owe ageneraldutyofinformationtotheirclientsevenbeforethe In addition,caselawrecognisesthatbanksandfinancialinstitutions demonstrated. causal linkbetweensaidbreachandtheharmsuffered is services entitiesonthebasisofaregulatorybreachprovidedthat Investors areentitledtobringcourtproceedingsagainstfinancial the customerofrisksassociatedwithfinancialproducts. appropriateness oftheservice),andageneraldutytoinformorwarn rules (suchas,forinstance,assessmentofthesuitabilityand services entitiesincludeorganisation rules,conductofbusiness In anon-exclusivemanner, examplesofdutiesbindingonfinancial and fromcaselawbasedonthegeneralprinciplesofcontractlaw. recommendations andguidelinesissuedbythe AMF andthe ACPR, and FinancialCodetheConsumerCode),fromregulation, duties arisingfromthelaw(especiallyFrenchMonetary Financial servicesentitiesareboundbyseveralnon-contractual 2.5 ■ ■ stating that: affected bythenewlegal provisions applicabletosuchcontracts regarded bycourtsasnon-negotiatedcontractsand,therefore, 2016). Standardformmasteragreementsare,infact,likelytobe introduced intheFrenchCivilCode(byOrderdated10February Specific provisionson“non-negotiatedcontracts”wererecently Union (“EU”)MemberStatelawwithEUjurisdictionclauses. prefer, intheBrexitcontext,tocontinuetradingunderaEuropean intended toprovideoptionsforfinancialinstitutionsthatwould which isthefirstcivillaw-governedISDA Master Agreement, is Master Agreement governedbyFrenchlaw. This masteragreement, Moreover, in2018,ISDA launchedandpublishedanew2002ISDA financial institutionsandare,inprinciple,validenforceable. Standard formmasteragreementsarefrequentlyusedbyFrench 2.4 performing theirduties. foreign authoritiesorotherdomesticwhentheyare Professional secrecymayalsobewaivedwithregardtocounterpart ■ ■ Dethomas PeltierJuvigny&Associés © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM ISDA Master Agreement)? Howaretheytreated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour ACPR duties. against administrativecourtsseizedofanactionrelatingto committee whentheyarecarryingouttheirduties;and French Courtof Auditors oraparliamentaryinvestigation against thenationalfinancialintelligenceunit(Tracfin), the they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare drafted thecontract. ambiguous clausesareinterpretedagainstthepartywhich the rightsandobligationsofpartiesisinvalid; any clausewhichwouldresultinasignificantimbalance

■ ■ border financialserviceslitigations: common lawsystems,whichareparticularlyinterestingforcross- operate alongreformedproceduresandmethods,inspiredby chambers, specificallydesignedtohearinternationaltradecases, the Pariscommercialcourtandofappeals. These In addition,twointernationalchamberswererecentlycreatedwithin disputes. civil court,havespecialisedchambersdevotedtofinancialservices Certain larger courts,suchasthePariscourtofappealsor France. There isnospecialistcourtforfinancialserviceslitigationin 3.1 above-mentioned non-contractualdutiescannotbecontractedoutof. clients andtheintegrityofmarket “ As ageneralrule,investmentserviceprovidersareobligedtoact There arenospecific ADR regulationsapplicable tofinancial 3.4 a settlement. exceptions, firstreferredtoajudicialconciliatorinorderattempt may be,financialservicesclaims,havetosubjectsome all claimsreferredtosmallcivilcourts,including,asthecase disputes toan ADR mechanism. As anexceptiontothisprinciple, There isno,assuch,pre-trialobligationforpartiestorefertheir stipulated forthisobligation. taken totryattemptasettlement.However, thereisnosanction of thematter, the claimantmustdescribeinthesummonsactions Save forlegitimatereasonsrelatingtoanemergency ortothenature 3.3 commercial court)ratherthanonthenatureoflitigation. which theclaimisbrought(civilcourt,smallclaimscivil No. The proceedings’ ruleswillvarydependingonthecourtbefore 3.2 ■ ■ honestly, fairlyandprofessionally 3 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 cross-border businesslitigationandhaveagoodknowledge the judgesareselectedonbasisoftheirexperiencewith evidence maybesubmittedintheoriginalEnglishversion; proceedings maybeconductedinEnglish,anddocumentary financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase jurisdiction? used toresolvefinancialservices disputesinyour in financialservicescontracts, andis ADR commonly your jurisdiction? Are ADR clausestypicallyincluded regulations thatapplytofinancial servicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor judges mayhearparties,witnessesandexperts. dispute; and the specificproceduralrulesallowaquicksettlementof of bankingandfinanciallaw;

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In practice,arbitrationclausesarerarelyincludedinfinancial consent. able toenforcetheclauseagainstconsumerwithoutlatter’s concerning arbitrationclauses,thefinancialinstitutionwillnotbe unfair unlessthecontraryisprovedbyprofessional.Inaddition, However, incontractswithconsumers, ADR clausesaredeemed mechanisms, e.g.viamediation,conciliationorarbitration. Parties canalsocontractuallyagreetosettletheirdisputesvia ADR ( préalable deculpabilité criminal litigation:a“guiltyplea”( by Anglo-Saxon systemsandparticularlyappropriatedforfinancial settlement mechanismsrelatingtocriminalinvestigations,inspired breaches ormarketabuse.Inaddition,Frenchlawprovidesfortwo to personscharged withhavingengagedincertainregulatory conditions, offer aformalsettlement(“administrativecomposition”) Regarding regulatoryproceedings,the AMF can,undercertain conciliator); andtheparticipativeprocedure. by anextra-judicialmediator);conciliation(conductedajudicial mechanisms areavailableunderFrenchlaw:mediation(conducted services disputes.Generally, apartfromarbitration,several ADR Dethomas PeltierJuvigny&Associés © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 ■ Regarding consumerprotectionspecifically: ■ ■ interpretation ofunfairprovisions: French lawprovidesforseveralgeneralrulesrelatingtothe 3.6 information maybesubjecttoregulatorysanctions. service providerswhichprovidefalse,impreciseormisleading exact, non-misleadingandcomprehensible In addition,astheyarerequiredtoprovideinformationina“ the partiesmaynotcontractuallyagreetodisregardorlimitthem. is alsoentitledtoseekdamages. These rulesarepublicpolicyrules: consent ofapartyhasbeenintentionallywithheld. The misledparty the intentofinducingerror)ordecisiveinformationasto the partieswasobtainedasaresultofmisstatementschemes(with A contractmayberescindedbycourtswheretheconsentofone 3.5 judicial proceedingscanbebrought. implementation ofageneralobligationtoattemptsettlementbefore expected ADR developmentsinthenearfutureis resolve financialservicesdisputesinFrance,althoughoneofthe more oftenstipulated,but,generally, ADR seemsbarelyusedto services contracts.Mediationandconciliationmechanismsare convention judiciaire d’intérêtpublic dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling non-professionals; and regarding informationandadvice provided toconsumersor financial servicesprovidershave abroaderobligation invalid. imbalance intherightsandobligations ofthepartiesare non-negotiated clauseswhich result inasignificant interpreted againstthepartywhodraftedcontract,and(ii) in all“non-negotiatedcontracts”(i)ambiguousclausesare negligence (caselaw);and contract breachwasmadeintentionallyorresultedfromgross obligation ofthecontractareinvalidoravoidedwhere in alltypesofcontracts,clausescontradictingtheessential jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted

); and“judicialsettlementofpublicinterest”

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to thecommunicationofdocumentsinregulatoryproceedings However, professionalsecrecycannotbeopposedasanimpediment professional secrecyingeneralandbankingparticular. Personal datagatheredbyfinancialservicesiscovered 3.7 clauses. several consumerprotectionprovisions,namelyregardingunfair Article oftheConsumerCode).Non-professionalsbenefitfrom any legalentityactingoutsideitsprofessionalactivities(preliminary French lawalsoencompassesthenotionof“non-professional”,e.g. acting forpurposeswhichareoutsidehis/herprofessionalactivities. A consumerisbroadlydefinedunderFrenchlawasanyindividual ■ services disputes. There arenospecificregulations relating tothecostsinfinancial 4.2 Cassation the appealisnotpossiblecasecanbebroughtbefore brought beforetheterritoriallycompetentcourtofappeals. When Yes, exceptfordisputesworthlessthanEUR4,000. Appeal is 4.1 evidence doesnotcomplywiththeorderand/ortoimposeafine. inferences itdeemsappropriateifthepersondetainingsuchpieceof production bythecourt,courtbeingatlibertytomakeany pieces ofevidencecan,however, besubjecttoanorderof what evidenceitwillproduceinordertosupportitscase.Specific litigants, thegeneralprinciplebeingthateachpartyfreelydecides There isnodiscoveryprocessnorageneraldisclosureobligationfor 2016/679). (French legislationandEUGeneralDataProtectionRegulation personal dataaccordingtoapplicableregulations Financial servicescustomershaveapermanentaccesstotheir ■ ■ commercial proceedings,exceptwhere: impediments tothecommunicationofdocumentsinciviland contrary, professionalandbankingsecreciesarelegitimate before the AMF orthe ACPR orincriminalproceedings. To the 4 dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt professional (forinstance, ADR clauses). deemed invalid,unlessthecontraryisprovedby other typeofclausesareregardedasunfair, andaretherefore (for instance,limitationandexclusionofliabilityclauses), are regardedasunfairandinvalidinanirrefutablemanner non-negotiated contracts;amongtheseclausescertainterms professional’s detrimentareinvalid,eitherinnegotiatedand and obligationsofthepartiestoconsumer’s ornon- clauses whichresultinasignificantimbalancetherights services disputes? How doesthecourtdealwithcosts infinancial disputes? Is therearightofappealinfinancialservices Post Trial legitimately heldinformationrelatingtotheirclient. clients: insuchdisputes,financialinstitutionsmayuseany the disputeisbetweenafinancialinstitutionandoneofits the clienthasexpresslyagreedtocommunication;and

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63 France 64 France 2015), the (Rothchild case,26September2012; CréditSuissecase,15March Brussels IRegulationNo44/2001 andtheLuganoConvention invalid bothunderFrenchcivillaw (asa“ Although itpreviouslystatedthat unilateral jurisdictionclausesare 5.4 damage occurredoutsideFrance). states, contractperformedinaforeigncountry, harmfuleventor contains cross-borderelements(e.g.partiesestablishedindifferent Extra-territorial jurisdictionistypicallyassertedwhenthedispute 5.3 at leastequivalenttothisapplicableFrenchauthorities. extent theinformationexchangediscoveredbyprofessionalsecrecy EU authoritiesoroutsideoftheEU,subjecttoreciprocityand even intheabsenceofabilateralconvention,eitherwithcounterpart for securitiesregulators). The ACPR mayexchangeinformation Memorandum ofUnderstanding(information-sharingarrangement International Organization of SecuritiesCommission’s Multilateral mutual legalassistance. The AMF is,inparticular, asignatorytothe regulators andmayconcludebilateralinterstateconventionson The AMF andthe ACPR exchangeinformationwithforeign agreements, suchastheHagueConventionof1970. courts seekingevidenceabroadwillapplyinternationalcooperation requests permissiontocarryoutinvestigations.OutsidetheEU, competent courtofanotherMemberStatetoobtainevidenceor 1206/2001 willapplywhereaMemberStatecourtrequeststhe whether bilateralormultilateral.Mostnotably, Regulation(EC) France isapartytoseveralinternationalcooperationagreements, 5.2 often resultinmuchmorecomplexlegalconcerns. are mainlybasedoninternationalcooperationagreementswhich relatively clearandefficient solutions.OutsidetheEU,solutions I RegulationRecast,(EC)1206/2001)whichoffer the EU,suchissuesaregovernedbyEuropeanregulations(Brussels are themosttypicalissuesarisingincross-borderdisputes.Inside Extra-territorial jurisdiction,applicablelawandaccesstoevidence 5.1 those incurred,especiallywhenthedefeatedpartyisanindividual. of legalfeesawarded,whichtendtocorrespondonlyaportion fees. Inpractice,however, thecourtfreelydeterminesamounts expenses incurredinthecourseoftrial,includingattorneys’ incurred throughouttheproceedings( obtain paymentbytheotherpartyofcostsanddisbursements As ageneralrule,civilprocedurerulesallowthewinningpartyto Dethomas PeltierJuvigny&Associés © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM jurisdiction clause isvalid,sinceitpermitstheidentification ofthe 5 how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour Cour deCassation finallyruledthataunilateral

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cannot bringanactionbeforeregulatoryauthoritiesinorderto commits marketabuse.Bycontrast,asmentionedabove,claimants professionals’ authorityand,regardingthe AMF, anypersonthat professionals undertheirsupervision,individualsactingthe they mayinitiatearegulatorysanctionproceedingagainst The AMF andthe ACPR regulatefinancialservicesdisputessince ■ ■ Two administrativeauthoritiesregulatetheFrenchfinancialsector: 6.1 and suchclausesarefrequentlydeemedinvalidbythetrialjudges. unilateral jurisdictionclausesremains,however, fragileinFrance objective criteriatodefineitarestated. The enforceabilityof because theyexplicitlynamethecompetentjurisdictionor requirement ofsufficient predictabilityaredeemedvalid,either Therefore, unilateraljurisdictionclausescomplyingwiththe case, 7October2015). jurisdictions beforewhichaclaimcouldbebrought(AppleLtd under theirauthority orontheirbehalf. Appeals against AMF AMF decisionsconcerningprofessionals andindividualsacting The supreme jurisdiction). are broughtbeforethe Appeals againstthe ACPR’s decisions(relating tosanctionsornot) 6.4 which arefreetosettlethecaseinadifferent manner. regulatory authorities’ decisionsarenot,assuch,bindingforcourts on thepartiesdirectlyconcernedbydecision.However, Subject toappeal,the AMF’s andthe ACPR’s decisionsarebinding 6.3 damages forbreachofaregulatoryduty. Nor the AMF orthe ACPR havethepowertoorderpaymentof sanctions (includingfinancialpenalties). appointment ofaprovisionaladministrator)aswelldisciplinary and imposeenforcementprotectivemeasures(forinstance, The ACPR cancarryoutinvestigations,issueinjunctionstocomply, impose administrativesanctions(includingfinancialpenalties). administrative settlementagreements,issueformalnoticesand The AMF cancarryoutinspectionsandinvestigations,enterinto powers. The AMF andthe ACPR bothhaveregulatoryandrepressive 6.2 obtain remedies. 6 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Conseil d’Etat insurance companies. the ACPR, whichregulatestheactivitiesofbanksand French financialmarkets;and the AMF, whichregulatesparticipants andproductson services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/

alsohasjurisdictiononappealsagainst certain

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their respectivewebsites. The decisionsofthe AMF andthe ACPR arepubliclyaccessibleon 6.5 power beforethe other opinionsmaybesubjecttoanactionforexcessiveuseof Finally, instructions,interpretations,recommendations,rulingsand sanctioned individualsapplyforastayofexecution. Appeals donothaveasuspensiveeffect, exceptinthecaseswhere respondent andbytheauthority’s chairman. concerned person.Sanctiondecisionsmaybeappealedbythe Non-sanction decisionsofbothauthoritiesmaybeappealedbythe decision’s notification. The timelimitfortheappealis,inallcases,twomonthsasof court ofappeals. decisions concerninganyotherpersonarebroughtbeforetheParis Dethomas PeltierJuvigny&Associés © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 custodians andexchanges. intermediaries, andfast-trackregistrationprocessesforcrypto- issuances, newregulatoryregimesforarangeofcrypto-asset “Pacte” Lawintroducinganoptionallicensingregimefortoken responsibility working topassmeasuresthatshouldgivethe AMF greater the promotionofinnovation.Inthisrespect,Franceiscurrently On anationallevel,initsprioritiesfor2019,the AMF hasprioritised proposal). have beenpublishedandareexpectedtobediscussed(Omnibus3 greater supervisorypowerstotheEuropeanauthorities amendment. Against thebackdropofBrexit,proposalsgiving platforms. This regulation shouldleadtoaspecificMiFID2 wide authorisationandpassportingregimeforcrowdfunding regulation oncrowdfundingserviceprovidersintroducinganEU- Regarding expectedEUregulations,theCommissionhasproposed Distribution Directive). (“MiFID2”), PaymentServicesDirective,andInsurance Products Regulation,MarketsinFinancialInstrumentsDirective European level(PackagedRetailandInsurance-basedInvestment related legislationhas,inparticular, expandedexponentiallyona now beingevaluatedandadjustedasnecessary. Financialservice- substantial numberofneworstrengthenedregulations,whichare In theaftermathoffinancialcrisis,regulatorsputfortha 7.1 7 against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly

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1. trends/cases: The last12monthsweremarkedbythefollowingsignificant 7.3 questions 2.1,2.5and3.6),Franceisacustomer-friendly jurisdiction. Given thehighprotectionoffered tocustomersbyFrenchlaw(see 7.2 namely concerningFinTech firmsandcrypto-assets. acutely focusedonnewtechnologychallengesandrelatedlitigation, which startedtoapplyfrom3January2018. Attention isnowmore legislative measureofthepost-crisisregulatoryagenda,MiFID2, later, thisproject seemsnowcomplete,withthelastmajor banks, insurance,securitiesmarketsandothersectors. A decade financial supervisionandanimprovedregulatoryframeworkfor set ofregulatoryreforms,includingnewrulestostrengthen Following thefinancialcrisis,EUembarkedonawide-ranging 7.4 3. 2. a bankinglicencewithdrawal. agreeing topleadguiltyinorderavoidalawsuitorprevent role ofregulatorysanctionstheeconomicpowers,firms bank forviolatingU.S.sanctions. The casedemonstratesthe regulations. These finesare someofthelargest imposedona settle adisputeoverviolationsofanti-moneylaundering Cuba andLibya). The bankalsoagreedtopay$95million otherwise sanctionedbytheUnitedStates(e.g.Iran,Sudan, executed topartiesincountriessubjectembargoes or settle investigationsintoitshandlingofdollartransactions agreed topayU.S.federalandstateauthorities$1.4billion On 19November2018,theFrenchbank drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany billion ofpotentialdamages. foreign banksofinternationalreputationandrepresentinga national level,amassdisputeaffecting severalFrenchand Forex Fraudcasesincreasedsignificantlyandbecame,ata financing. identity verification,anti-moneylaunderingandterrorism frequency oftheinvestigations/sanctionsrelatedtocustomer Générale penalty on penalty imposedon previous ACPR decisionsonthesameground(€1million consequences oftheshortcomings. This casefollows the nature,duration,exceptionalgravityandpotential financing. This particularly highpenaltytakesintoaccount verification requirementsonmoneylaunderingandterrorism Postale On 21December2018,the ACPR sanctioned

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France La Banque

Société

65 France 66 France Dethomas PeltierJuvigny&Associés © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM We adviseourclientsinstrategicmatters,essentiallyrelatedtolitigationandarbitration,mergersacquisitions,corpor experienced partnersfromthebestFrenchandinternationalfirms. Dethomas PeltierJuvigny& Associés Strategists” inlitigationby Since 2014,hehasconstantlybeenrankedasoneofthe“40Great Khmer. University ofPhnomPenh,Cambodia(1998–1999),healsospeaks is fluentinFrenchandEnglish. A formerlecturerinlawatthe of ParisX)andanLL.M.fromWashington College ofLaw(A.U.).He DegreeinBusinessLaw(University Arthur DethomashasaMaster’s regulations. He isalsoalectureratSciences-PoParisinBankingandFinancial (a Frenchlegalthink-tank). and white-collarcriminallaw, heisanexpertatthe Renowned forhisexpertiseinstockexchangeandfinanciallitigation Bar in2003. He wasappointed elected tothepartnershipin2007. He beganhiscareeratSalans,beforejoiningCVML wherehewas Arthur Dethomas defence beforetheFrenchFinancialMarkets Authority. economic andfinancialcriminallawmatters,particularlyincasesofstockexchangebankingfrauds.We haveahighlyrega With itscombinedunderstandingofcriminalprocedureandknowledgethebusinessfinancialworld,ourfirmprovidescoun shareholders’, post-acquisitionandgovernancedisputes. instruments, bankers’ liability, litigationrelatedtovariousfraudulentschemes,notablyMadoff andForexfrauds)aswell Our expertiseiswellrecognisedinthepracticeofstockexchange,financialandbankinglitigation(disputesrelatingto competition andmergercontrol.

islicensedinParisandNew York. Premier SecrétairedelaConférence France 75002 Paris 49 avenuedel’Opéra Dethomas PeltierJuvigny& Associés Arthur Dethomas URL: Email: Tel: Décideurs Magazine

www.dpjaparis.com/en [email protected] +33 142257878

isanindependentlawfirmdedicatedtolitigationandcomplexcorporateoperations,composedof .

Club desJuristes

oftheParis

Russian. She isfluentinFrenchandEnglish.alsospeaksBulgarian University ofParisII–Panthéon Assas (2005). She hasapost-graduatedegreeinbusinessandtaxlawfromthe Authority. handles white-collarcrimecasesbeforetheFrenchFinancialMarkets governance litigations,beforestateandarbitrationcourts.Shealso financial litigations,aswellshareholders’,post-acquisitionand and internationalclientsstrategicbankliability, stockmarketand She isspecialisedinlitigationandarbitrationhandlesforFrench before joiningthefirmin2013. of theFrench Arbitration Association. ShestartedhercareeratCVML Dessislava Zadgorska ICLG TO: FINANCIAL SERVICESDISPUTES 2019

joinedtheParisBarin2008andisamember URL: Email: Tel: France 75002 Paris 49 avenuedel’Opéra Dethomas PeltierJuvigny& Associés Dessislava Zadgorska

www.dpjaparis.com/en [email protected] +33 142257878

ate finance,governance, structuring offinancial

rded practicein sel toclientsin company law,

France

Chapter 12 Germany Marcus van Bevern

Kantenwein Dr. Carolin Sabel

1 Bringing a Claim – Initial Considerations party to court proceedings, i.e. individuals, companies and public- law entities with legal capacity. Non-incorporated German associations, though having no legal capacity, may also sue and be 1.1 What are the most common causes of actions taken sued. In financial services disputes this would particularly concern by or against financial institutions and service consumer protection associations. On the merits, most claims are providers in your jurisdiction? based on contract or pre-contract and brought by one of the contractual parties. However, a right of action could also result Though there is no national statistic covering all courts and disputes, from law of torts which may include the violation of supervisory cases decided by the Federal High Court (Bundesgerichtshof ) show law provided that the relevant supervisory law aimed at the that, as far as civil law is concerned, in recent years a high number protection of the rights of individual persons. of financial services disputes concerned (i) the payment or Consumer protection law only applies to individuals. Consumers repayment of fees charged by the banks or the validity of fee may rely on a multitude of consumer protection laws which do not arrangements in general, (ii) the revocation and rescission of apply to companies or legal entities. E.g. there are special provisions consumer loans due to faulty revocation instructions, (iii) damage for consumer credit agreements, in particular with respect to claims based on mal-advice in derivatives (e.g. swaps), securities preliminary contract information obligations. Furthermore, legal and other investments, and (iv) the premature termination of home prohibitions applying to general terms of business are less restrictive saving agreements by home saving banks as a result of the market with respect to contracts with companies. Finally, certain form situation in interest rates. requirements do not apply to companies – e.g. a company may enter As far as regulatory and criminal proceedings are concerned, the into a warranty in an oral agreement. German authorities were (and still are) investigating tax-driven share transactions which took place around the dividend record date 1.4 Is third-party funding available in financial services and involved the acquisition of shares with (cum) dividends due on litigation (crowdfunding, maintenance, champerty, or just before the dividend record date and delivery of these shares etc.)? Does litigation insurance operate in your after the dividend record date without (ex) dividends. This structure jurisdiction and, if so, what are the implications for made it possible to obtain multiple returns of capital gains tax that this? had only been paid to the German tax authorities once (so-called “Cum-Ex” trades). Allegedly, the damage cost European treasuries Litigation insurance is a common tool for individuals, but rather €55 billion. seldom for companies. It is mostly restricted to certain disputes, e.g. employment law or traffic accidents. Financial services disputes are often not included or require special insurance coverage. The 1.2 What remedies are most likely to be awarded? insurance holders are usually required to substantiate a claim or a statement of defence prior to commencing a cause of action and Most judgments rewarded by the courts concern the payment of a such substantiation is to be confirmed by a lawyer and will be certain amount of money, e.g. a repayment of invalid fees incurred double-checked by the insurance company. The insurance cover is by a bank or the payment of damages resulting from mal-advice. usually restricted to statutory fees. However, there could also be a declaratory judgment as a result of There is a constantly growing number of companies offering an affirmative action, e.g. when a consumer protection association services in the field of maintenance and champerty, including brings a claim against general terms of business used by a financial crowdfunding. Contingency fees for attorneys are, however, not institution. Note that German law does not allow for punitive allowed. damages. In addition, under the Code of Civil Procedure, any parties who, due to their personal and economic circumstances, are unable to pay the 1.3 Who has a right of action in financial services costs of litigation, or are able to so pay them only in part or only as disputes? Does it make a difference if the customer is instalments, may be granted assistance with the court costs upon an individual or a commercial entity? filing a corresponding application, provided that the action they intend to bring or their defence against an action that has been Under the German Code of Civil Procedure (Zivilprozessordnung), brought against them has sufficient prospects of success and does any person having legal capacity also has the capacity of being a not seem frivolous.

ICLG TO: FINANCIAL SERVICES DISPUTES 2019 WWW.ICLG.COM 67 © Published and reproduced with kind permission by Global Legal Group Ltd, London 68 Germany of theyearinwhichclaimwas dueandtheclaimantbecame particular, damageclaims)isthreeyearscommencing asoftheend The generaltimelimitapplyingto mostcivilcausesofaction(in 2.2 contractual obligations. financial institutionmustnotrestrictitsliabilityformain the courts.Inparticular, courtshavefrequentlyheldthatabankor considered standardtermsofbusinessandareoftenheldinvalidby bringing acasetocourt. This ismainlybecausesuchclausesare frequently usedincontracts,theyrarelypreventcustomersfrom Although exclusionaryclausesordutydefiningare with respecttoallsingleprerequisitesgivingrisetheclaim. to burdenofevidence,aclaimantingeneralhasprovideevidence will becalculateddependingontheamountindispute. With respect claimant hastoadvancecourtfeeswhenfilingaclaimandthe insurance), and(iii)burdenofevidence. With respecttocosts,a estoppel ( The mainbarrierstofinancialservicelitigationforcustomersare(i) 2.1 still ratheranexception. institutions. However, intermsofnumbers,theseproceedingsare prospectus liabilityand model casesthatwerebroughttothecourts,mainlybasedon As anaftermathtothefinancialcrisistherehavebeenanumberof not subjectofthemodelcaseproceeding. decision andthoseotherindividualquestionsindisputewhichwere proceed andbedecidedonthebasisofbindingmodelcase rendered adecisiononthisobjective,eachindividualcasewill objective”). Oncethecourtdecidingmodelcaseproceedinghas existence ofafaultyprospectus(theso-called“establishment entitlement ortheclarificationofcertainlegalquestions,e.g. (non-)existence ofcertainconditionsjustifyingorrulingout These preliminaryquestionshavetorefertheestablishmentof are commontoamultitudeofpartiesandtheirclaimsordefences. Rather, itislimitedtoclarifyingcertainpreliminaryquestionswhich designed tofinallydecideonthemeritsofallclassmembers. However, contrarytoaclassaction,modelcaseproceedingisnot ( Proceedings inDisputesunderCapitalMarketsLaw not knowaUS-styleclassaction.In2005,the Act onModelCase Historically, Germancivilprocedurewasstrictlybi-partisananddid 1.5 Kantenwein © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM Kapitalanleger-Musterverfahrensgesetz 2 class actionsuitspostthefinancialcrisis? services litigation?Hastherebeenanincreasein jurisdiction? Ifso,hasthisimpactedfinancial Are classactionlawsuitsavailableinyour clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary What arethemainbarrierstofinancialservice Before CommencingProceedings cf. question2.2below),(ii)costs(ifnotcoveredby

ad hoc announcementsoffinancial ) cameintoforce.

made reference. As aresult,documentproductionisscarcely material, thatareinitspossessionandtowhichoneofthepartieshas party toproducerecordsordocuments,aswellanyother certain circumstancesmayacourtdirectoneofthepartiesorthird has tobringforwardthefactssupportingitsclaim.Onlyunder general disclosureobligation.Rather, eachpartytoaproceeding German civilproceduredoesnotknowapre-trialdiscoveryor 2.3 proceedings. decision dependsontheoutcomeofregulatoryoradministrative civil claims.However, acivilcourtmaysuspenditsproceedingsif The commencementofaregulatoryprocessdoesnotstoptheclockfor the timeallegedactwascommitted. regulatory body, thetimelimitwouldbeoneyearcommencingasof E.g. ifafineofupto€250,000couldbedeterminedbythe respect totheviolationoflawthatissubjectaccusation. legal consequences(penaltiesorfines)setforthinthelawwith In regulatoryproceedingsthetimelimitdependsonmaximum case oflackknowledge(10years). prescription periodscanapplytosecurities(up30years)andin aware ofthedebtorandfactsgivingrisetoclaim.Longer valid. Insolvency Code( Derivatives are,however, safe-guardedunder theGerman Master Agreement ortheGermanMaster Agreement forFinancial apply statutorylawinstead.Netting clausescontainedintheISDA court woulddeclarethedisputedcontractualclauseinvalidand which isoftennotmetincourtproceedings.Ifthathappens,the unreasonably disadvantagetheotherpartytocontract–atest Gesetzbuch prohibitions setforthintheGermanCivilCode( business whicharesubjecttoanumberofrestrictionsand Under Germanlaw, alltheseagreementsqualifyasgeneraltermsof completely identical. associations whichprovideforsimilarstandardsbutarenot own standardformsorelaboratedbybanking the GermanBanking Association. Furthermore,banksusetheir Master Agreement forFinancialDerivatives Transactions issuedby Master Agreement aswelloftheGermanequivalents,i.e. German banksandfinancialinstitutionsaremakinguseoftheISDA 2.4 on matterscoveredbytheattorney’s dutytosecrecy. Procedure Code. Also, attorneyshavetherighttorefusetestimony communications intermsofparagraph148theGermanCriminal attorney aswellalldocumentsrelatingtoattorney-client This exemptionincludesdocumentsinthepossessionof pursuant toparagraph97oftheGermanCriminalProcedureCode. exempted fromconfiscationbytheinvestigatingauthorities institutions orserviceproviders,certaindocumentswillbe If, however, criminalcharges arebroughtagainstfinancial privilege isoftenofnoimportanceincourtproceedings. applied forandthequestionoflitigationand/orlegaladvice

ICLG TO: FINANCIAL SERVICESDISPUTES 2019

considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof ISDA Master Agreement)? Howarethey treated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour

– BGB

Insolvenzordnung ). Inparticular, standardbusinesstermsmustnot

) andshouldthereforebeheld

Germany

Bürgerliches

deviated fromunlessexplicitlyallowedbythelaw. The only In general,alltheseobligationsarelegallybindingandmaynotbe law basedonoftorts. liable towardsitscustomerforviolationofdutiesundersupervisory contract. Inaddition,afinancialserviceinstitutioncouldbeheld identical contractualobligationsas“implicit”dutiesunderthe not consideredadirectcontractualobligation,courtstendtoassume services. Although suchdutiesundersupervisorylawareusually documentation andcodeofconductforinvestmentadvisory ( regulations. To giveanexample,theSecurities Trading Act often drivenbyrequirementsunderEuropeandirectivesor contractual dutiesundersupervisorylaw. All theseobligationsare contract (e.g.forpaymentservicescontracts)oraredefinedasnon- either consideredstatutoryobligationsofcertaindefinedforms German statutorylawprovidesfornumerousobligationswhichare 2.5 Kantenwein © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 administration of justiceofthatfederalstate,toresolve thedispute by aconciliator, setuporrecognisedby therespective is notpermissiblebeforeanattempt hasbeenmade(andfailed) determine thatthefilingofaction inminorcases(i.e.upto€750) Procedure ( pursuant tosection15aoftheIntroductory Act totheCodeofCivil A pre-trialproceduremayonlybe obligatoryinminorcases: 3.3 There isnospecialapproachinfinancialservicelitigation. 3.2 focusing onfinancialservicesdisputes. places (e.g.FrankfurtandMunich),areequippedwithachamber private law. Thus, large regionalcourts,inparticularatbanking courts aredividedintochambersspecialisedincertainfieldsof courts dependingontheamountindispute.However, regional Financial servicesdisputesarebroughtbeforelocalorregional provide foraspecialistcourtfinancialserviceslitigation. The GermanJudicature Act ( 3.1 out. client’s practicalexperienceandknowledgecannotbecontracted wants toprovideadvisoryservices,itsobligationinquirethe execution-only transactions.However, ifthefinancialinstitution excludes theprovisionofadvisoryservicesandlimitsitsto its client’s practicalexperienceandknowledgeinsecuritiesifit relates. E.g.afinancialinstitutionwouldnotbeobligedtoinquire be toexcludethemainobligationwhichsecondary possibility forcontractingoutcertainsecondaryobligationswould Wertpapierhandelsgesetz 3

) containsobligationswithrespecttothe Gerichtsverfassungsgesetz

Bundesländer

) doesnot

) can

commercial contracts. it. Arbitration istherefore–ifatallratheratoolusedin be includedinthecontractualagreement;ithastoseparatedfrom agreement withaconsumerhastobeinwrittenformandmustnot which have,ingeneral,agoodreputation.Further, anarbitration chambers fordisputesconcerningbankingandfinancialservices, services contracts. This isalsoaresultofthespecialistcourt recent years,arbitrationremainsrelativelyuncommoninfinancial Contrary tomediationanddespitevariouspromotionattemptsin and theircustomers.Formoredetails,seequestion6.1below. cost-efficient solutioninfinancialservicesdisputesbetweenbanks Mediation proceedingsinvolvinganombudsmanoffer afastand 3.4 the conciliationproceedingsstatuteoflimitationsissuspended. this stipulation,itsclaimwouldberejectedasinadmissible.During filing alawsuitwithcourt.Iftheclaimanthasnotcomplied conciliation ormediationhastobemadebytheclaimantprior introduced respectiveprovisions.Inthesecases,theattemptfor by mutualagreement.Infact,quiteafewfederalstates’ lawshave prohibitions which arestricterifconsumersinvolved. Inboth These termsofbusinesshavetocomply withamultitudeofspecial numerous counterpartiesareconsidered generaltermsofbusiness. are pre-formulatedbyafinancial institutionandused Unless individuallynegotiatedand agreed,contractualtermswhich 3.6 in adamageclaimforrewindingthesale. negligent misstatementisconsideredabreachofcontractresulting knowledge andpurposeshastorevealtherelevantrisks. A based onsuchinformationandhastocomplywiththeclient’s all publiclyavailableinformation. Any recommendationhastobe investment, thebank/financialinstitutionhastogatherandevaluate intended durationoftheenvisagedinvestment. With respecttothe risk awarenessandfinancialcircumstancesplusthepurpose securities andotherinvestmentmeasuresaswellthecustomer’s inquire thecustomer’s practical expertiseandknowledgein the law. Inparticular, abankorfinancialinstitutionisobligedto implemented thejurisdictionofGermanFederalHighCourtinto the Securities Trading Act –infact,theSecurities Trading Act are mostlyidenticalwiththoselaiddownundersupervisorylawin along withanumberofsecondaryobligations. These obligations the investmentoritsfurtherchartdevelopment,contractgoes mean thatthebankwillbeheldliableforeconomicsuccessof considered animpliedcounsellingcontract. Although thisdoesnot sale andrecommendationofsecuritiesorotherinvestmentsis a financialinstitutionwithitsclientintodiscussionsconcerningthe to thejurisdictionofGermanFederalHighCourt,entering German lawprovidesforaninformedinvestorconcept:according 3.5 jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypicallyincluded regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling

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vis-à-vis

69 Germany 70 Germany partially admitted,costswillbesplit proportionately. are calculateddependingontheamount indispute.Ifaclaimis include courtandlawyerfees,both limitedtostatutoryfeeswhich Costs incivilproceedingsaretobe bornebythelosingpartyand 4.2 only admissibleincasesoffundamentalsignificance. the higherregionalcourts. An appealtotheFederalHighCourtis judgments bytheregionalcourts,partieshaverighttoappeal appealed totheregionalcourts.Incaseoffirstinstance exceeds €600.Firstinstancerulingsbythelocalcourtsmaybe decisions renderedinfirstinstance,providedtheamountdispute German CivilProceduregenerallyallowsforanappealofall 4.1 international organisations. will bedisclosed,inparticularrecipientsthirdcountriesor categories oftherecipientstowhompersonaldatahavebeenor the purposesanddurationofprocessingrecipientsor comprehensive accesstothedataprocessed,including, Germany, anypersonwhosepersonaldataarebeingprocessedhas Protection Regulation( According toarticle15oftheEuropeanUnion’s GeneralData confidentiality rules. parties couldbeaviolationofdataprotectionandcontractual In thiscase,thedisclosureofinformationconcerningthird concerned isofthirdpartieswhoarenotinvolvedinthelitigation. its ownrights. This may, however, bedifferent whenthedata regarded asthebank’s legitimateinterestinenforcingordefending customer. Inthiscase,thedisclosureofpersonaldatawouldbe data incivillitigationprovideditconcernsadisputewiththe a bankorfinancialinstitutiontodiscloseitscustomer’s personal protection underGermanlaw, thiswouldnotjeopardisetherightof Despite thefactthatthereis,ingeneral,ahighlevelofdata not oftenarise. question ofcommerciallysensitiveorconfidentialinformationdoes in disputeandheldthehandsofotherparty. Therefore, the production ifaspecificdocumentisreferredtobyoneoftheparties obligation butonlyaverylimitedrighttorequestdocument As mentioned,thereisnopre-trialdiscoveryorgeneraldisclosure 3.7 within theirtrade,businessorprofession. Individuals qualifyasconsumersunlessactingforpurposesthatare of aclause. courts rejectaninterpretationthatonlyaimstoavoidtheinvalidity least favourableforthecounterparty–andthenheldvoid.German held invalid.Incaseofdoubt,unfairtermsareinterpretedinaway disadvantage theotherpartytocontract.Otherwise,theywillbe cases, generaltermsofbusinessmustnotunreasonably Kantenwein © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM 4 dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt services disputes? How doesthecourtdealwithcostsinfinancial disputes? Is therearightofappealinfinancialservices Post Trial

GDPR

), whichisimmediatelyapplicablein

inter alia

5.2 freedom ofpartiestochoosethegoverninglawtheircontracts. I Regulation,GermanInternationalPrivateLawconfirmsthe governing thecontract.IngeneralandinaccordancewithRome With respecttothemeritsofacase,mainissuewouldbelaw of seat( German InternationalCompanyLawtraditionallyfollowstherule between domicileandestablishment.OutsidetheEuropeanUnion, the jurisdictionwheretheywerefounded,i.e.ifthereisaconflict jeopardised incaseofletterboxcompanieswithoutagenuinelinkto are businessmenorlegalentities.Legalcapacitymightbe choice ofthecourtfirstinstanceisadmittedprovidedparties if demandedbythedefendant.Regardingforum,acontractual have toprovidesecuritycoveringcourtandlawyers’ feesinadvance from outsidetheEuropeanUnionorEconomic Area legal capacity. With respecttocostsoftheproceedings,plaintiffs Typical proceduralissueswouldbesecurityforcosts,forumand 5.1 none ofthepartieshasanyconnection withthechosenforum. a jurisdictionclauseinstandardbusiness termscouldbeinvalidif consumer. Evenifthecounterpartyis abusinessmanorlegalentity, parties tobeincludedinthecontract andifthecounterpartyisnota also onlybevalidifthetermshave beenvalidlyagreedbythe jurisdiction clauseiscontainedin standard businessterms,itwould only bemadebybusinessmenorlegalentities.Ifaunilateral No. A choiceofcourtrequiresacontractualagreementandmay 5.4 occurred inGermany. provided thatatleastpartsofthecommittedoffence oritssuccess a Germancourt. An exceptionmightapplyincasesoflawtorts, would beratheruncommonanddifficult toassertthejurisdictionof an agreementoranyotherconnectionofthepartiestoGermany, it and place ofresidenceordomicile,registeredseat,locationassets, venues allofwhichrequireacertainconnectiontoGermany, e.g. Ia Regulation( The GermanCivilProcedureCodeaswelltheEuropeanBrussels 5.3 party. Abroad inCivilorCommercialMatterstowhichGermanyisa Matters andtheHagueConventionon Taking ofEvidence Judicial andExtrajudicialDocumentsinCivilorCommercial European Union,theHagueConventiononService Abroad of disputes inaccordancewithEuropeanlawand,outsidethe German courtsoffer mutual legalassistanceincivilandcommercial 5 forum rei sitae ICLG TO: FINANCIAL SERVICESDISPUTES 2019

jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices Sitztheorie EuGVVO ). forpropertyclaimsorpartyagreements. Absent

) provideforaconclusivecatalogueof

Germany

Cooperative Banks( German PublicBanks( Association ofGermanBanks( available. Renownedinstitutionsarethemediationbodiesof Germany, avarietyofdifferent official mediationentitiesare dispute (€10,000).Duetothediversityofbankingsystemin Federal HighCourt)inconsumercasesuptoalimitedamount court mediationbycertifiedmediators(oftenformerjudgesofthe mediation proceedings( and bankingassociationshaveintroducedsuchrecognised Federal Office ofJustice( consumer disputeresolutionentityrecognisedbytheGerman irrespective oftheirrighttocallthecourts,alsoaprivate Dispute ResolutionEntities( ( Pursuant toparagraph14subsection1oftheGermanInjunction Act 6.1 Kantenwein © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 The mediationbodies officially appointed bythebankspublish 6.5 may onlyresorttocourtproceedings. There isnorighttoappealthesemediatorydecisions. The parties 6.4 of thedisputedclaims. proceedings beforeanombudsmansuspendthestatuteoflimitations mediation rules,thebankisboundbydecision.Nevertheless, awarded doesnotexceed€5,000,pursuantsolelytoanumberof accept theproposalprovidedbymediator. Also, iftheamount on theparties.However, thepartiesdohaverighttoexplicitly In general,thedecisionsrenderedbyanombudsmanarenonbinding 6.3 assigned separatelytoBaFin. inquisitorial, enforcementorsanctionpowers. These powersare the mediationbodiesthemselvesdonothaveanyinvestigative, witnesses totheproceedingswithoutconsentofparties. Thus, For instance,theombudsmandoesnothaverighttosummon Proceedings beforeanombudsmanareruledbypartyautonomy. 6.2 possibility ofenteringintomediationproceedings. Federal FinancialSupervisory Authority ( addition, consumersmayalsofileacomplaintwiththeGerman ( mediation entity, themediationbodyofGermanCentralBank Societies ( Sector BuildingSocieties( Deutsche Bundesbank UKlaG 6 have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies accessible? Are decisionsofregulatorybodies publicly exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon ) aswellthenewGermanRegulationonFinancial LBS

). Forallbanksnotaffiliated withaspecific

BVR

) isthecompetentinstitutiontoturnto.In VÖB Ombudsmannverfahren Bundesamt fürJustiz ), the Association ofGermanPrivate- ), theNational Association ofGerman

VdpB Bankenverband

FinSV ) andtheRegionalBuilding

), involvedpartiesmay, ). A numberofbanks ), the Association of BaFin ) offering out-of-

) withthe

specific productsorfinancialpractices. supervisory agency(BaFin)willbeauthorisedtoprohibitorrestrict registered bondsandcomparableinvestments. The banking profit-participation certificates,subordinatedloansaswell The newlawshallapplytoparticipationsincompaniesandtrusts, publish moreandup-to-dateinformationintheirprospectuses. retail investmentproducts.Inparticular, providersarerequestedto order tobetterprotectconsumersagainstdubiousanduntransparent lawmaker startedaninitiativefortheprotectionofsmallinvestorsin whose insolvencydamagedmorethan10,000smallinvestors,the As areactiontotheinsolvencyofProcon,windenergy provider 7.1 confidential. proceedings, namesofpartiesandoutcomes,however, remain yearly statisticsofproceedingsconducted. The individual banks andbanking associationsarguing that thejurisdictionno interest payment. This jurisdictionhasbeenfiercelycriticised by valid considerationowedbytheborrower foraloanfacilityisthe financial markets.Intheeyesof the FederalHighCourt,only agreements whichareabsolutely customaryintheinternational German lawforthevalidityofany kindoffeearrangementsinloan case highlightsthatthereiscurrentlynolegalcertaintyunder in furthercasesconcerningvariouskindsoffeearrangements. The commercial loanagreementwithouttheparticipationofaconsumer July 2017thatarrangementfeesareinvalidevenwhenusedina which theFederalHighCourtconfirmeditslandmarkdecisionof goes alongwithanumberoffurtherdecisionsrenderedin2018 lower interestratesplusfees(BGH,XIZR291/16). The decision between twoalternatives,i.e.higherinterestrateswithoutfeesor valid –evenwhenthecounterpartyhadapre-formulatedchoice business –andnotindividualagreementswhichwouldhavebeen handling feesinloanagreementsforminvalidstandardtermsof In March2018,theFederalHighCourtheldthatarrangementand 7.3 freedom ofcontract. individual transactions,Germanlawisratherliberalandallowsfor other typicalbulktransactions. Apart fromthat,onthelevelof limiting thelegalleewayforstandardtermsinretailbankingand have becomemoreandrestrictive,therebyparticularly consumer protectionlaws–andthejurisdictionbaseduponthem Although Germanlawgenerallysupportsfreedomofcontract, 7.2 7 against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe

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Germany

71 Germany 72 Germany industry, suchasbitcoinandothercrypto-currenciesblockchain The impactofdigitalisationandnewproductsinthefinance 7.4 German law. seen thatbanksandfinancialinstitutionsaretryingtoescapefrom from thelawmaker. As longasthelawremainsunchanged,itcanbe requesting amodernisationofthelawongeneraltermsbusiness founded withthesupportofanumberbusinessassociations in timesoflowinterestrates.Inthemeantime,aninitiativehasbeen their incomebasisandmakeitindependentfrominterestpayments banking supervisoryagency(BaFin)requestingbankstostrengthen international competitors. This criticismgoesalongwiththe and putstheGermanfinancialindustryatadisadvantagetoits longer differentiates betweenconsumersandbusinesscompanies Kantenwein © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM Among thefirm’s clientsarecompaniesandentrepreneursoperatinginGermany andabroad. to assembleinterdisciplinaryteamsinorderassesseconomicissuesefficiently fromdifferent angles. founding thelawfirm,ideawastocreateamultidisciplinaryentityconsisting oflawyers,taxconsultants,andauditors. Kantenwein wasfoundedatthebeginningofyear2003.However, thefounders’ professionalexperiencedatesbackasfar taxes (includingtaxcrime)toauditing. and businessesfacinglegaltax-relateddecision-makingsituations. The firm’s practiceareascovertheentirespectrumra Kantenwein isamultidisciplinarylawfirmconsistingoflawyers,taxconsultants, andauditors. The firmprovidesadvisoryse the endof2009hehadjoinedKantenwein. Management inaninternationallyactiveGermanfinancegroup.By matters. Laterhebecamein-housecounselandHeadof Transaction international financialinstitutionsincomplexlitigationandarbitration law firm,whereherepresented,amongstothers,nationaland he workedintheLitigation& Arbitration department ofaninternational regularly appointedasarbitratorinarbitrationproceedings.Until2006 litigation andarbitrationaswellinfinancingtransactions.Heisalso capital markets.Headvisesinbanking-andmarket-related Marcus vanBevernisanattorney-at-lawspecialisedinbankingand jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

URL: Email: Tel: Germany 80333 Munich Theatinerstraße 8 Kantenwein Marcus vanBevern www.kantenwein.de [email protected] +49 898996860

and designoftherespectiveplatform. need aspecialpermit,dependingonthetechnicalimplementation platforms offering thecommercialtradeincrypto-currenciesmay units requiresaparticularpermission.However, exchange ( ( determined thatcrypto-currenciesqualifyas“unitsofaccount” currencies. Rather, thebankingsupervisoryagency(BaFin)has measures. To giveanexample,thereisnospecificlawoncrypto- supervisory agenciesapplytheexistinglegalframeworkand the lawmakerisreticenttoissuenewlawsandratherprefersif technology ingeneral,remainstobeseen.Generally, itappearsthat Kreditwesengesetz Rechnungseinheiten Bavarian MinistryofEconomic Affairs. she, she workedintheM&A departmentofaninternational lawfirm,where capital market-relateddisputeresolution.BeforejoiningKantenwein Dr. CarolinSabelisanattorney-at-lawspecialised inbanking-and ICLG TO: FINANCIAL SERVICESDISPUTES 2019 i.a. , advisedontransactionsinthefinancialsector, andinthe ) andthatneithertheusenorminingofsuch ) accordingtotheGermanBanking Act Tel: Germany 80333 Munich Theatinerstraße 8 Kantenwein Dr. CarolinSabel URL: Email:

+49 898996860 www.kantenwein.de [email protected]

This setupallowsthefirm

rvices toentrepreneurs

nging fromlawand

Germany 1985. When

Chapter 13 Ireland Julie Murphy-O’Connor

Matheson Karen Reynolds

1 Bringing a Claim – Initial Considerations damages are available. Other remedies depend on the nature of the claim; general common law and equitable remedies which are available include specific performance, declaratory relief, and 1.1 What are the most common causes of actions taken injunctive relief. In appropriate circumstances, orders for rescission by or against financial institutions and service may be made. providers in your jurisdiction? 1.3 Who has a right of action in financial services Causes of actions commonly taken by customers and other stakeholders disputes? Does it make a difference if the customer is against financial institutions include actions arising from alleged mis- an individual or a commercial entity? selling of financial products, misstatement claims, claims for breach of fiduciary, contractual and other duties. Cases against financial services Any recipient of financial services, or any person who believes they entities often involve allegations of misrepresentation, negligent have been impacted by the actions, omissions or statements of a misstatement, breach of contract and/or breach of a duty of care, fraud financial services provider, whether an individual or a corporate, has and deceit. Actions in tort and contract can be pursued concurrently. the right to issue proceedings (see question 1.1 above in relation to Certain statutory provisions impose civil liability for breaches, e.g., the types of claims). under the Companies Act 2014. This would include, for example, actions for loss or damage where, as a result of untrue statements or omissions of information in a prospectus, a person acquires securities in 1.4 Is third-party funding available in financial services litigation (crowdfunding, maintenance, champerty, a publicly traded company, and actions for civil liability for breaches of etc.)? Does litigation insurance operate in your market abuse legislation in connection with securities traded on the jurisdiction and, if so, what are the implications for Main Securities Market, the Enterprise Securities Market and the this? Global Enterprise Market of Euronext Dublin (formerly the Irish Stock Exchange). Litigation is usually funded by the individual parties, but the Actions arising from enforcement action by secured lenders/acquirers unsuccessful party is typically ordered to pay the successful party’s of Non-Performing Loans (NPLs) are quite common; for example, costs. Third Party Funding (TPF) is generally prohibited by the defensive/injunctive actions by borrowers. The recent decision of the common law principles of maintenance and champerty (the Court of Appeal in Tanager Designated Activity Company v Kane & Maintenance and Embracery (Ireland) Act 1634). In the case of Ors [2018] IECA 352 was much anticipated in the Irish financial Persona Digital Telephony Limited & anor v The Minister for services market and has restored certainty as regards the Public Enterprise Ireland & ors [2017] IESC 27, the Supreme Court enforceability of assigned security rights in loan portfolio sales. upheld the prohibition against litigation being funded by a person The Central Bank of Ireland (CBI) is responsible for prudential and with no legitimate interest in the claim. In SPV OSUS Limited v conduct of business supervision and regulation of financial services HSBC Institutional Trust Services (Ireland) Limited & Ors [2018] firms which provide financial services in Ireland. Pursuant to section IESC 44 (SPV), the Supreme Court upheld the prohibition on 44 of the Central Bank (Supervision and Enforcement) Act 2013, any litigation trafficking. A party with a legitimate interest in failure by a regulated financial service provider to comply with any proceedings (a shareholder or creditor) does not come under this obligation under financial services legislation is actionable by the prohibition (Moorview Development Limited & Ors v First Active customer who suffers loss or damage as a result of such failure. Plc & ors [2018] IESC 33). Parties to litigation in Ireland may avail of after the event insurance policy (Greenclean Waste Management Ltd v Leahy (No 2) [2014] 1.2 What remedies are most likely to be awarded? IEHC 314).

The main remedy awarded in claims against financial institutions is damages. Damages may come in the form of general damages, special 1.5 Are class action law suits available in your damages, punitive or nominal damages. Irish courts tend to award jurisdiction? If so, has this impacted financial compensatory and not punitive damages, meaning that the courts look services litigation? Has there been an increase in class action suits post the financial crisis? to the damage done rather than punishing the offender and deterring others, although aggravated damages and exemplary/punitive Under Irish law, it is possible to bring representative actions which

ICLG TO: FINANCIAL SERVICES DISPUTES 2019 WWW.ICLG.COM 73 © Published and reproduced with kind permission by Global Legal Group Ltd, London 74 Ireland run ifthereisonlyamerepossibility ofloss.InCantrell,thecourt calculated fromwhenthelossoccurred, theclockmaynotbeginto 254 (Cantrell)clarifiedthatalthough thelimitationperiodis IESC 35(Gallagher)and Pensions Ombudsman Act 2017, For caseswhichdonotcomeunder theFinancialServicesand clock”. limitation period. The commencementofproceedings“stopsthe conduct. Partiescanenterintoagreementstoshorten,orpause,a became awareof,orshouldhavebecometheimpugned fraud, thelimitationperioddoesnotstarttorununtilclaimant Ombudsman hasdiscretiontoextendtheperiodfurther. Incasesof have becomeawareoftheconductgivingrisetocomplaint. The point intimewherethecustomerwasawareoroughtreasonablyto long-term financialservices. The limitationperiodrunsfromthe the timelimitforbringingcertainfinancialcomplaintsrelatingto Financial ServicesandPensionsOmbudsman Act 2017extended contract lawortort,wherethelimitationperiodissixyears. The The majorityoffinancialservicesdisputesrelatetomatters 2.2 [2016] IEHC320). Supermarket Ltd Ltd & Anor clause ispresentonastandardisedform(see (the Regulations),provideprotectionforconsumersifanexclusion Regulations (Unfair Terms Regulation)(SI27/1995),asamended The EuropeanCommunities(Unfair Terms inConsumerContracts) obstacle tolitigation. Protection Code)andwouldnot,generally, beperceivedtoan legislation andregulation(forexample,theCBI’s Consumer interpreted, andmaybeimpactedbyapplicableconsumerprotection enforce exclusionclauses;however, theyaregenerallystrictly against financialservicesentities.Irishcourtsrecogniseand present, underIrishlawcouldbedescribedasbarrierstolitigating The factthatneither TPF norclassactionsarepermissible,at 2.1 commercial entities(includinglawfirms)willbeexcluded. Class partyactionswillonlybeavailableforindividuals,and subject toEUregulation,includinginrelationfinancialservices. this wouldimportanincreasedlitigationriskforindustrysectors published bytheEuropeanCommissionin April 2018.Ifenacted, European Commission’s “NewDealforConsumers”whichwas Class actionswillindirectlybefacilitatedinIrelandthroughthe the remainingcaseswillberesolved. decision ofthetestcase,whichbecomesbenchmarkby “pathfinder cases”alsoexist. The partiesagreetobeboundbythe are currentlytheclosestthingtoclassactions. Test casesor Matheson © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM further clarifiedthat theclockwillonlybeginto run infinancial 2 What arethemainbarrierstofinancialservice Before CommencingProceedings clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary

[2013]IESC17,

[2014]IEHC95and

Cantrell v AIB PLC&Ors AGM LondisplcvGorman’s Gallagher v ACC Bank

Start MortgagesLtdvHanley McCaughey vIBRC [2017]IEHC

[2012]

or givinglegaladvice.Unlikelitigationprivilege,itdoesnotprotect between lawyerandclientmadeforthedominantpurposeofseeking the US.Legaladviceprivilegeprotectsconfidentialcommunications not incontemplation,andissimilarto“attorney-clientprivilege” Legal adviceprivilegecanariseincircumstanceswherelitigationis 525). proceedings inwhichitwasasserted(see rarely continuesbeyondthefinaljudicialdeterminationof considered tooffer agreaterlevelofprotection.Litigationprivilege prepare forexistingorcontemplatedlitigationandistherefore between aclientandthirdparty, wherethedominantpurposeisto litigation. Litigationprivilegemayalsoextendtocommunications purpose ofbeingusedtoprepareforexistingorcontemplated communications betweenlawyerandclientmadeforthedominant Yes –litigationprivilegeprotectsfromdisclosureconfidential 2.3 2014 aresubjecttoatwo-yearlimitationperiod. information andmarketmanipulationundertheCompanies Act Actions forinsidertrading,unlawfuldisclosureofinside complete. disputes whenthelosshasactuallyoccurred–i.e.tortis penalty clause. terms andconditionswasheld to constituteanunenforceable case wherethesurcharge interestprovisioninalender’s standard standardised contractsandquestion 7.3belowinrelationtoarecent below inrelationtoprotectionsfor consumersinconnectionwith and generallyapplicableterms conditions.Seequestion3.6 Many financialservicesprovidersutilisestandardformcontracts 2.4 here. with internationalcommonlawonthepoint),willbepersuasive interpretation (notingthatEnglishlawappearedtobesooutofsync which suggestsawillingnesstodepartfromtherestrictive seen ifthecommentaryin (similar tothe Three RiversNo.5testintheUK).Itremainstobe a narrowinterpretationof“client”forthepurposeslegalprivilege The IrishHighCourtin investigation ofawhistleblowercomplaint). preparation ofaresponsetotheStatecorporateenforcer’s Enforcement vLeslieBuckley Director ofCorporateEnforcement;and processes involvingthefinancialregulatorandOffice of dominant purposeofengagingwithregulatoryandinvestigative relation tolitigationprivilegeoverdocumentscreatedforthe Irish BankResolutionCorporationLtd& Anor statutory investigationorinquiry, suchasatribunal; Ahern vMahon purpose ofengaginginregulatoryinvestigationsandinquiries(see: the applicationoflitigationprivilegetodocumentsgeneratedfor however, aclearlineofauthoritywhichhasevolvedandsupports the protectionoflitigationorlegaladviceprivilege. There is, Communications withfinancialregulatorsdonotgenerallyattract communications betweenclient/lawyerandthirdparties. ICLG TO: FINANCIAL SERVICESDISPUTES 2019

considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof ISDA Master Agreement)? Howaretheytreated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour

[2008]4IR704,inrelationtoprivilegebeforea

UCC vESB SFO vENRC [2018]IEHC51,relatingtothe (referredtoabove)hasadopted The Director ofCorporate [2018]EWCA Civ2006, UCC vESB

[2015]IEHC315,in

Quinn &orsv

[2014]2IR Ireland

A bankowesadutyofconfidentialitytoitscustomers. The sanction bytheCentralBank. result inaninvestigationandtheimpositionofadministrative firms whenprovidingfinancialservices.Failuretocomplycan requirements whicharebindingonregulatedfinancialservices legislation. These statutorycodesofconductsetouttheminimum the CBI’s policyandwhichsupplementapplicablefinancialservices entities inIreland. The CBIissuescodesofconduct,whichsetout As mentioned,theCBIislocalregulatoroffinancialservices 2.5 development giventheanticipateddepartureofUKfromEU. by thelawofEUMemberStatesotherthanUK,isawelcome published). The adoptionofISDA agreements,whicharegoverned law ISDA Master Agreement (aFrenchlawversionhasalsobeen jurisdictional agreements.On3July2018,ISDA releasedanIrish ISDA Master Agreements areusedinIrelandmainlyforcross- Matheson © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 procedures forthe CommercialCourtwhichdiffer slightly. in otherlitigationcases.However, thereare specific pre-trial Pre-trial stepsarethesameinfinancial serviceslitigationastheyare 3.3 keeping thepostalcertificate. ordinary pre-paidposttothecompany’s registeredoffice and a summonsattheregisteredoffice ofthecompanyorserviceby practicable). Serviceonaregisteredcompanyisaffected byleaving Service onanindividualistobedonepersonally(where commenced byissuingandservinganoriginatingsummons. rules asanyothertypeoflitigation.HighCourtproceedingsare In general,financialserviceslitigationfollowsthesameprocedural 3.2 including aspecialistIP court). financial servicescourt(togetherwithotherspecialistcourts Commercial Courtlistwiththeintroductionofaseparate,specialist €1 million.Plansareintraintobuildonthesuccessof contracts andbusinessdisputeswithamonetaryvalueinexcessof “fast track”divisionoftheHighCourtwhichdealswithcommercial No. However, mostcasesareheardbytheCommercialCourt,a 3.1 contracts ( any generalprincipleofgoodfaithandfairdealingincommercial Court of Appeal affirmed that Irishcontractlawdoesnotrecognise context ofabankandcustomerrelationship.Recently, theIrish backdrop ofpublicpolicy. Fiduciarydutiesmaybeowedinthe position takeninIrishcourtsistoanalysethedutyagainst foundation ofthisdutyiscontractualinnaturebutincreasinglythe 3 financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare consequences ofnotabidingby them? jurisdiction? Ifso,whatarethey andwhatarethe be followedforfinancialservices litigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor Flynn & Anor vBreccia & Anor

[2017]IECA 74).

was addressedbywayofaredressandcompensationschemeunder CBI. InIreland,theissueofmis-soldpaymentprotectioninsurance litigation orcanbethesubjectofcomplaintstoFSPOand/or Mis-selling offinancialproductsclaimscanbedealtwithbyway 3.5 resolution system. financial institutionusingtheinstitution’s complaints been attemptedtoberesolvedbetweentheconsumerand Services andPensionsOmbudsman(theFSPO)musthaveinitially arbitration. A compliantmadebyaconsumertotheFinancial application fromtheotherside,forcasetobereferred clause, anycourtproceedingsinstigatedcanbestayedbyan commencement ofproceedings.Ifanagreementcontains ADR evidence thisbycompletingastatutorydeclarationinadvanceofthe that theyhaveconsideredmediation. The solicitorsonrecordmust The Mediation Act 2017requireslitigantstoconfirmthecourts 3.4 standard formcontracts). The Irishcourtsmore andmorefrequently contractual termsinconsumercontracts (particularlywherethereare The Regulationsprovidestatutoryprotections againsttheuseofunfair 3.6 law tobecontainedintheprospectus. statement oranomissionofinformationrequiredbyEUprospectus securities onthefaithofaprospectusthatcontainsanuntrue a statutorycompensatoryregimeforcustomerswhohaveacquired Act 2014.Undersection1349oftheCompanies Act 2014,thereis criminal liabilityisaddressedundersection1357oftheCompanies addressed undersection1349oftheCompanies Act 2014and Civil liabilityforuntruestatementsoromissionsinprospectusesis ensure theinformationinprospectuswasaccurate. upheld ifitwasclearthatthereadershouldtakeallresponsibilityto O’Donnell didstatethatadisclaimerofthisnaturewouldonlybe liability foranegligentmisstatement.However, Mr. Justice Jones LangLaSalleLtd representation provided. The IrishHighCourtnotedin representation, andtheclaimant’s losswascausedbytheincorrect firm lackedtherequisitelevelofduecareinmaking induced intoenteringanagreement,thatthefinancialservices representation totheclaimantonfootofwhichwas the claimantmustestablishthatfinancialservicesfirmmadea (mis)statement. Fornegligentmisrepresentationclaimstosucceed, should reasonablyhaveforeseenthattheclaimantwouldrelyonits result ofsuchreliance,causedlossordetrimentandthatthefirm firm misstatedsomethingonwhichtheclaimantreliedand,asa firm suchthattheowedadutyofcaretoclaimant, special relationshipbetweentheclaimantandfinancialservices misstatement, aclaimantisrequiredtoshowtheexistenceof the CentralBank Act 1942(asamended).Inordertoprovenegligent dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypicallyincluded regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecifically toconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted

[2017]IEHC38thatadisclaimercouldlimit

WWW.ICLG.COM

Ireland

Walsh v

75 Ireland 76 Ireland (and theCommercialCourt)from which anappealliestotheCourt Generally, financialservicesdisputesarelitigatedintheHighCourt 4.1 may beredactedtoblockdisclosureofsensitiveinformation. order tomaintainconfidentialityand,ifsuccessful,thosedocuments discovery maybepublicised.Partiesapplytothecourtforan commercially sensitiveinformationwhichhasbeenincludedin In Ireland,almostallcasesareheardinpublic. This meansthat 2018. 1 August media accesstoandreportingofcourtcasescommencedonorafter The DataProtection Act 2018hasintroducednewcourtruleson EU Regulation(EC)No.1206/2001. importance). Cross-borderdiscoveryrequestsarepossiblethrough Supreme Courtonthebasisthatdiscoverypointisoneofpublic Minister forDefence&Ors made whenallotheravenueshavebeenexhausted(see have emphasisedthatordersforextensivediscoveryshouldonlybe requirements whichapplyinanylitigation.Recentcourtdecisions the SuperiorCourtsofIrelandgovernsmaindisclosure apply solelytofinancialserviceslitigation.Order31oftheRules There arenospecificdisclosureordiscoveryrequirementswhich tax orincontemplationpreparationofalegaldefence. proceedings, anactivecriminalinvestigation,theadministrationof this right;forexample,informationwhichrelatestojudicial a structuredmanualfilingsystem. There arecertainexceptionsto to obtainacopyofanyinformationrelatingthemwhichiskeptin Regime. Under Article 15oftheGDPR,anyindividualhasaright effect totheGDPRand repeal certainpartsofthePre-GDPR May 2018alongwiththeDataProtection Act 2018togivefurther General DataProtectionRegulations(theGDPR)cameintoforcein protection intoIrishlaw)(together, thePre-GDPRRegime). The (which transposedtheEuropeanDirective95/46/ECondata the DataProtection Act 1988andtheDataProtection Act 2003 The dataprotectionlandscapeinIrelandwaspreviouslymadeupof 3.7 certain transactionsandasaneconomicoperatorinrelationtoothers. profession andthatthesamepersoncanberegardedasaconsumerfor Court foundthatapersoncanhavemorethanonebusinesstradeor cannot beaconsumer. In borrowing asaconsumer)heldthatpersonotherthannatural confirmed bywayofexecutingafacilityletterthathewasnot (relating tocommercialloanfacilitieswheretheborrowerhad The HighCourtin and theCBIareempoweredtoenforcelegislation. practices. The CompetitionandConsumerProtectionCommission unfair, aggressiveormisleadingbusiness-to-consumercommercial Protection Act 2007. This legislationprovidesprotectionagainst 11 May2005)wasimplementedinIrelandpursuanttotheConsumer EU UnfairCommercialPracticesDirective(Directive2005/28/ECof consider theapplicationofRegulationstheirownvolition. The Matheson © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM of Appeal. The Courtof Appeal doesnothearoral evidenceand 4 disputes? Is therearightofappealinfinancial services Post Trial dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt

KBC BankIreland PlcvOsborne

AIB vHiggins , whichissubjecttoanappealthe

[2010]IEHC219,theHigh [2015]IEHC795

Tobin vThe

jurisdiction toimposeliabilityforcostsonathird-partyfunderwho (Ireland) Ltd Thema InternationalPlcvHSBCInstitutionalTrust Services will alsotakeintoaccountanylodgementsortendersmade.In conciliation, unlessthereisagoodreasonfortherefusal. The court conduct oftheproceedings,orfornotavailingmediation imposed wherethecourtisdissatisfiedwithcertainaspectsof based costsawards.Itisalsocommonforsanctionstobe discretion ofthecourt. There isagrowingtrendtomakeissues- awarded onaparty-partybasis.Costsareultimatelyatthe In Ireland,costsgenerally“ 4.2 which caseitmaybereferredtotheEuropeanCourtofJustice. unless thecaseinvolvesanissueofinterpretationEUlawin appeal. Any findingbytheSupremeCourtcannotbeappealed, satisfied thatthereareexceptionalcircumstanceswarrantingadirect to theSupremeCourtispossiblewhere justice requireit. A “leapfrogappeal”fromtheHighCourtdirectly involves amatterofgeneralpublicimportance,ortheinterests a decisionfromtheCourtof Appeal ifitissatisfiedthatthedecision be obtainedinadvance. The SupremeCourtmayhearanappealon of Appeal totheSupremeCourt.LeaveofCourtmust circumstances, itispossibletobringafurtherappealfromtheCourt considers findingsoffactarrivedatbytheHighCourt.Inlimited International co-operation betweenIrelandandother countriesis 5.2 incompatible withIrishpublicpolicy. foreign legalprovisionstothedisputewouldbemanifestly favour bymandatoryprovisionsofIrishlaworiftheapplication rules applyandjurisdictioncanbedeterminedintheIrishcourts’ Otherwise, andforallnon-EUMemberStates,thecommonlaw jurisdiction willbedeterminedbythenatureofdispute. jurisdiction clause.Failingaclause,theappropriate Regulation providesprioritytoacourtnominatedinanexclusive Regulation (RegulationEUNo.2015/2012). The RecastBrussels in acommercialcontractaccordancewiththeRecastBrussels obligations. Inaddition,theIrishcourtsrespectachoiceofjurisdiction pursuant toRegulation(EC)593/2008onthelawofcontractual between partiesindifferent EUMemberStatesarerecognised Clauses ofexpressjurisdictionincivilandcommercialcontracts States. reference toEUregulationsfordisputesinvolvingMember law principlesfordisputesinvolvingnon-EUMemberStatesorby border disputesandisgenerallyresolvedbyreferencetocommon The issueofjurisdictionistypicallythebiggestconcernincross- 5.1 litigation, inlightofhisroledrivingtheaction. had alegitimateinterestintheproceedings,thoughnotpartyto 5 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 services disputes? How doesthecourtdealwithcostsinfinancial disputes (includinginvestigations)? regulatory bodiesorofficialsin financialservices jurisdiction toco-operatingwith foreigncourtsor What isthegeneralapproachof thecourtsinyour how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues

[2011] IEHC357,theHighCourtaffirmed thecourt’s

follow theevent

” andareusually

Ireland

1215/2012) providefortherecognitionandenforcementof Regulation (EC44/2001)andtheBrusselsIRecast For judgmentsemanatingfromanEUMemberState,theBrusselsI primarily onthejurisdictionthathasissuedforeignjudgment. The applicablelawofenforcementforeignjudgmentsdepends 1206/2001) andtheRulesofSuperiorCourtsIreland. provided forintheEvidenceRegulation(Council can alsotakeevidencefromawitnessinIrishcourtproceedings,as A courtinanyEUMemberState(withtheexceptionofDenmark) Council FrameworkDecisiononFreezingOrders(2003/577/JHA). Decision ontheEuropeanEvidence Warrant (2008/978/JHA)andthe other EUMemberStates;forexample,theCouncilFramework frameworks inplacewhichenhanceIreland’s co-operationwith States. InadditiontotheMutual Assistance Acts, therearenumerous Co-operation ismostevidentbetweenIrelandandotherEUMember international agreementsorexistenceofamutualassistancetreaty. identity ofthecorrespondingStateandtheirratificationrelevant foreign courtsorregulatorybodiesgenerallyisdependentonthe Act 2015(together, theMutual Assistance Acts). Co-operationwith 2008 andtheCriminalJustice(Mutual Assistance) (Amendment) primarily governedbytheCriminalJustice(Mutual Assistance) Act Matheson © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 €10 millionor10%ofturnover the regulatedentity. The CBIcan penalties onregulatedentities,up toamaximumofthegreater disputes inIreland. The CBIcanimposesignificantmonetary The CBIisthemainregulator dealing withfinancialservices 6.1 potentially fallvictimtoa“torpedoaction”. Disputes arisingundercontractscontainingsuchaclausecould has notbeenclarifiedwithrespecttounilateraljurisdictionclauses. actions” withrespecttoanexclusivejurisdictionclause. This matter The RecastBrusselsRegulationaddressedtheissueof“torpedo Unilateral jurisdictionclausesarevalidandenforceableinIreland. 5.4 jurisdiction. can bedeterminedifIrelandexerciseextra-territorial and aconsiderationoftherelevantoffence mustbemadebeforeit Extra-territorial jurisdictionisconferredinIrelandbywayofstatute In general,Irelanddoesnotexertextra-territorialjurisdiction. 5.3 SpA Ireland (see will ensuefromanorderrecognisingthenon-EUjudgmentin Ireland unlessanapplicantcanshowsomelegitimatebenefitthat Irish courtswillnotenforcenon-EUMemberStatejudgmentsin judgment amongstotherfactors. conclusive, andthecompetencyofjurisdictionwhichissued whether thejudgmentisforadefinitesum,ifitfinaland Member States,commonlawrulesapplyandthecourtwillconsider judgments incivilandcommercialmatters.Forallnon-EU 6 [2018]IECA 46). your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand Albaniabeg Ambient Shpk v EnelSpA andEnelpower

as totheregulatedentity’s businessandorderredressforcustomers. and Enforcement) Act 2013,theCBIhaspowertomakedirections the CBIallorpartofitscosts.UnderCentralBank(Supervision person, adirectiontoceasecontraventionandpay authorised bytheEuropeanCentralBank),disqualificationofa of proposaltosuspendorrevokeauthorisationiftheentityis 6.1 above,suspensionorrevocationofauthorisation(orsubmission caution orreprimand,monetarypenaltiesasdescribedinquestion occurred and,ifso,theappropriatesanctionwhichcouldinclude hold aninquirytodetermineifaprescribedcontraventionhas warning, aninquiry, asettlementornofurtheraction. The CBImay the ASP whichincludeacriminalprosecution,supervisory summon witnesses. There areanumberofpotentialoutcomesfrom compel theproductionofdocuments,carryoutdawnraidsand The CBImayconducton-siteinspections,interviewindividuals, that acontraventionofapplicablelaworregulationhasoccurred. regulated financialservicesproviderwhereithasreasontobelieve The CBImaycommenceaninvestigationintoconductofa 6.2 The FSPOdealswithdisputesfinancialservicesproviders. management ofregulatedentitiesuptoamaximum€1million. also imposefinancialpenaltiesonthoseinvolvedinthe of quasi-appealaregulatedbody withrespecttoadecisionof appeal doesnotaffect theoperationofIFSAT decision.Rights The decisionofIFSAT canbeappealedtotheHighCourt. The can affirm orreferthedecisionbacktoregulator. decision backtotheregulator. Fora supervisorydecision,IFSAT appealed, IFSAT canuphold, vary, substitute,setasideorreferthe decisions. With respecttoadministrative decisionswhichare Services Appeals Tribunal (IFSAT) inrespectofcertainCBI There isarightofappealforregulatedentitiestotheIrishFinancial 6.4 The decisionsoftheFSPOarebinding. for firmsandupto€1millionindividuals. indefinitely. FinesmaybeimposedbytheCBIofupto€10million from carryingoutacontrolledfunctionforspecifiedperiodor not tobeofappropriatefitnessandprobity, theycanbeprohibited suspended pendingaFitnessandProbityinvestigationand,iffound regime, individualswhocarryouta“controlledfunction”canbe European CentralBank).UndertheCBI’s FitnessandProbity suspend orrevokeauthorisationiftheentityisauthorisedby a regulatedentity’s authorisation(orasubmissionofproposalto administrative sanctionsprocedurecouldresultintherevocationof Failure tocomplywithanydecisionsoftheCBIunder Decisions oftheCBIarebindingonregulatedentityorperson. 6.3 rectification thatcanbedirected. is thesubjectofacomplaint. There isnolimitonthevalueof and itcanalsodirectaregulatedprovidertorectifytheconductthat inquiries. The FSPOcan award compensationofupto€500,000 The FSPOhasthepowertoobtaininformationandmakesuch have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon

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Ireland

77 Ireland 78 Ireland business, and,inparticular, thoseofthefinancial servicesindustry understanding andfacilitatingthe evolvingneedsofinternational Ireland hasaproventrackrecord initscommitmentto 7.2 tracker mortgages. such institutions.Onesignificantexampleofthisisinrelationto an escalationinthenumberofprivatepartyactionsbroughtagainst regulatory failingsbyfinancialinstitutions,whichinturnhasledto Investigations bytheCBIandFSPOhaveshonealighton as wellaSeniorExecutive Accountability Regime. expects ofregulatedfirmsandtheindividualsworkingwithinthem Conduct StandardswhichwouldsetoutthebehaviourthatCBI Framework. The proposalsincludetheintroductionofenforceable proposed theintroductionofanIndividual Accountability and CultureoftheIrishRetailBanks(theReport),CBIhas the July2018publicationbyCBIofareportonBehaviour As partofitsrecommendationstotheLawReformCommissionand exceeding €10millionand/oraprisontermnot10years. found tobeguiltyofarelevantoffence onindictmentisafinenot Communities Act 1972.Underthe2018 Act, thesanctionforaperson significant increaseonthoseprovidedforundertheEuropean Regulations. The sanctionsforthesecontraventionsrepresenta indictable offences for contraventions undertheMiFIDII The MarketsinFinancialInstruments Act 2018makesprovisionfor into Irishlaw. transposes theFourth Anti-Money LaunderingDirective(4AMLD) (Amendment) Act 2018wasenactedinNovemberand The CriminalJustice(MoneyLaunderingand Terrorist Financing) regulation oftransactions. authorities andtoincreasetransparencyensureeffective regulatory bodies,tofacilitateinformationsharingbetweenrelevant at bothnationalandEuropeanleveltoenhancethepowersof financial crisis. This hasled toanincreaseinlegislationthisarea The focusonregulationandenforcementhasintensifiedsincethe 7.1 and detailsofanysanctionimposed,includingmonetarypenalties. include thenameofregulatedentity, detailsofthecontraventions following aninvestigationunderthe ASP arepublishedandwill Details ofdecisionstheCBIfollowinganinquiryorasettlement 6.5 Decisions oftheFSPOmaybeappealedtoHighCourt. These actionsaretakenintheHighCourt. regulator includeconstitutionalchallengeandjudicialreview. Matheson © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM which hasbeen central tothecountry’s economicgrowth. This 7 Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly customer-friendly? considered tobemorefinancial institution-or On aninternationallevel,wouldyourjurisdictionbe against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea

a claimfor$141milliontakenagainstitbyDefender. favour ofthedefendant,HSBCInstitutional Trust ServicesDAC,in IEHC 322,theHighCourtgavejudgmentonapreliminaryissuein v HSBCInstitutionalTrust Services(Ireland) DAC&ors if thatpersonisnotapartytotheproceedings.In a costsordercanbemadeagainstpersonwhofundslitigationeven Active Plc&ors In relationtocosts,in within thatinstitutionbywayofinquiryongroundsbias. will not,inandofitself,actasabartoitspursuitindividuals 2018 clarifiedthatasettlementbyfinancialinstitutionwiththeCBI Fingleton vTheCentralBankofIreland From aregulatoryperspective,thedecisionofCourt Appeal in 7.3 location forfinancialinstitutions. European marketandaskilledworkforcemakeIrelandanattractive tax andregulatoryenvironment,whichcombinedwithaccesstothe by successiveGovernmentstofosterasupportiveandstablelegal, 1987, business-friendlypolicieshavebeenadoptedovertheyears the establishmentofInternationalFinancialServicesCentrein commitment isrecognisedataninternationallevel.Beginningwith increased emphasis onregulatoryaction,increased oversight, In Ireland,sincethe2008globalfinancial crisis,therehasbeenan 7.4 court ismorelikelytodeterminethattheagreedtermsarenotunfair. into anagreementfollowingreceiptofindependentlegaladvice,the approaches, acommonthemeisthatwhereborrowershaveentered Plc vFox IEHC 289and including do notapplytomortgages. This isadeparturefromotherrecentcases obligations forcontractstobedraftedin“plain,intelligiblelanguage” IEHC 455,BinchyJ.heldthattheRegulations,whichplace and CompanyoftheBankIreland vMcMahon &anor proceedings. IntherecentjudgmentofBinchyJ.in increasingly reliedonbyborrowersindefendingenforcement The Regulationswereanareaoffocusin2018. The Regulationsare Square HoldingBV vTalal ElMakdessi therefore isincontrasttothepositionUKunder genuine pre-estimateofthelosswhichwouldoccurondefault(and from thetraditionalpenaltyclausetestofwhetherisa This decisiondemonstratesthattheIrishcourtswillnotdeviate terms andconditionsand,therefore,wasnotspecificallynegotiated. that theimpugnedprovisionwaslocatedinlender’s standard penalty clause.Inparticular, thecourtwasinfluencedbyfact interest provisioninaloanagreementconstitutedanunenforceable of Appeal upheldtheHighCourt’s decisionthata4%surcharge IECA 273and In thelinkedcasesof legislators toreconsidertheabsolutebanon TPF. the prohibition,ChiefJusticeFrankClarkeandMcKechnieJ.urged unconnected thirdpartiesprofitinginlitigation. While upholding In SPV, theSupremeCourt reaffirmed theprohibitionon ICLG TO: FINANCIAL SERVICESDISPUTES 2019 drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding jurisdiction? to financialserviceslitigation/regulation inyour Have globaleconomicchanges causedanychanges [2018]IEHC292. Whilst these casesdemonstratediffering Ulster BankIreland LimitedvCostelloe& anor Sheehan vBreccia &Ors Permanent TSBPlcformerlyIrishLife& [2018]IESC33,theSupremeCourtconfirmedthat

Moorview DevelopmentLimited&OrsvFirst Flynn &BenrayLimitedvBreccia

[2018]IECA 286,theCourt [2015]UKSC67). [2018]IECA 105in April

Defender Limited The Governor

Ireland Cavendish

[2018] [2018] [2018] [2018]

sanctions inresponsetoregulatorybreachesbyregulatedfinancial Enforcement) Act 2013increasedtheCBI’s powerstoadminister functions. Inaddition,theCentralBank(Supervisionand issued bytheCBIfromperformingpre-approvalcontrolled individuals whodonotmeettheFitnessandProbityStandards approval controlledfunctionsfromindustry, ortoprevent to removeindividualsperformingcontrolledfunctionsandpre- CBI’s powersundertheFitnessandProbityRegimeenabledit Significantly, theCentralBankReform Act 2010strengthenedthe and redresspowershavebeenenhancedsignificantlybylegislation. intrusive risk-basedframeworkforsupervisionanditsenforcement investigations andenforcement. The CBIhasdevelopedamore Matheson © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 banks, sixoftheworld’s 10largestassetmanagers,sevenofthetopglobal technologybrandsandwehaveadvisedthemajor internationally focusedcompaniesandfinancialinstitutionsdoingbusinessin andfromIreland.Ourclientsincludeoverhalf Matheson’s sixoffices, including96partnersandtaxprincipalsover 470legalandtaxprofessionals.Mathesonservicest Established in1825Dublin,Irelandandwithoffices inCork,London,New York, Palo Alto andSanFrancisco,morethan700p lawyers byinternationallegaldirectories. forestry company).SheisrankedasoneofIreland’s topinsolvency Ireland and co-authorofthe She isamemberoftheCommercialLitigation Association ofIreland Association. Sheisco-authoroftheLawSociety’s insolvencymanual. directors’ dutiesattheLawSocietyofIrelandandDublinSolicitorsBar international legalpublications.Shelecturesoninsolvencylawand educational committee.JulieisaregularcontributortoIrishand 2014 duringwhichtimesheactedassecretaryandchairofits the CouncilofIrishSocietyInsolvencyPractitionersfrom2011 to financial servicesandshareholderdisputes.Juliewasamemberof matters andisanexperiencedlitigatorspecialisinginbanking and non-contentiousrestructuring,recoveryinsolvencylaw Julie isaPartneratMatheson,practisinginallaspectsofcontentious . Julieisanon-executivedirectorofCoillte Teoranta (IrishState Practitioner’s GuidetotheCommercialCourtin Practitioner’s URL: Email: Tel: Ireland Dublin 2 70 SirJohnRogerson’s Quay Matheson Julie Murphy-O’Connor

www.matheson.com [email protected] +353 12322192

outlined atquestion7.1above). which willbeaSeniorExecutive Accountability Regime(as of anIndividual Accountability Framework,akeycomponentof called foradditionallegislativereformstofacilitatetheintroduction Report onBehaviourandCultureoftheIrishRetailBanks,ithas accountability isintegraltotheregulation offirms personal responsibilityandhasexpressedtheviewthat“ prudential regulation. The CBIisalsoincreasingitsfocuson dedicated totheregulationoffinancialconduct;andother its financialregulationfunctionintotwodistinctpillars:one Administrative SanctionsProcedure.In2017,theCBIrestructured service providersandtheleveloffinesthatitcouldlevyunderits Investigations Group. Department atMatheson,andco-headofthefirm’s Regulatoryand Karen isaPartnerintheCommercialLitigationandDisputeResolution reckless tradinganddisqualificationrestrictionproceedings. and remedies,directors’ duties,includinginrelationtofraudulentand in relationtocorporateoffences andinvestigations,shareholderrights advises liquidators,regulators,directorsandinsolvencypractitioners high-profile corporaterescuetransactionsofthelast10years.She insolvency lawmatters,havinghadaleadroleinsomeofthemost Karen hassubstantialexperienceincorporaterestructuringand corruption andbriberylegislationdocumentdisclosureissues. corporate offences, commercialandfinancialservicesdisputes,anti- compliance andgovernancerelatedmatters,white-collarcrime relation tocontentiousregulatorymatters,investigations,inquiries, companies andregulatedentitiespersons.Sheadvisesclientsin financial servicesproviders,domesticandinternationallyfocused strategic adviceanddisputeresolutiontofinancialinstitutions, resolution practice.Shehasover10years’ experienceproviding Karen hasabroadfinancialservicesandcommercialdispute

URL: Email: Tel: Ireland Dublin 2 70 SirJohnRogerson’s Quay Matheson Karen Reynolds

www.matheson.com [email protected] +353 12322192

oftheworld’s 50largest WWW.ICLG.COM ity oftheFortune100.

eople workacross he legalneedsof

”. Initsrecent

Ireland individual

79 Ireland Chapter 14 Isle of Man Tara Cubbon

DQ Advocates Limited Sinead O’Connor

1 Bringing a Claim – Initial Considerations resolution service for customers with a complaint against an Isle of Man financial firm such as a bank, insurance company or financial adviser which the firm has been unable to resolve. 1.1 What are the most common causes of actions taken by or against financial institutions and service 1.4 Is third-party funding available in financial services providers in your jurisdiction? litigation (crowdfunding, maintenance, champerty, etc.)? Does litigation insurance operate in your The most common causes of action are: debt recovery claims; jurisdiction and, if so, what are the implications for claims for breach of contract and professional negligence; and this? claims for misrepresentation or misstatements. There may also be claims involving corporate and trust service providers including Third-party funding is not common in the Isle of Man but is claims against trustees for negligence or breach of fiduciary duty permissible. It is subject to the common law rules of maintenance and claims against directors for negligence or breach of directors’ and champerty. Isle of Man Advocates are not permitted to enter duties. into conditional fee agreements and contingency arrangements. The Isle of Man Financial Services Authority (the “FSA”) can also Litigation insurance does operate in the Isle of Man. The fact that a take certain regulatory actions under the Financial Services Act party has litigation insurance will not affect how any claim will 2008 and the Collective Investment Schemes Act 2008 against proceed. The insured party will remain subject to any court financial service providers including issuing prohibitions, warning judgment or order and the terms of any cover for the same will be a notices, directions and civil penalties. This can include the issuance matter between the insured party and the insurer. of orders prohibiting persons from acting as directors. Directors and other company officers can also be disqualified under 1.5 Are class action law suits available in your the Company Officers (Disqualification) Act 2009. jurisdiction? If so, has this impacted financial Claims may also be brought against financial service providers for services litigation? Has there been an increase in class action suits post the financial crisis? breaches of the Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 (as amended 2018) (the “AML / CFT Code”). Representative actions and group litigation are permitted and provided for under the Isle of Man High Court Rules 2009 (the “HCR”). There has not been an increase in such actions post the 1.2 What remedies are most likely to be awarded? financial crisis and the same continue to be uncommon in the Isle of Man. In respect of civil claims brought by or against financial institutions, likely remedies include compensatory damages, rescission of contracts, restitution and the accounting of profits. Injunctions and 2 Before Commencing Proceedings orders for specific performance may also be granted. In respect of certain claims, the courts may also order the removal and 2.1 What are the main barriers to financial service replacement of trustees and directors. litigation for customers? Are there exclusionary clauses or duty defining clauses in customer contracts which prevent customers from bringing a 1.3 Who has a right of action in financial services case? disputes? Does it make a difference if the customer is an individual or a commercial entity? Individual terms of business between financial services firms and There are no differences between the rights of individuals and their clients may limit rights of recovery under exclusion clauses, commercial entities to bring actions in the High Court in respect of limitation of liability clauses and indemnity clauses. In particular financial services disputes. contracts, for example, in respect of investments managed by trustees, trustees may seek to exclude any liability for product The Isle of Man Financial Ombudsman Scheme is, however, only choice or advice. open to individuals. The Scheme is a free, independent dispute

80 WWW.ICLG.COM ICLG TO: FINANCIAL SERVICES DISPUTES 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London advice privilegeaswouldapplyinanycivilproceedings. Parties tofinancialserviceslitigationcanavailofandlegal 2.3 action willnot‘stoptheclock’ inrespectofcivilclaims. the causeofactionaccrued.Generallyspeaking,anyregulatory be broughtaftertheexpirationofsixyearsfromdateonwhich relied on.Ingeneral,anactionfoundedontortandcontractcannot services disputes.Itwilldependuponthecauseofactionbeing There arenospecifictimelimitsthatapplyspecificallytofinancial 2.2 DQ AdvocatesLimited © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 law onexclusionandlimitationof liability. Attempts tocontractoutofnon-contractualdutiesaresubjectthe standards issupervisedbytheFSA. on directors’ dutiesand goodpractice.Compliancewiththese The FSA hasissuedcorporategovernanceguidanceand their trustsandthebeneficiariesofthosetrusts. transaction orarrangement. Trustees alsoowefiduciarydutiesto benefits fromthirdpartiesandtodeclareaninterestinaproposed care, skillanddiligence,toavoidconflictsofinterest,notaccept company, toexerciseindependentjudgment,reasonable the dutiestoactwithintheirpowers,promotesuccessof Directors aresubjecttocommonlawandequitabledutiesincluding may alsobebroughtonthebasisofatortiousdutytoprovideadvice. below, claimsfornegligentmisstatementmaybebrought.Claims may ariseinparticularcircumstances.Forexample,assetout financial servicesentitiesbutdutiesofcareand/orfiduciary There arenospecificnon-contractualdutiesthatbindingon 2.5 contract byreference. institution iftheyareclearlyandproperlyincorporatedintothe transactions. They willform partofthecontractwithafinancial Yes, thesearequitecommonespecially inlarge lending 2.4 follow Englandand Wales onthispoint. investigations constitute‘litigation’ andtheIsleofManwouldlikely There arenoprecedentcaseswhichhaveconsideredwhetherornot binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howarethey treated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can

litigation. financial servicelitigation. The HCRapplytoalltypesofcivil The methodofserviceproceedingsdoesnotdiffer inrespectof 3.2 2008. Schemes Act Financial Services Act 2008and/ortheCollectiveInvestment aggrieved personsagainstactionstakenbytheFSA underthe The FinancialServices Appeal Tribunal willhearappealsby companies andtruststhatarenotsimplymonetaryclaims. The latter‘procedure’ typicallydealswithclaimsrelatingto trustees ofatrustwouldbeheardunderthe‘chanceryprocedure’. under the‘ordinaryprocedure’ whereasaclaimforremovalof followed. Forexample,ahighvaluedebtclaimwouldbedealtwith of actionwoulddeterminethecourt‘procedure’ thattheaction litigation wouldbedealtwithbytheHighCourt;however, thetype of Manjudges),thatdealwithfinancialserviceslitigation. All such There isnospecialistcourt,norarethereDeemsters(Isle 3.1 negligent misrepresentation undertheMisrepresentation andUnfair Claims formis-sellingmaybedealt withbywayofaclaimfor 3.5 of disputes. the FinancialOmbudsmanSchemealsoprovidesforresolution services disputesintheIsleofManismediation. As setoutabove, most commontypeof ADR usedfortheresolutionoffinancial govern howadisputeisresolvedatleastinthefirstinstance. The ADR clausesareseeninfinancialservicescontractsandthesewill parties toconsiderthis. an alternativetocourtproceedingsandthereisacontinuingdutyon however, theIsle ofMancourtsdoexpectpartiestoattempt ADR as There areno ADR regulationsthatapplyintheIsleofMan; 3.4 proceedings beingcommenced. action totheothersideandattemptedresolvedisputesprior courts thereforetypicallyexpectpartiestohavesentlettersbefore including proportionately, expeditiouslyandfairly. The IsleofMan overriding objectiveoftheHCRisforcasestobedealtwithjustly There arenopre-actionprotocolsintheIsleofMan.However, the 3.3 3 financial servicelitigation? Does themethodofserviceproceedingsdifferfor financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypically included regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust

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81 Isle of Man 82 Isle of Man is dealtwithunder theCodeofPracticeon Access toGovernment access datathroughthischannelas well.Discoveryanddisclosure and astheFSA qualifiesasapublicauthority, adatasubjectcould Freedom ofinformationrequestscan beservedonpublicauthorities which includesinformation mightbelegallyprivileged. be excludedfromanyresponseto adatasubjectaccessrequest data protectionlegislation. There arearangeofmatterswhich can exercising theirdatasubjectaccessrightundertheIsleofMan’s A financialservicescustomercanaccesstheirpersonaldataby 3.7 private useorconsumption. pursuance ofthecontractareatypeordinarilysuppliedfor of salegoodsorhire-purchase,thepassingunderin of abusiness;and(c)inthecasecontractgovernedbylaw as doingso;(b)theotherpartydoesmakecontractincourse makes thecontractincourseofabusinessnorholdshimselfout “deals asconsumer”inrelationtoanotherpartyif:(a)heneither Similarly, section14ofMUCTA providesthatapartytocontract profession. is actingforpurposeswhichareoutsidehistrade,businessor Section 40FoftheCPA 1991defines‘consumer’ asanypersonwho applied totheperformanceofcontract. the supplyofservicesincludinginrespectcareandskill protection toconsumersbyimplyingcertaintermsintocontractsfor The SupplyofGoodsandServices Act 1996alsoprovides limited atall. reasonableness whilstothertypesofliabilitycannotbeexcludedor consumers, certaintypesofliabilitycanbeexcludedsubjectto deals withlimitationsandexclusionsofliability. Inrespectof As setoutabove,MUCTA dealswithmisrepresentationandalso obtained topreventthecontinueduseofunfairterms. is capableofexistingwithouttheunfairterm.Injunctionscanbe will notbebindingontheconsumerandcontractcontinueifit contract onwhichitisdependent. Where atermisfoundtobeunfairit contract; and(c)alltheothertermsofcontractany supplied; (b)allthecircumstancesattendingconclusionof the contractwasconcluded):(a)natureofgoodsorservicestobe will beassessedhavingregardtothefollowingmatters(asattime influence thesubstanceofterm. The unfairnessofthecontractterm been draftedinadvanceandtheconsumerhasthereforenotableto be regardedasnothavingbeenindividuallynegotiatedwhereithas detriment oftheconsumerandcannotbejustified. A termwillalways rights andobligationsarisingunderthecontract,whichisto regarded asunfairifitcausesasignificantimbalanceintheparties’ contract termwhichhasnotbeenindividuallynegotiatedshallbe contract termsinconsumercontracts.Section39providesthata The ConsumerProtection Act 1991(the“CPA 1991”)dealswithunfair 3.6 for fraudulentmisrepresentation. negligent misstatement. The tortofdeceitmayalsofoundaclaim Contract Terms Act 1980(“MUCTA”) oratortiousclaimfor DQ AdvocatesLimited © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt

4.2 section 21oftheCollectiveInvestmentSchemes Act 2008. permitted undersection32oftheFinancialServices Act 2008and In respectofregulatoryactiontakenbytheFSA,appealsare or finalorder;14daysinthecaseofanyotherorder. usual timeforappealingis:42daysfromthelowercourt’s judgment to allcivilclaimswillapply. Unlessacourtordersotherwise,the civil claimintheHighCourt,ordinaryrightofappealthatapplies Where afinancialservicesdisputehasbeendeterminedbywayof 4.1 proceedings; andmore. household andthegovernor;lawenforcementlegal internal discussionandadvice;communicationswiththeroyal II oftheCodewhichinclude:securityandexternalrelations; would notbeinthepublicinterest. The exceptionsarefoundinpart reasonably requestedwillbedisclosedexceptwheredisclosure Information (“theCode”)whichstatesthatinformationis The IsleofManjudiciary isveryopentoco-operation withforeign 5.2 the Judgment(ReciprocalEnforcement)(IsleofMan) Act 1968. recognition offoreignjudgmentsunderthecommonlawandalso Isle ofMancourtsarealsoregularlyrequiredtoconsiderthe information inrespectoftrustassets. example, investments)orrequiredisclosurebythetrusteesof where ordersmadebyforeigncourtsseektoaffect trustassets(for foreign proceedings.Inrespectoftrusts,theremayalsobeissues officers andrequestsforassistanceinobtainingevidenceuse bankruptcy, requestsforexaminationofIsleMancompany the HighCourtforrecognitionofforeignliquidatorsortrusteesin Typical cross-borderissuesincluderequestsfromforeigncourtsto 5.1 they willbesubjecttodetailedassessmentbythecostsassessor. summary assessmentbythecourtthatdealtwithproceedingsor upon thecircumstances,amountofcostswillbesubjectto whether anadmissibleoffer to settlewaspreviouslymade.Depending parties; (b)whetherapartyhassucceededonpartofitscase;and(c) of factorswhenawardingcostsincluding:(a)theconduct unsuccessful party;however, thecourtwilltakeintoaccountanumber is thatthesuccessfulpartyentitledtorecoveritscostsfrom HCR. The courthasawide discretiononcosts. The normalposition subject totheordinarypositiononcostsforcivilclaimsassetoutin A financialservicesdisputedeterminedbywayofacivilclaimwillbe 4 5 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 services disputes? How doesthecourtdealwithcostsinfinancial disputes? Is therearightofappealinfinancialservices Post Trial disputes (includinginvestigations)? regulatory bodiesorofficialsin financialservices jurisdiction toco-operatingwith foreigncourtsor What isthegeneralapproachof thecourtsinyour how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues

Isle ofMan

worldwide.” obligations, includingthepaymentoftax,arecompliedwith jurisdictions. We shouldassistothersinensuringthatlegal facilitate wrongdoersattemptingtoevadetaxintheirhome law andpaytheirtaxes. The IsleofMandoesnotandshould does notandshouldshelterthosewhodocomplywiththe then FirstDeemster, DeemsterDoyle,commented:“TheIsleofMan Isle ofManIncome Tax Assessor. Indeliveringhisjudgment,the Exchange RequestfromHerMajesty’s RevenueandCustomstothe Doyle dated23September2016)whichinvolveda Tax Information of IncomeTax vHolmcroft Just oneexampleofthisattitudeisdisplayedinthecase co-operation. jurisdictions andthishadledtoatrendtowardsinternationaljudicial community thatexistsbetweenfriendlyandsophisticated recognise thattheIsleofManhasaroletoplayininternational be basedonaproperlyfoundedjurisdiction.However, theyalso be properlymade,cannotabusivefishingexpeditionsandneedto independent jurisdictionandthatallrequestsforassistanceneedto The IsleofMancourtsrecognisethattheisan courts andregulatorsinthecontextofdisputesinvestigations. DQ AdvocatesLimited © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Services Act 2008 (and theCollectiveInvestmentSchemes Act As setoutabove,theFSA hasarange ofpowersundertheFinancial 6.2 with legislationandtheFinancialServicesRulebook. applied tofinancialinstitutionswheretherearefailurescomply Ombudsman. The FSA also has regulatorypowersthatmaybe financial firmcanmakeacomplainttotheFinancialServices As setoutabove,customerswithacomplaintagainstanIsleofMan 6.1 and “strongcause”isrequiredforthecourttoorderotherwise. that thecourtswillrespectandenforceparties’ choiceofforum overridden incertaincircumstances;however, thegeneralruleis of Manlaw. The IsleofMancourtshaveconfirmedthattheycanbe Unilateral jurisdictionclausesarevalidandenforceableunderIsle 5.4 Bribery Act whichcouldextendtotheIsleofMan. conduct. There arealso extra-territorial provisionsintheUK territorial jurisdictionwhichmaybeappliedtoorganisations and Failing topreventthefacilitationofUKtaxevasionwillhaveextra- 5.3 disappointment, thatitdoesnotworkinthisjurisdiction.” documents regardingtheproceedsofwrongdoingwillfind,totheir Potter’s invisibilitycloak topreventsightofinformationor “Those endeavouringtomakeuseoftheequivalentHarry He alsoreferredtohisrulinginapreviouscasewhereheremarked: 6 Are unilateraljurisdictionclausesvalidand your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin have? enforcement/sanctions) dothese regulatorybodies What powers(investigative/inquisitorial/ services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies enforceable inyourjurisdiction?

(judgmentofHisHonour The Deemster

Assessor

binding onboththesupplierandcustomer. An appealtotheHigh Where theFinancialOmbudsmanmakesanaward,itwillbe the financialservicesindustry. into otherlegislationandregulationwhichwouldbeapplicableto the FinancialServices Tribunal andthereareappealprovisionsbuilt Section 32oftheFinancialServices Act 2008providesforappealto 6.4 which canresultincourtactionbeingbroughtbytheFSA. decision oftheFSA canoftenresultinadditionalactionbeingtaken Yes, thesearebindingontheparties.Non-compliancewitha 6.3 sums foranymaterialdistressandinconveniencesuffered. compensation upto£150,000fordefinedfinanciallossandsmall The FinancialOmbudsmancanissueawardsbywayof Services (CivilPenalties)Regulations2015. requirements, theFSA canlevyamonetaryfineundertheFinancial where therehasbeenamaterialbreachoftheregulatory compliance withtheregulatoryrequirementsatplay. Inaddition, of thefinancialservicesdisputeindicatethattherewasnon- 2008) whichincludecivilsanctionsbeingappliedshouldthenature investments thathave failed. where thoseprovidershavebeen involved inthemanagementof number ofclaimsinvolvingcorporate andtrustserviceproviders Since thefinancialcrisis,therehas beenanapparentincreaseinthe adversely onthelowlevelofprosecutions forfinancialcrime. on remediationratherthanenforcement andalsocommented MONEYVAL in2017wascriticalofthe over-reliance bytheFSA be usedwhennecessary. The MutualEvaluationReportissuedby the powerswhichareavailableunderlegislationandregulationwill This isprincipallyduetotheIsleofMan’s needtodemonstratethat further enforcementinthefinancialservicessectorisexpected. Due totheinternationalscrutinywhichIsleofManissubject, 7.1 judgments oftheIsleMancourts. automatically madepublicthroughtheonlinepublicationof of directorsispublic. Additionally, anycourtdecisionis interests ofconsumerstodoso. The prohibitionanddisqualification have thepowertomakepublicstatementsifitconsidersin Normally, thesedecisionsarenotmadepublicbuttheFSA does 6.5 law. Court canonlybemadewheretheadjudicatorhasanerrorin 7

exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly

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Isle ofMan

83 Isle of Man 84 Isle of Man shareholders ofthefundattemptedtoargue thatthecorporate that actedastheloanmanagerinrelationtoaninvestmentfund. The director thatprovidedcorporateandservicestoacompany fund againstanIsleofMancorporateserviceproviderand An IsleofManHighCourtrecentlyheardaclaimbyaninvestment regulatory intervention. the timethataninappropriatefocusoncompliancewouldleadto to prohibitthedirectorsofOCRA IsleofManandpubliclystatedat detrimental. SimilarissueswereraisedbytheFSA whenitsought performance ratherthancompliancehadbeenparticularly Apex’s non-complianceandhowafocusbytheBoardonfinancial statement howcorporategovernancefailureshadcontributedto was issuedbytheRegulator. The FSA highlightedinthepublic the FSA duetofailingsrelating AML/CFT andapublicstatement first recipientofacivilpenaltyfromtheFSA. Action wastakenby organisation tobeprosecutedunderthe AML/CFT Code andthe Apex FundServicesLimited(“Apex”)wasthefirstIsleofMan 7.3 Our jurisdictionwouldbeconsideredneutral. 7.2 DQ AdvocatesLimited © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe

threat ofblacklistingisoftenwieldedandassuchtheIsleMan as theIsleofManseekstostayinlinewithwhatisexpected. The influence ontheIsleofManlegislativeandregulatoryenvironment fourth, fifthandsixthMoneyLaunderingDirectiveshavean In addition,EUdevelopmentsinrelationto AML/CFT suchasthe Member States’ taxbasesandapplypressuretootherjurisdictions. substance requirementsasgroupssuchtheEUlooktoprotect Global economicchangeshaveinfluencedtheintroductionof 7.4 they owedtothecompany. had assumeddirectresponsibilitybeyondtheordinarydutiesofcare facts ofthecasethatshoweddirectorandadministrator corporate administratorstothirdparties. There wasnothingonthe extend thedutiesofserviceprovidersincludingdirectorsand September 2017)). The caseconfirmsthatthecourtswillnoteasily (judgment oftheStaff ofGovernment Appeal Divisiondated21 Limited & Another v Axiom LegalFinancingFund MasterSP permission toappealthePrivyCouncil( claim struckoutonappealandtheclaimantswererefused directly tothefundanditsshareholders. The defendantshadthe Life HealthFoodsLtd[1998] AC 830 it wasdirectorof(asisthenormalpositionunder director (andadministrator)didnotonlyowedutiestothecompany a co-operativejurisdiction. regulation whichcandemonstratethattheIsleofManwishestobe seeks tobearesponsiblejurisdictionintroducinglegislationand ICLG TO: FINANCIAL SERVICESDISPUTES 2019 jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

) butowedthesameduties Peacock Management Isle ofMan Williams vNatural

DQ AdvocatesLimited © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 lawyers in DQ areaccessible,responsiveandcommercialwithclient-orientedstrategiesgoals.Ourspecialistlawyersrecommended We offer afullrangeoflegal,regulatoryandcomplianceservicestoourlocalglobalclients. DQ Advocates isaleadingIsleofManbasedlaw firmwithaninternationalreach. impressive. Shecommunicateswellandputsherclientsatease Partners Tara hasbeenrankedasan Associate toWatch by Man HighCourtofJusticeandStaff ofGovernment(AppealDivision). contentious matters;makingregularappearancesbeforetheIsleof local corporateandtrustserviceprovidersonhighvaluecomplex regularly advisesbankinginstitutions,corporations,liquidatorsand majority of Tara’s practiceiscorporateandcommerciallitigation.She Tara isaSenior Associate intheDisputeResolutionteam. The withclientsnoting“ Chambers &Partners URL: Email: Tel: Isle ofMan Douglas, IM12PU The Chambers,5MountPleasant Limited DQ Advocates Tara Cubbon her skillsinthecourtroomarevery and www.dq.im [email protected] +44 1624626999

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Practitioner. experience tobringclients.SineadisanaccreditedDataProtection has workedinthecomplianceindustrysince1995soawealthof banking, insurance,corporateserviceprovidersandfunds.Sinead works withclientsacrossthefinancialservicesindustrycovering Sinead isHeadoftheRegulatory&ComplianceServicesteam.She

URL: Email: Tel: Isle ofMan Douglas, IM12PU The Chambers,5MountPleasant Limited DQ Advocates Sinead O’Connor www.dq.im [email protected] +44 1624626999

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asleading

85 Isle of Man Chapter 15 Japan

Mori Hamada & Matsumoto Shinichiro Yokota

1 Bringing a Claim – Initial Considerations 1.3 Who has a right of action in financial services disputes? Does it make a difference if the customer is an individual or a commercial entity? 1.1 What are the most common causes of actions taken by or against financial institutions and service providers in your jurisdiction? Any person who incurs damages in transactions with financial institutions and service providers has a right of action in financial services disputes. The most common claims against financial institutions and service providers in Japan are those for alleged mis-selling of and In deciding the liability of financial institutions and the amount of misstatement related to financial products. The causes of actions for damages, a court weighs the degree of the financial institutions’ mis-selling and misstatement claims are typically based on tort duties depending on the level of sophistication (e.g., experience, under the Civil Code or breach of the financial institutions’ duty to knowledge, intention, financial status and other factors) of the explain certain important matters as stipulated in Article 3 of the Act customers in each case. A commercial entity tends to be regarded as on Sales, etc. of Financial Instruments (ASFI) to its customers at or more sophisticated, although of course there are very sophisticated before the time of selling financial products. individuals and, therefore, this statement cannot be generalised. The Financial Instrument and Exchange Act (FIEA) stipulates It should also be noted that the key duties of financial institutions several duties of financial institutions for the protection of under the FIEA (such as the principle of suitability) do not apply to customers, including the prohibition against providing false customers who are professional investors, including, for example, information or conclusive evaluations related to the financial listed stock corporations and stock corporations with a stated capital products which they are selling (FIEA, Article 38(1)) and the of at least ¥500 million. principle of suitability (Id., Article 40). Although breaching these duties does not automatically lead to liability on the part of financial 1.4 Is third-party funding available in financial services institutions in private actions, depending on the circumstances of litigation (crowdfunding, maintenance, champerty, each case, a financial institution may be held liable under tort based etc.)? Does litigation insurance operate in your on its breach of such duties. The Supreme Court of Japan held in its jurisdiction and, if so, what are the implications for decision dated 14 July 2005 that a financial institution may bear a this? tort liability where it solicits and enters into securities transactions which deviate significantly from the principle of suitability, As far as we are aware, litigation insurance is not utilised in Japan. considering its customers’ experience, knowledge, intention, In addition, there has been no substantial discussion in Japan in financial conditions and other factors. relation to third-party funding in general or specifically in financial services litigation. It should be noted that, although litigation Financial institutions also have a duty to explain certain important funding is not specifically prohibited under Japanese law, it is illegal matters as stipulated in Article 3 of the ASFI, and a breach of that for a person who is not an attorney or a legal professional duty can be a cause of action in itself under Article 5 of the ASFI. In corporation to act as an intermediary between a client and an such a case, the amount of damages arising from the financial attorney in connection with lawsuits for the purpose of obtaining institution’s breach is presumed to be basically the amount of loss compensation. incurred by the customer in the transaction.

86 WWW.ICLG.COM ICLG TO: FINANCIAL SERVICES DISPUTES 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London introduced in2013andthescopeofclassactionsislimited. As mentionedabove,thisJapaneseclassactionsystemwas determination, anordinarylitigationprocedurewillbecommenced. documentary evidence.Ifaconsumerobjectstothecourt’s through asimplifiedprocedureinwhichthecourtwillexamineonly the claims,courtwilldeterminewhetherclaimsexist, authority torecoverclaimsontheirbehalf.Ifthedefendantrejects the classaction. Those consumersmaygivetheOrganisation consumers whomayhaveclaimsagainstthedefendantsubjectto public noticethroughtheinternet,newspapersortelevisionads, At thesecondstage,Organisation willnotify, directlyorby commence todeterminetheclaimsofconsumers. that thedefendantisresponsible,thenasecondstageprocedurewill court orunderanagreementbetweenthepartiesandfinds obligation” intheclaims.Ifa“commonisfoundby will requestthecourttodetermineexistenceofa“common At thefirststageofaclassactionforconsumers,Organisation certain typesofmonetarydamagesarisingfromconsumercontracts. government mayfileaclassactionclaimonbehalfofconsumersfor Consumer Organisation” (the Under theJapaneseclassactionsystem,onlya“CertifiedQualified Mori Hamada&Matsumoto © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Civil Code. considered asanactagainstpublic policy, whichisvoidunderthe between theparties.Further, anysuchagreementcouldbe FIEA andthe ASFI whichcannotberenouncedbyagreement the FIEA andfinancialinstitutionsoweavarietyofdutiesunderthe customers giventhatfinancialproducttransactionsareregulatedby clauses incontractsbetweenfinancialinstitutionsandtheir contracts. However, itisrareinpracticetofindthoseexclusionary representative oremployeeintheperformanceofconsumer part oftheirliabilityarisingoutthesimplenegligence business operators(notconsumers),or(b)clauseswhichexcludea clauses whichexcludetheirliabilityasawholeincontractswith contracts, arevoid. That said, financialinstitutionsmayput(a) employee ofthebusinessoperatorsinperformanceconsumer out ofanyintentionalactorgrossnegligencearepresentative a partofthetortliabilitybusinessoperatorstoconsumersarising performance ofconsumercontracts,and(ii)clauseswhichexclude to consumersasawholeonoccasionofthebusinessoperators’ tort liabilityofbusinessoperators(includingfinancialinstitutions) Consumer Contract Act stipulatesthat(i)clauseswhichexcludethe With respecttoexclusionaryclausesordutydefiningclauses,the of self-responsibilityappliestofinancialproducttransactions. financial institutions,asitisgenerallyunderstoodthattheprinciple burden ofproofrequiredtoestablishmis-sellingormisstatementby The mainbarriertofinancialservicelitigationforcustomersisthe 2.1 actions relatedtofinancialserviceshaveincreased. significant impactonfinancialserviceslitigationorthatclass Thus, wedonotbelievethatthisclassactionsystemhashad 2 case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary What arethemainbarrierstofinancialservice Before CommencingProceedings

Organisation ) approvedbythe

Procedure, theholderofadocument,suchaslawyer, mayrefuseto to submitdocumentsincourtunder Article 220oftheCodeCivil Procedure. Thus, asoneof theexceptionstogeneralobligation confidentiality underthe Attorney Act andtheCodeofCivil product protection.However, lawyershaveadutyandrightof advice privilegesuchasattorney-clientcommunicationsorwork Japanese lawdoesnotrecognisetheconceptoflitigationorlegal 2.3 prescription period. discussed infurtherdetailquestion3.4below, interruptsthe claims. The commencementofafinancial ADR proceeding,as the identityofperpetratorforatortclaim,and10yearsother from thetimewhenclaimantbecomesawareofdamagesand of therelevantperiodunderstatutelimitations:threeyears Claimants maynotbringfinancialservicesdisputesafterthelapse 2.2 under Article 5ofthe ASFI. the ASFI, andabreachofthatdutycan beacauseofactioninitself duty toexplaincertainimportantmatters asstipulatedin Article 3of As discussedinquestion1.1above,financialinstitutionshavea 2.5 them thatsuchsetting-off wouldbeallowed. have agreedinadvancetheISDA Master Agreement between insolvency proceedingsoftheotherparty, evenwhentheparties which theotherpartyowestosetting-off party’s affiliates atthe may notsetoff itsobligation totheotherpartyagainstanobligation decision dated8July2016,heldthataparty(the“setting-off party”) However, itshouldbenotedthattheSupremeCourtofJapan,inits parties andaregenerallyvalideffective. indeed used,togovernthecontractualrelationshipbetween entered intobyfinancialinstitutionsandtheircustomers,are and Derivatives Association ( Standard formmasteragreements,suchastheInternationalSwaps 2.4 (Code ofCivilProcedure, Article 220(iv)(c)). although theirclientsmayreleasethemfromdutyofsecrecy duties andregardingwhichtheyhaveanobligationtokeepsecret, professionals, includinglawyers,havelearntinthecourseoftheir submit thedocumentifitcontainsmaterialsorinformationwhich considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howarethey treated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour

ISDA

) Master Agreement, canbe WWW.ICLG.COM

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87 Japan 88 Japan the MinistryofFinance mayissueanordercompelling compliance the ADR proceedingsortoaccepta specialconciliationproposal, In thecasewherefinancialinstitution refusestoparticipatein the specialconciliationproposal. proposal). Inprinciple,thefinancial institutionisexpectedtoaccept is taskedwithprovidingasettlement proposal(specialconciliation persons withexperienceinthefinancialinstitutionbusiness,andit professionals, forexample,attorneys,judicialscriveners,and Generally, adisputeresolutioncommitteeconsistsofcertain The disputewillbeassignedtoaresolutioncommittee. the provisionofinformationanddocumentswithoutjustification. to providenecessaryinformationanddocumentsmaynotrefuse justifiable grounds.Furthermore,thefinancialinstitutionisrequired may notrefusetoparticipateinthe ADR proceedingswithout dispute resolutionorganisation, therespondentfinancialinstitution contract, ifacustomerinitiates ADR proceedingsatarelevant Even thoughno ADR clauseisincludedinafinancialservice related tofinancialproducttransactions. such asbanksandsecuritiescompanies,tohandle ADR proceedings resolution organisations” are designatedbyeachbusinesscategory, as theBanking Act andtheInsuranceBusiness Act), “dispute Under theFIEA andotherlawsrelatedtofinancialinstitutions(such 3.4 litigation. No. There arenospecificpre-trial proceduresforfinancialservices 3.3 litigation isthesameasthatforotherlitigation. No. The methodofserviceproceedingsforfinancial 3.2 services litigation. No. There isnospecialistcourtorjudgeforfinancial 3.1 renounced bycontract. The viewinthelegalcommunityisthatthesedutiescannotbe finding oftortliabilityagainstthefinancialinstitutions. not contractualinnature,abreachofthesedutiescanleadto principle ofsuitability( products whichtheyareselling(FIEA, Article 38(1))andthe false informationorconclusiveevaluationsrelatedtothefinancial owe avarietyofduties,includingtheprohibitionagainstproviding In addition,undertheFIEA,financialinstitutionsareregulatedand Mori Hamada&Matsumoto © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM 3 financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypically included regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor

Id. , Article 40). Although thesedutiesare

consumers unilaterallymaybeconsideredcontrarytothe expand thedutiesofconsumers,andimpairinterests Moreover, unfairtermswhichrestricttherightsofconsumers, public policyunder Article 90oftheCivilCode. Generally, unfairtermsmaybeconsideredvoidasactsagainst 3.6 through wilfulmisconductorgrossnegligence. or mis-sellingismadethroughnegligenceandcaseswhereit Basically, thereisnodiscrepancybetweencaseswheremisstatement 3.5 with the ADR proceedings. possible forcustomerstoproceedwithcourtproceedingsinparallel waived evenifcustomersstart ADR proceedings.Infact,itis disputes. However, therighttoresolveadisputeincourtisnot This ADR systemiscommonlyusedtoresolvefinancialservices appropriate operationofthefinancialinstitution’s business. if itisfoundthatcertainactionsarenecessarytoensurethe the holderofadocument tosubmitthatdocument (CodeofCivil Order toSubmitDocuments: A partymay requestthecourttoorder is notangiblesanctionforfailingto respond. who receivestheinterrogatorieshas anobligationtorespond,there 163). However, itshouldbenotedthatalthoughthe opposingparty other partytorespond(CodeofCivil Procedure, Articles 133-2and prepare itsallegationsorproof,andgiveareasonableperiodforthe regarding matterswhichtherequestingpartyfindsnecessaryto Interrogatories: A partymaysendinterrogatoriestotheother under theCodeofCivilProcedure,asfollows. party. That said,therearesomemeasuresforevidencecollection that apartycanobtainevidencefromtheopposingorthird produce theirowndocumentsasevidenceincourtanditisnotoften States. UndertheCodeofCivilProcedure,partiesbasically discovery ordisclosureprocessequivalenttothatoftheUnited The CodeofCivilProceduredoesnotrecogniseanextensive (Act ontheProtectionofPersonalInformation, Article 28(2)(ii)). data islikelytoseriouslyimpedetheproperexecutionofitsbusiness institution mayrefusetherequestifdisclosingrequestedpersonal on theProtectionofPersonalInformation.However, thefinancial retained bythefinancialinstitution,pursuantto Article 28ofthe Act institution todisclosepersonaldatawhichrelatethemandare In principle,outsideoflitigation,customersmayrequestafinancial 3.7 2(1)). Contract Act,Article a businessoperatororforthepurposeofits(Consumer individual otherthanapersonwhobecomespartytocontractas A “consumer”undertheConsumerContract Act isdefinedasan Consumer Contract Act. fundamental principleof,andcanbevoidunder, Article 10ofthe ICLG TO: FINANCIAL SERVICESDISPUTES 2019 jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt

Japan

case (CodeofCivilProcedure, Article 149). believes thatthosedocumentswouldhelpthecourtunderstand voluntarily submitdocumentsintheirpossessionifthecourt upon therequestofapartyoratcourt’s initiative)thepartiesto where acourtdoesnotissueformalorder, itoftenurges (either importance ofthedocumentsrequestedforitscase.However, even requesting partymustdemonstrateahighnecessityandthe submit adocument.Inorderforthecourttoissuethatorder, the Judges tendtobedeliberatewhentheyareconsideringanyorder some exceptions. documents tosubmitupontheorderofcourt,with Procedure providesforthegeneralobligationofholders Procedure, Article 221).Notethat Article 220oftheCodeCivil the requestedpersontosubmitdocument(CodeofCivil proven bythedocument;and(v)groundsforobligationof document; (iii)theholderof(iv)factstobe request: (i)adescriptionofthedocument;(ii)purport any document. The requestingpartymuststatethefollowinginits court mustfirstexaminethethirdpartybeforeorderingittosubmit other partyoranythirdparty, althoughinthecaseofathirdparty Procedure, Article 219). The holderofthedocumentmaybe Mori Hamada&Matsumoto © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Japan ifithasits principal office orabusiness office inJapanorthe institutions; however, aforeignfinancialinstitution maybesuedin no speciallawoncross-border disputesinvolvingfinancial issue weseeincross-borderdisputes isthatofjurisdiction. There is in investigationsinvolvingfinancial institutions),themostcommon cross-border financialservicesdisputes (andtheyhardlyareinvolved Although Japanesecourtshavenot hadmuchopportunitytoaddress 5.1 the actualamountpaidbyplaintiff toitsattorney). fees are10%ofthetotalamountotherdamagesregardless (in thatcase,thecourtsusuallyassumeplaintiff’s attorney’s attorney’s feesmaybeawardedasoneoftheelementsdamages losing parties,exceptasdamageclaimswheretheplaintiff’s and feesofparty-appointedexpertscannotberecoveredfromthe be notedthatattorneys’ feesandotherexpensessuchastravel of processandfeescourt-appointedexperts.However, itshould by thepartiesandothercostsfees,suchascostofservice as inotherlitigationcases:thelosingpartybearsfilingfeespaid The costoffinancialserviceslitigationishandledinthesameway 4.2 court judgmentseveniftheproceduralrequirementsaresatisfied. Court mayrejectand,infact,oftenrejectsacceptingappealsofhigh While highcourtsdecideonthemeritsofappeals,Supreme and highcourtjudgmentsmaybeappealedtotheSupremeCourt. Yes, districtcourtjudgmentsmaybe appealed tothehighcourts, 4.1 4 5 services disputes? How doesthecourtdealwithcostsinfinancial disputes? Is therearightofappealinfinancialservices Post Trial how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues

conventions buthasabilateraltreatyorcomprehensiveagreement If aforeignstateisnotcontractingtoanyofthese witness beforeaJapanesecourt). documents ortakingofevidence(suchastheinterrogationa courts orregulatorybodiesrelatedtotheserviceofjudicial conventions. Inthosecases,Japanesecourtswillassistforeign concerning civilorcommercialcasesundertherulesofthese states iftheyrequestJapantoservedocumentsortakeevidence Civil Procedure,Japanisobligedtorespondothercontracting Documents inCivilorCommercialMattersandtheConventionon Convention ontheService Abroad ofJudicialandExtrajudicial institutions. However, sinceJapanisacontractingstatetothe There isnospeciallawoncross-borderdisputesinvolvingfinancial 5.2 the serviceofprocesstoexecutionajudgment. practically impossible,giventherequirementsatvariousstages,from a foreigndefendantistypicallytime-consumingandsometimes bring asuitagainstforeignfinancialinstitutionaslitigation committed inJapan,althoughitwouldbepracticallyineffective to director oremployeeinJapan,itmaybesuedifthetortiousactwas its businessisinJapan.Evenifthefinancialinstitutionhasnooffice, domicile ofarepresentativeoranyotherprincipalpersonincharge of regulates financial servicesdisputes. There isnoregulatorybodyinJapan, apartfromthecourts,which 6.1 time ofexecutionthecontract. jurisdiction tothecourtwhereconsumerhasadomicileat it isincludedinaconsumercontract,givestheexclusive not legallyoractuallyexercisesuchjurisdictionor, totheextentthat exclusive jurisdictiontoaforeigncourtandthemay unilateral jurisdictionclausewillbevalidunlessitgivesthe in writing(CodeofCivilProcedure, Article 3-7(1)and(2)). A respect toanactionbasedoncertainlegalrelationshipsandismade instance, andanysuchagreementwillbeeffective ifitismadewith The partiesmayagreeonthecourtbutonlyastooffirst 5.4 selling) wascommittedinJapan. may besuedifthetortiousact(i.e.,misstatementormis- financial institutionhasnooffice, directororemployeeinJapan,it It isnottypicalbutasdiscussedinquestion5.1above,evenifthe 5.3 Judicial Aid tobeGivenattheRequestofForeignCourts. in eachspecificcaseunderJapan’s LawRelatingtotheReciprocal agreement, Japanwillrespondtotherequestforjudicialassistance addressed basedonthetreatyoragreement.Ifitdoesnothaveany on mutualjudicialassistancewithJapan,thenitsrequestwillbe 6 disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour services disputesinyourjurisdiction? What bodies,apartfromthecourts, regulatefinancial Regulated Bodies enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin

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89 Japan 90 Japan disclosure ofriskinformationrelatedtoOTCFXtransactions. management ofsettlementrisksforOTCFXtransactionsandthe Business, etc.isexpectedtobeamendedin2019strengthenthe The currentCabinetOffice OrderonFinancialInstruments 7.1 typically ontheirwebsites,andpubliclyaccessible. Generally, ordersissuedbyregulatoryauthoritiesarepublished, 6.5 administrative order. institutions mayfileapetitionincourtforthecancellationof If aregulatoryauthorityissuesanadministrativeorder, financial 6.4 parties. courts whichhandlesfinancialservicesdisputesbetweenprivate This isnotapplicable,astherenoregulatorybodyotherthanthe 6.3 financial institutionsareseriousandmalicious. suspension ofbusinesswhereviolationslawsorregulationsby and regulations,suchactionsincluderevocationofregistrationor actions byissuingadministrativeorderspursuanttorelevantlaws Regulatory authoritiesinJapan,however, maytakeregulatory apart fromthecourts,whichregulatesfinancialservicesdisputes. As statedinquestion6.1above,thereisnoregulatorybodyJapan, 6.2 Mori Hamada&Matsumoto © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM 7 parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly exist? What rightsofappealfromregulatorydecisions

7.3 comparative negligenceofthecustomer. even ifacustomerprevails,thecompensationisreducedbecauseof relevant totheallegedmis-sellingormisstatement.Inmostcases, cases incourt,anditisnoteasyforcustomerstoestablishfacts customers beartheburdenofproofinmis-sellingormisstatement customers tofilefinancialserviceslitigationwiththecourt, institution-friendly jurisdiction. While thereisalowbarrierfor We believeJapanwouldbeconsideredarelativelyfinancial 7.2 markets basedinJapan. at financialinstrumentsexchangesorproprietarytradingsystem for high-frequencytraderswhoconductregulatedalgorithmictrading amendments totheFIEA in2017regardingregistrationrequirements investment-oriented crowdfunding. Additionally, therewere 2014, theFIEA andrelatedregulationswereamendedtofacilitate reacting totechnologicaldevelopmentsinthisarea.Forexample, In recentyears,theregulatorybodieshadbeenpayingattentionand decreased recently. bottom inNovember2012,financialserviceslitigationhas recovered andmaintainedamoderaterecoverytrendafterhittingthe litigation hadincreased.However, astheJapaneseeconomyhas financial institutionsinJapan(after2007),services After theglobalrecessioncausedsignificantlossestocustomersof 7.4 friendly. this decisionandare,thus,gettingmorefinancialinstitution- decision isacase-specificdecision,thelowercourtstendtofollow adequacy ofthelevelfixedinterestrate). Although this adequacy ofthepricinginaninterestswaptransaction(i.e., found thatthebank-respondentwasnotliableforexplaining Court’s decisiondated7March2014wheretheSupremeCourt the past12months. The mostimportantrecentcaseistheSupreme case-specific basis,andwehavefoundnosignificantcasesduring Decisions onfinancialservicesdisputesareoftenmadeavery ICLG TO: FINANCIAL SERVICESDISPUTES 2019 drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

Japan

Mori Hamada&Matsumoto © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 office in Tokyo; butitalsooffers significantregionalcapabilities,throughitsoffices inSingapore,Beijing, Shanghai,Ban and 61otherlawyers,includingformerchiefjudgesofthe Tokyo HighCourtandprominentscholars.Mostofitsteammembersa experienced teamandexpertise,wearecommittedtoprovidingthebestservicesforourclients.Ourdisputeresolutionc practice areas,includinginternational/domesticdisputeresolution,corporate/M&A,capitalmarkets,tax,anti-trustandIT/IP. Mori Hamada&Matsumotoisoneofthelargestfull-servicelawfirmsinJapan.We havebeenrankedatthehighestlevelsona an LL.M.fromDukeUniversitySchoolofLaw(2010). Mr. Yokota graduatedfromtheUniversityof Tokyo in2002andholds matters, employmentandregulatorycompliancematters. arbitrations. Healsohandlesawidevarietyofgeneralcorporatelegal global clientsinawidevarietyofdomesticlitigationsandinternational dispute resolutionsandactsonbehalfofdomesticclientsaswell Shinichiro Yokota isactiveinthefieldsofdomesticandcross-border URL: Email: Tel: Japan Tokyo 100-8222 2-6-1 Marunouchi,Chiyoda-ku 16 Mori Hamada&Matsumoto Shinichiro Yokota th Floor, MarunouchiParkBuilding

www.mhmjapan.com/en [email protected] +81 362128365

gkok, Yangon andJakarta. WWW.ICLG.COM onsists of48partners re basedatitsmain Leveragingour wide rangeof Japan

91 Japan Chapter 16 Korea Wonsik Yoon

Barun Law LLC Ju Hyun Ahn

1 Bringing a Claim – Initial Considerations 1.5 Are class action law suits available in your jurisdiction? If so, has this impacted financial services litigation? Has there been an increase in 1.1 What are the most common causes of actions taken class action suits post the financial crisis? by or against financial institutions and service providers in your jurisdiction? Since the enactment of the Securities-Related Class Action Act in 2004, in cases where injuries were incurred by numerous parties Although statistical data regarding court cases brought by or during a securities transaction, one can file a class action lawsuit. brought against financial institutions was unavailable, according to However, evidenced by the fact that only six of such cases have the results of financial dispute mediation cases handled by the been filed between 2004 and and 2014, it is rarely used and the Financial Supervisory Service (FSS), insurance disputes, which number of such class actions filed also did not increase occupied 90.06% of a total of 25,043 cases, were most frequent. meaningfully before and after the Global Financial Crisis in 2007– Among insurance disputes, 10,455 cases were about whether the 2008. computation of insurance benefit was appropriate, which turned out to be the most common cause of initiating a mediation with a financial company. 2 Before Commencing Proceedings

1.2 What remedies are most likely to be awarded? 2.1 What are the main barriers to financial service litigation for customers? Are there exclusionary Depending on the individual cause of action, through a court clauses or duty defining clauses in customer decision, one may be paid the deposit or insurance benefit or may be contracts which prevent customers from bringing a able to get damages by proving one’s injuries. However, in some case? cases, the claim may be dismissed. (Please note that statistical data regarding how courts have ruled in financial disputes was With regards to financial disputes, asymmetry of information unavailable.) between financial consumers and financial institutions and the cost and time required for litigation have been major sticking points to filing lawsuits. The contract of a financial product includes a 1.3 Who has a right of action in financial services provision which allows the consumer or any interested parties to disputes? Does it make a difference if the customer is apply for financial dispute mediation at the FSS. However, the an individual or a commercial entity? contract rarely includes specific exclusionary clauses or duty defying clauses. In most cases, financial consumers initiate finance disputes, but, in some cases, finance companies also file lawsuits. Among financial consumers, one can initiate a financial dispute regardless of one 2.2 Is there a time limit within which financial services being an individual or a company. disputes must be commenced? If so, is it different depending on whether proceedings are brought before a regulatory body or before the courts? Does 1.4 Is third-party funding available in financial services the commencement of a regulatory process ‘stop the litigation (crowdfunding, maintenance, champerty, clock’? etc.)? Does litigation insurance operate in your jurisdiction and, if so, what are the implications for There is no time limit to initiating financial dispute mediation, but this? the statute of limitations to individual financial products may run out. In theory, there are no differences between the application of Third-party funding is not being used in Korean litigation. Because the statute of limitations by the FSS and that by the courts. On the financial dispute mediation provided by the FSS is free, its necessity other hand, the statute of limitations stops running upon applying is questionable. Litigation expenses insurance exists, but is rarely for mediation at the FSS. In Korea, the statute of limitations is used and barely has any effects on resolving finance disputes. based on substantive laws such as the Civil Code and the Commercial Code, and thereby treated as an issue of substantive

92 WWW.ICLG.COM ICLG TO: FINANCIAL SERVICES DISPUTES 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London 2.4 Anglo-American tradition. In Korea,thereisnosuchconceptoflegaladviceprivilegeasinthe 2.3 limitations. favourable totheconsumerdespiterunningofstatute the FSSfrequentlyrecommendsamediationplanwhichis to financialconsumers.Evenifthestatuteoflimitationshasrunout, in practice,tendstorelaxtheapplicationofstatutelimitations With regardstofinancialdisputemediationbeforetheFSS, of statutelimitations,thecasewillbedismissedbycourt. limitations hasrunout.However, ifthedefendantraisesadefence Therefore, itisstillpossibletofilealawsuitevenafterthestatuteof time-bar thecommencementoflawsuitsbeforeKoreancourts. law asopposedtoprocedurallaw. Thus, itdoesnotprocedurally Barun LawLLC © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Act isapplied,onewouldfollowthe classactionprocedures. service litigation.However, iftheSecurities-Related Class Action The methodofserviceproceedings doesnotdiffer forfinancial 3.2 litigation. There isnospecialistcourtorjudgesforfinancialservices 3.1 provisions. highly likelythattheFSSorcourtswillinvalidatethemasunfair compulsory arerarelycontractedoutofandifof,itis cannot becontractedoutof.Eventhoseprovisionsthatarenot provisions designedtoprotectfinancialconsumersandtherefore financial companies.Suchprovisionsaremostlycompulsory Markets Act, prescribefiduciarydutyorcodeofproductmainlyto Business Act andtheFinancialInvestmentServicesCapital Individual financiallaws,suchastheBanking Act, theInsurance 2.5 the termsofcontractarise. contract formationorfinancialdisputesregardinginterpretationof agreements andusethemasthebasisofinterpretationincase customised provisionsinaccordancewiththetermsofsuch agreements areused.Inthosecases,financialcompaniesdraft insurance policyoradepositaccount,standardisedformmaster Depending onthetypeofafinancialproduct,whetheritbean 3 they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howarethey treated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof financial servicelitigation? Does themethodofservice proceedings differfor financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase

addition tomediationattheFSS,aconsumermayalsouse ADR were registeredtotheFSSin2017alone, ADR isusedwidely. In Evidenced bythetotalof25,205casesfinancialdisputesthat is themostfrequentlyused ADR byfinancialconsumers. bring acasetotheFSSfordisputemediation.Mediationat provision whichallowstheconsumeroranyinterestedpartiesto effects. Moreover, thecontractofafinancialproductincludes financial disputesproceedingsincludingproceduresandbinding Financial DisputeSettlementoftheFSSstipulatedetails Commission regulatesrelevantcontentsandtheDetailedRuleson the Act ontheEstablishment,Etc.ofFinancialServices financial servicesdisputes.However, theEnforcementDecreeof There arenoindividuallawsthatdedicatedtotheregulationof 3.4 There arenospecificpre-trialproceduresbeforefinancialdisputes. 3.3 fulfilment ofanobligationsuchas enablingabusinessownerto limiting exercisingthoserights, aprovisionallowingunjust of contractbyexcludingconsumers’ rightstocancellation or damages fordelay, aprovisionthatunjustlylimitsthecancellation consumers liablefordamagessuch asunreasonablyexcessive business owner, agents,oremployees,aprovision thatmakes clause thatexcludesliabilitycausedbygrossnegligenceofa For example,consumerscanclaiminvalidationofanexemption such unfairprovisionspursuanttorelevantlawsandregulations. transaction aredeemedunfair. Consumerscanclaiminvalidationof provisions thataredifficult topredictgiventhetypeof of goodfaith.Provisionsunjustlyunfavourabletoconsumersor The courtshaveinvalidatedunfairtermsthatviolatedtheprinciple 3.6 the consumer. based onfrauditisnotandalltransactioncostsmustbereturnedto consideration, whileforthecancellationofacommoditytransaction damages thefinancialconsumer’s negligenceistakeninto transaction. The difference betweenthetwoisthatforliability civil lawandthefinancialconsumercancancelcommodity depending onthedegreeofillegality, theycanalsobeafraudunder civil lawandbecomeacauseofliabilityfordamages.However, Negligent misstatementandmis-sellingaregenerallyatortunder 3.5 the KoreaFinancialInvestment Association. offered bytheKoreaConsumer Agency, theKoreaExchangeand jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypicallyincluded regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling

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Korea

93 Korea 94 Korea 5.2 through internationalarbitration. making foreigninvestments.Generally, suchdisputesareresolved institution toaforeigninvestororKoreanfinancial They oftenariseinthecontextofasaleKoreanfinancial It israrethatcross-borderdisputesarisewithfinancialconsumers. 5.1 attorney’s feesisrecognisedbythecourts. Generally, theamountsmallerthanactualspenton mean allcostsapartyincurredaretakenintoconsideration. rata accordance withtheamountofdamageseachpartywinsona The courtdistributesthecostsinfinancialservicesdisputes 4.2 Each partyhasarightofappealinfinancialservicesdisputes. 4.1 institution toproducetheinformationinlawsuit. information inordertoobtainthecourtrequiringfinancial the lawsuitandthatfinancialcompanyisinpossessionofsuch consumer wouldhavetoprovetherelevanceofsuchinformation With regardstocommerciallysensitiveorconfidentialinformation,a equivalent todiscoveryordisclosureinthe Anglo-American tradition. data duringlitigation.However, Koreadoesnothaveaprocess someone else.Naturally, afinancialconsumercanaccesshis/herown information whichallowsapplicantstoaskforabout In Korea,thereisnoseparateactregardingdataprotection/freedomof 3.7 their dailylivesasconsumersorforproductionactivities. goods andservicesincludingfacilitiesprovidedbyenterprisersfor Consumers definestheterm“consumers”asthosewhouse differ dependingonindividuallaws,theFramework Act on unfairly shiftstheburdenofprooftoconsumers. Although itmay the business,ajurisdictionagreementclause,orprovisionthat unfairly preventsconsumersfrombringinglawsuitsunfavourableto unilaterally decideorchangethetermsofpayment,aprovisionthat Barun LawLLC © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM The Koreancourts haverarelyresolvedfinancialservice disputesor 5 4 basis.However, withregardstoattorney’s fees,itdoesnot dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt disputes (includinginvestigations)? regulatory bodiesorofficialsin financialservices jurisdiction toco-operatingwith foreigncourtsor What isthegeneralapproachof thecourtsinyour how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues services disputes? How doesthecourtdealwithcostsinfinancial disputes? Is therearightofappealinfinancialservices Post Trial

pro

binding effect ofanunilateral jurisdictionagreementstatingone they areunenforceable. The SupremeCourt,inacasewherethe The Koreancourts’ positiononunilateraljurisdictionclausesisthat 5.4 the RepublicofKoreamayberestrictedcommensuratelytherewith. protection underthis Act orthetreatiesaccededtoconcludedby for anynationalorcorporationoftheRepublicKorea, the Statewhichfailstoprovideprotectionscorrespondingthis Act provided that,withrespecttoanyforeignerorforeigncorporationof This Act alsoappliestoaforeignerorforeigncorporation: Article 4(Reciprocity) Electronic Financial Transactions Act below. found indataprotection-relatedissues. We introduceaclauseofthe financial area,aclauseastoextra-territorialjurisdictioncouldbe of cross-borderanti-competitivepracticesinSouthKorea.Inthe Extra-territorial jurisdictionplaysasignificantroleintheregulation 5.3 approach tosuchmatters. regulatory bodiesorofficials. Therefore, thereis nogeneral engaged ininvestigationsbycooperatingwithforeigncourtsor only whenall parties consentedtoit.Given thatfinancial (FDSC) oftheFSShassame effect asreconcillationin a trial The mediationplanoftheFinancial DisputeSettlementCommittee 6.3 mediation plantohavethesameeffect asthereconcillationinatrial. enforcement power, allpartiesinvolvedmustconsenttothe has investigative/inquisitorial/sanctionspowers. With regardsto government regulatoryauthoritystaffed bycivilservants. The FSS oversight oftheFinancialServicesCommission(FSC), examines andsupervisesfinancialinstitutionsunderthebroad The FSSisSouthKorea’s integratedfinancialregulatorthat 6.2 disputes arise. such asdepositorsandotherinterestedpartieswhenfinancial cases receivedfromfinancialinstitutionsandconsumers Financial ServicesCommission,theFSSprocessesmediation Pursuant to Article 53ofthe Act ontheEstablishment,Etc.of 6.1 1977.11.9, case:77ma284). principle offairness(TheSupremeCourt’s decisiondated unjustly infringeupontheotherparty’s rightsandviolatethe party wasanissue,invalidatedsuchclausesholdingthatthe party mustsuetheotherinaforumdesignatedby 6 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin parties toafinancialservicesdispute? Are thedecisionsofregulatory bodiesbindingonthe have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies

Korea

website ( Yes. Anyone canpubliclyaccessthedecisionsofFSSonits 6.5 investigative/inquisitorial/sanctions powers. usually submittotheFSS’s decisionsconsideringits that theyareunderthesupervisionofFSS,financialinstitutions Financial institutionscanalsoobjecttothesame.However, given matter totheFDSCorFDSC’s mediationplanandfilealawsuit. recommendation tosettleortheFSS’s decisionnottoreferthe Financial consumerscanchoosenottofollowtheFSS’s 6.4 has aunilateralbindingeffect astothefinancialinstitutions. institutions rarelyobjecttotheFSS’s mediationplan,practicallyit Barun LawLLC © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Some lifeinsurance companiessold“immediateannuities”, apolicy 7.3 that Koreawillbeconsideredtomorefinancialinstitution-friendly. mediation planandthatclassactionsarerarelyused,itismorelikely binding authorityoffinancialinstitutionswithregardstotheFDSC’s Given thattheKoreangovernmentdoesnotacknowledgeunilateral 7.2 possibility thattheissuescanbedebatedinnearfuture. by manystakeholders,thediscussionisstillvalidandthere government proposalwasabolishedbecauseofcomplicatedinterests from prudentialmattersoffinancialinstitutions. Although the business onbehalfofconsumers’ profitandberelativelyindependent build anewfinancialconsumerprotectionagencythatconducts damages. Oneofthemainissuesgovernmentproposalwasto prior information;sellingfinancialinstruments;andpost-remediesfor which coverstheentireprocessoffinancialconsumption:providing proposed theFinancialConsumerProtection Act tobuildaframework Tongyang conglomeratein2013. Thus, theKoreangovernment 2011, andtheotherwasmis-sellingofcorporatepapers(CP) consumers. Onewastheinsolvencyofmanymutualsavingsbanksin Korea experiencedtwomajorcatastropheswithregardstoitsfinancial 7.1 7 against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly exist? What rightsofappealfromregulatorydecisions drawn fromthem. new ornovelissuesraisedand whatlessonscanbe Please highlightthesignificance ofthecase(s),any financial servicesdisputesduring thepast12months. Please identifyanysignificant cases regarding customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe http://www.fcsc.kr/D/fu_d_03.jsp

Global economicchangesdidnotcausemuchchangetofinancial 7.4 lawsuit. of thefinancialdisputemediationdependingonoutcome the issue. There willbeaheightenedinterestintheexecutivepower ruling claimingthattheywillturntothecourtsmakeaon policyholders. The insurancecompaniesaredefyingtheFSS’s such policy, thismeantpayingKRW 430,000,000,000to55,000 policyholders ofthe“immediateannuities”.Forlargest sellerof The FSSorderedalllifeinsurerstopayfullcompensation did notspecificallymentionthedeductionsintheircontractterms. the lifeinsurerstoreturndisputedamountbecause In themediation,FSSsidedwithpolicyholderandordered contract. the insurancepayouthereceivedwaslowerthanspecifiedinhis immediate annuityplanfiledacomplaintwiththeFSSclaimingthat mention itinthecontract. A policyholderofonetheinsurers’ part ofapayoutasworkingexpense,butfailedtospecifically dispute arosebecauseinsurancecompaniesweremeanttodeduct the policymatures,apolicyholderwastoreceivepayout. The paying aguaranteedincomepensionalmostimmediately. And once purchased withanupfrontsinglelump-sumpaymentwhichstarts at thefirm. issues. Sheisalsoinvolvedinthe internationalarbitrationpractice Korean andinternationalclients on abroadrangeofcorporate a juniormemberoftheCorporate Advisory Group,sheassists Ms. SeungHyunKangisaForeign Attorney atBarunLawLLC. As URL: barunlaw.com Email: [email protected] Tel: +82234797517 Korea Seoul 92gil 7, Teheran-ro, Gangnam-gu Barun LawBuilding Barun LawLLC the Asia-Pacific Councilof American ChambersofCommerce. State ofMainetoKorea.HeservedtwotermsastheChairman Korea. Hewasappointedasthe“Honorary Ambassador” oftheUS Korea andasSpecial Advisor totheKiwiChamberofCommercein He servesontheBoardofCanadianChamberCommercein Vice Chairmanofthe American ChamberofCommerceinKorea. counsel. Mr. Pinanskyrecentlycompletedathree-yeartermas 120 internationalarbitrationmatters,eitherasanarbitratoror involved inover200cross-borderM&A transactionsandinover proceedings, andcross-borderdisputes.Mr. Pinanskyhasbeen operations, includinginternationaltransactions,reorganisation business andlegalissuesarisinginthecontextofinternational advises anextensivenumberofinternationalandKoreanclientson LLC. Heplaysaleadingroleinthefirm’s internationalpracticeand Mr. Thomas PinanskyisaSeniorForeign Attorney atBarunLaw Hyun Kang. author, Thomas Pinansky, andfourthauthorofthischapter, Seung Wonsik Yoon andJuHyun Ahn wouldliketoacknowledgethethird Acknowledgment services litigation/regulationinKorea.

jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

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95 Korea 96 Korea URL: barunlaw.com Email: [email protected] Tel: +82234792667 Korea Seoul 92gil 7, Teheran-ro, Gangnam-gu Barun LawBuilding Barun LawLLC Chinese. College LawSchool.SheisfluentinKorean,Englishand China and Asia-Pacific StudiesandreceivedherJ.D.fromBoston Ms. KangreceivedherB.A.fromCornellUniversitymajoringin Barun LawLLC © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM team offoreignlawyersaddsinternationalsavvyandrecognisedexpertise, creating asubstantialcomfortfactorforinternatio The firm’s partnersincludesomeofthemostprominentandwellrespected membersoftheKoreanBar, whileasophisticated and full rangeoflegalservices. prestigious conventioncentrecomplexes,BarunLawiscomprisedofover200 attorneyswho,togetherwithhighlyqualifiedsuppo place amongKorea’s topfull-servicelawfirms.ConvenientlylocatedinSeoul’s GangnamBusinessDistrict,nexttooneof Asia Barun LawLLC(“BarunLaw”)isKorea’s fastestgrowingandmostdynamic full-servicelawfirm.Foundedin1998,BarunLawhas and 2018. as aLeadingLawyerforDisputeResolution&Litigationin2016,2017 Korean Commercial Arbitration Board.Hewasrecognisedby Arbitrators Association andamemberoftheinternationalpanel dispute resolution.HecurrentlyservesasadirectoroftheKorean investment andJapanese-relatedmattersaswellinternational practising generalcorporate,realestate,M&A,cross-border of theKoreancourts.Mr. Yoon alsohasextensiveexperiencein clients incourtproceedingsmultiplejurisdictionsincludingalllevels ICC. Hehasalsosuccessfullyrepresenteddomesticandforeign numerous institutionsincludingKCAB, AAA/ICDR, LCIA,CASand Mr. Yoon hashandlednumerousinternationalarbitrationcasesbefore member oftheKoreanBar Association andthe State BarofCalifornia. Cross-Border LitigationPracticeGroupatBarunLawLLC.Heisa Mr. Wonsik Yoon istheCo-ChairofInternational Arbitration &

URL: Email: Tel: Korea Seoul 92gil 7, Teheran-ro, Gangnam-gu Barun LawBuilding Barun LawLLC Wonsik Yoon

barunlaw.com [email protected] +82 234797824

Asialaw

lawyers, Mr. Ahn wasamedicaldoctorbeforehepassedtheKorean Mr. JuHyun Ahn isaPartneratBarunLawLLC.Uniqueamong outstanding professionalism. pharmaceutical andmedicalpracticeinwhichhehasdemonstrated of financialregulationandtransactions,nottomention in 2017,andsincethenhehasvigorouslyengagedhimselfthefields examiner until2016. After hisstudies,hereturned toBarunLawLLC He continuedhisserviceasaSeniorBankandCreditUnions types ofinsurance,includinglifeinsuranceandindemnityinsurance. Settlement Departmentandmediateddisputesconcerningvarious Mr. Ahn enteredtheFSSasaseniorinvestigatorinDispute has practisedmainlyinpharmaceuticalandmedicalareas.In2012, Research and Training Institute,hejoinedBarun LawLLCin2010.He Bar Examin2007.RightafterhecompletedhistrainingattheJudicial ICLG TO: FINANCIAL SERVICESDISPUTES 2019 URL: Email: Tel: Korea Seoul 92gil 7, Teheran-ro, Gangnam-gu Barun LawBuilding Barun LawLLC Ju Hyun Ahn

barunlaw.com [email protected] +82 234792449

nal clients.

’s largestandmost highly experienced rt staff, providea quickly takenits

Korea

Chapter 17 Netherlands Roderik Vrolĳk

Stibbe Daphne Rĳkers

1 Bringing a Claim – Initial Considerations action in financial services disputes. There is no difference if the customer is a private individual or a commercial entity, even though an individual customer might benefit from additional legal protection. 1.1 What are the most common causes of actions taken In addition, claims vehicles to which parties have assigned their by or against financial institutions and service claims or statutory claim foundations may have a right of action in providers in your jurisdiction? financial services disputes.

Liability arising from tort 1.4 Is third-party funding available in financial services Art. 6:162 of the Dutch Civil Code (Burgerlijk Wetboek, “DCC”) states litigation (crowdfunding, maintenance, champerty, that the party who commits a tort towards another person is required to etc.)? Does litigation insurance operate in your compensate the losses which the other party suffers as a result. In order to jurisdiction and, if so, what are the implications for succeed, an action on grounds of a tort must meet five requirements: (i) this? unlawfulness; (ii) attributability; (iii) loss; (iv) causality; and (v) relativity. Breach of contract Third-party litigation funding is allowed in the Netherlands. It is already common in mass claims, which are often litigated or settled When there is an attributable failure in the performance of an through special claims vehicles. With regard to individual claims, obligation under a contract. third-party litigation funding is not particularly widespread. There Breach of duty of care seems to be little interest from the judiciary as to whether or not In financial services disputes, it is common for a plaintiff to claim that litigation in the courts is funded by a third party. At present, the duty of care or loyalty was breached by a financial institution. Under legislator does not seem inclined to regulate third-party funding. Dutch law, the breach of duty of care is a wrongful act or a breach of Litigation insurance schemes operate in the Netherlands. This type contract (or both). In principle, this means that compensation for of insurance is particularly taken by private individuals and small damages (schadevergoeding) can be claimed. businesses.

1.2 What remedies are most likely to be awarded? 1.5 Are class action law suits available in your jurisdiction? If so, has this impacted financial Under Dutch law, various remedies can be awarded in financial services litigation? Has there been an increase in services disputes, including the right to claim specific performance class action suits post the financial crisis? of the contract (nakoming) or damages. Other remedies that can be awarded are the rescission of the agreement (ontbinding), due to the Class actions law suits are permitted in the Netherlands. Under the other party not fulfilling its contractual obligations, or annulment Collective Settlement of Mass Claims Act (2005) (Wet collectieve (vernietiging) of the agreement due to undue influence, afwikkeling massaschade, “WCAM”), the Amsterdam Court of misrepresentation or error. Damages can also be claimed along with Appeals can declare a collective settlement binding on all the claiming specific performance or rescission of the contract. aggrieved parties, whether Dutch or foreign, on an opt-out basis. The settlement agreement must be entered into by a special Another remedy that can be awarded is a declaratory decision litigation vehicle duly representing the interests of the aggrieved (verklaring voor recht) confirming the existence (or absence) of a parties and a party that has committed itself to compensate the certain legal relationship (e.g. the declaratory decision that an aggrieved parties, such entity not necessarily being the party that agreement is null and void). In matters related to a breach of caused the damages. This mechanism has often been applied with contract or tort (onrechtmatige daad), a Dutch court can also issue great success in international mass claims. The special litigation an injunction ordering a defendant to abstain from certain acts. vehicle may be funded by third parties. Collective redress in group actions is presently not possible, but the justice ministry is working 1.3 Who has a right of action in financial services on an act enabling collective redress in group actions as well. disputes? Does it make a difference if the customer is On 16 November 2016, a legislative proposal was introduced in the an individual or a commercial entity? Dutch Parliament, to amend the existing WCAM so as to permit representative organisations to claim damages. The proposal Both private individuals and commercial entities have a right of

ICLG TO: FINANCIAL SERVICES DISPUTES 2019 WWW.ICLG.COM 97 © Published and reproduced with kind permission by Global Legal Group Ltd, London 98 Netherlands pursuant toweightyreasons,which could,inaparticularcase,result In addition,therequestforinspection ofdocumentsmayberefused The rulesondisclosureacknowledge professionallegalprivilege. Parties infinancialserviceslitigation canavailoflegalprivilege. 2.3 begin onthedayfollowinginterruption. By interruptingalimitationperiod,newperiodwill 4. 3. 2. 1. Under Dutchlaw, alimitationperiodcanbeinterruptedby: two years)orextra-long(20to30limitationperiods. of fiveyears,withafewtypesclaimshavingextrashort(oneto causes ofactionintheNetherlandsaresubjecttolimitationperiods of actionsisknownas for acivilclaimtobebrought. This systemofstatutorylimitations Dutch lawprovidesforstatuteoflimitation,imposingtimelimits 2.2 likely beunenforceablewhenincludedincontractswithretailclients. a caseagainstfinancialservicesprovider. Suchaclausewouldmost Generally, customercontractsdonotpreventcustomersfrombringing cost-effective alternativeto courtproceedings. Dienstverlening Services Complaints Tribunal ( amounts ofcourtfeesarenotconsideredprohibitive. The Financial customers tostartalegalprocedure.Generallyspeaking,the In general,courtfeesandlegalcouldconstitutebarriersfor 2.1 House ofRepresentatives( actions. Currently, theproposalbillisstillpendinginDutch provides forawide-scoperuleadmissibilityofcollective Parliament on12January2018. The proposalinitscurrentform actively ongoingandanamendedproposalwaspresentedto will beadoptedinitscurrentform,oratall,thelegislativeprocessis class settlement. Although itisstilluncertainwhethertheproposal out mechanism.Itprovidesincentivestoconcludethecasewitha intends tofacilitatecollectiveredressintheformofaopt- Stibbe © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM in aprivilegebased onastatutorydutyofconfidentiality. 2 contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary What arethemainbarrierstofinancialservice Before CommencingProceedings considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof Written warnings (incertaincircumstances). form orintheagreedbyparties. Any actofjudicialrecourseinstitutedinalegallyrequired the clock). commencement ofaregulatoryprocessassuchdoesnotstop Legal action(initiatingcivillegalproceedings;the Acknowledgment bythedebtor. clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices case?

, “

Kifid verjaring ”) availabletoprivateindividualsisalsoa Tweede Kamer andislaiddownintheDCC.Most Klachteninstituut Financiële

3.1 limited orexcludedbycontract. zorgplicht Financial institutionsmayhaveaspecialdutyofcare( 2.5 transactions. Master Agreement onearlyterminationandsettlementof generally doesnotaffect theenforceabilityofprovisionsin entered intounderanISDA Master Agreement. Dutchlaw of derivatives.Mostover-the-counter (“ Dutch financialandnon-financialinstitutionsextensivelymakeuse 2.4 In accordancewith theDutchFinancialSupervision Act ( 3.4 must befollowedforfinancialserviceslitigation. In theNetherlands,therearenospecificpre-trialproceduresthat 3.3 service litigation. There isnospecificmethodofserviceproceedingsforfinancial ( initiated byadraftofsummons( There aretwomaintypesofcivilproceedingsintheNetherlands: 3.2 in EnglishandwillbeabletogivejudgmentsEnglish. chamber offers professional marketpartiestheopportunitytolitigate Commercial Courtof Appeal (“ as theNetherlandsCommercialCourt(“ international tradechamberofthe Amsterdam DistrictCourt,known On 11 December2018,theDutchSenateapprovedbillfornew which specialisesinfinancialserviceslitigation. providers. A specific ADR Forum(Kifid)ishoweveravailable, services litigationbetweenprivateindividualsandfinancial There isnospecialisedcourtorspecialistciviljudgeforfinancial verzoekschrift 3 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howaretheytreated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour jurisdiction? used toresolvefinancialservices disputesinyour in financialservicescontracts, andis ADR commonly your jurisdiction? Are ADR clausestypicallyincluded regulations thatapplytofinancial servicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor ) vis-à-vis

theirretailclients. This dutyofcarecannotbe

dagvaarding NCCA

NCC ”). This specialisedtrade OTC ”), andtheNetherlands ); orbyanapplication Netherlands

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bijzondere Wet ophet

handelspraktijken In 2008,theUnfairCommercialPractices Act ( 3.6 a dutyofcare. based onliabilityarisingfromtort,breachofcontractora Claims relatingtonegligentmisstatementsormis-sellingcanbe 3.5 services disputes. and itisaveryoftenusedmeansofdisputeresolutioninfinancial is theonlydisputesagencyrecognisedbyMinisterofFinance required tobeaffiliated withadisputesagency. At present,theKifid financieel toezicht Stibbe © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 The Kifidprovides analternativewayofdisputeresolution. Ifthere Kifid DisputesCommitteeand Appeals Committee services disputes. Yes, in theNetherlandsthereisarightofappealinmostfinancial Matter broughtbeforetheDutch civil courts 4.1 before itispublished. discussed duringthehearing.Finally, ajudgmentcanberedacted proceedings cannotmakestatementstothirdpartiesaboutwhatwas request willbeallowed,thismeansthatthepartiesto that theproceedingswillbeconductedbehindcloseddoors.Ifsuch photocopied. Furthermore,thepartiescanrequestcourttoorder be depositedatthecourtwheretheycanstudiedinperson,butnot information. Also, thecourtcanorderthatcertaindocumentsareto an obligationofconfidentialityupontherecipientsuch commercially sensitiveinformation,aDutchcourtcanalsoimpose a legaldiscoveryordisclosureprocedure.Inordertoprotect information may, incertaincircumstances,beleftouttheeventof by thecourts.Commerciallysensitiveinformationandconfidential services litigation.Legalproceduraldocumentsarenotpublished Data protectionandfreedomofinformationmayclashinfinancial 3.7 individual notactinginthepursuitofitsbusinessorprofession. Dutch civillawandthe Wft definea‘consumer’ asanyprivate business-to-consumer commercialpracticesfrom2005. “ Financial Markets( ( commercial practicesandisenforcedbytheDutchConsumer Authority Autoriteit Consument&Markt AFM 4 ”). ItimplementstheEuropeanDirectiveconcerningunfair dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling disputes? Is therearightofappealinfinancialservices Post Trial

) enteredintoforce,whichprohibitsunfair

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Stichting Autoriteit Financiële Markten Wft

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the meritsofchallengingjurisdiction. relevant dataandwitnesseslocatedindifferent jurisdictions;and(v) which governstheclaim;(iv)anyissuesregardingpotentially disadvantages ofeachpossiblejurisdiction;(iii)theapplicablelaw jurisdiction theclaimcanbestbebrought;(ii)othermeritsand law issuesmay, inparticular, arise:(i)thequestionofwhich which resultfrommultiplejurisdictions. The followingconflictof require specialistlegalsupporttodealwiththeoftencomplexissues Disputes betweenfinancialinstitutionsbasedindifferent countries 5.1 fixed compensationforlegalfees. the prevailingparty, suchascourtfees,witnessandexpertfees The courtmayorderthelosingpartytocoverlitigationcostsof 4.2 possibility toappealthe Appeals CommitteeoftheKifid. is apartythatdisagreeswithnon-bindingopinion,therethe Court ofJustice theEUisnoteworthy. occurred. Inthiscontext,the brought beforethecourtin place wheretheharmfulevent On thebasisofBrusselsI few alternativemethodstoestablish jurisdictionbeforeDutchcourts. defendant hasitsdomicileintheNetherlands. However, therearea is thatacivilcasecanbebrought beforeaDutchcourtifthe The generalrulesforcross-borderlitigationapply. The startingpoint Competent court 5.3 securities transactions,insurersandpensionproviders. bodies thatconsultandexercisesupervisiononbanks,paymentsystems, Eurosystem. Onaglobalcooperationlevel,DNBsitsonseveral Also, DNBispartoftheEuropeanSystemCentralBanksand payment systems,securitiestransactions,insurersandpensionproviders. several Europeanbodiesthatconsultandexercisesupervisionon The DutchCentralBank( Exchange ofLetters. covenant, aMemorandumofUnderstanding(“ national andinternationalsupervisoryauthoritiesintheformofa Europe andabroad. The AFM mayenterintoagreementswith of itsfellowsupervisoryauthoritiesinothercountriesbothwithin The AFM alsoworkscloselyonabilateralbasiswithlarge number and internationalrelations. a widecross-borderperspectivewithregardtojudicialcooperation order, bothwithintheEuropeanUnionandoutsideit. This demands The Dutchjudiciaryfindsitselfinarapidlyinternationalisedlegal 5.2 5 how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues services disputes? How doesthecourtdealwithcostsinfinancial your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour

De NederlandscheBank

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99 Netherlands 100 Netherlands entering intodiscussionsabouta(perceived) violationofstandards The Dutchregulatorsregularly use informalmethodssuchas and formalaction: To enforcecompliance,the AFM and DNBcantakebothinformal thereunder. enforce (alleged)breachesofthe Wft andtherulespromulgated DNB andthe AFM havethediscretionarypowertoinvestigateand 6.2 markets. DNB isresponsibleforprudentialsupervisionoftheDutchfinancial services disputesintheNetherlands. such, the AFM alsohasanimpactontheregulationoffinancial relationship betweenmarketpartiesandprotectconsumers. As orderly andtransparentmarketprocesses,maintainintegrityinthe Dutch financialmarkets,whichaims,amongotherthings,tofoster The AFM isresponsibleforconduct-of-businesssupervisiononthe 6.1 agree todoso. can alsobebroughtbeforeaDutchcourtifpartiescontractually Unilateral jurisdictionclausesarevalidintheNetherlands.Claims 5.4 US investorsinnon-USsecuritieslistedonastockexchange. alternative forthecertificationofcollectivesettlementsinvolvingnon- settlements hasincreasedandtheNetherlandsmaybecomeaserious international relevanceoftheDutchmechanismforcollective opportunity togiveawideeffect tosettlementsreached. The The WCAM wasdevelopedexclusivelyasamechanismtooffer the settlement isaDutchentity, theCourtwillassumejurisdiction. are domiciledintheNetherlands,andoneofpartiesto connected totheNetherlands,butaminorityofinterestedparties Converium The decisionbytheCourtoninternationaljurisdictionin proceedings’. the riskofirreconcilablejudgmentsresultingfromseparate it was‘expedienttohearanddeterminethemtogetheravoid the claimsofshareholdersdomiciledinNetherlandsthat Norway, astheirpotentialclaimswere‘socloselyconnected’ to Netherlands, butwithintheEU,Switzerland,Icelandor with regardtotheshareholdersdomiciledoutside (ECLI:NL:GHAMS:2017:2257), theCourtassumedjurisdiction Converium WCAM cases, case isnotsubstantivelyconnectedtotheNetherlands.Inthree Court of Appeal assumesjurisdictionrathereasily, evenifthe international settlementsunderthe WCAM, the Amsterdam With regardtoproceedingsforthebindingdeclarationof contractually agreetodoso. Claims canalsobebroughtbeforeaDutchcourtifparties Stibbe © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM or sendingawarning letter. The Dutchregulators mayalsoimpose 6 have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand

impliesthatevenifthecaseisnotsubstantively (ECLI:NL:GHAMS:2012:BV1026)and

Shell (ECLI:NL:GHAMS2009:BIS5744),

Fortis

6.4 the partiestoafinancialservicesdispute. Yes, anadministrativedecisionofthe AFM orDNBisbindingon 6.3 tax authoritiesandthepublicprosecutor. and Market Authority ( share informationwith,amongothers,theNetherlandsConsumer obtained throughtheirworkunderthe Wft. However, theymay subject toageneralconfidentialityobligationregardinginformation with thefinancialregulators. The regulatorsandtheiremployeesare data anddocuments.Inprinciple,everybodyhasadutytocooperate The regulatorsmayrequestinformationandseekaccesstobusiness ■ ■ ■ ■ judicial authorisation: the followingadministrativesanctions(amongothers)withoutprior as thedecisionhas becomeirrevocable. sanction pursuanttothe Wft. The disclosurewilltakeplaceassoon principle, disclosetheirdecision toimposeanadministrative Yes. Inaccordancewiththe Wft, theDutchregulatorswill,in 6.5 conditionally ornot(art.8:110 ofthe Awb). been lodged,theotherpartycanlodgeacross-appeal,whether decision, butalsobythe AFM orDNB. After afurtherappealhas This furtherappealcanbelodgedbytheaddresseeofsanction The furtherappealisdirectedagainstthejudgmentofcourt. 8:105 jo. Annex 2andart.11 ofthe Awb). of Rotterdam,afurtherappealcanbelodgedwiththeCBb(art. Annex 2andart.7ofthe Awb). Against thejudgmentofCourt the Wft hastobelodgedwiththeCourtofRotterdam(art.8:6jo. respect toanenforcementdecisionwhichismadeonthegroundof objection withinsixweeks(art.6:7ofthe Awb). An appealwith The interestedpartycanlodgeanappealagainstthedecisionon Appeal andfurtherappeal(beroepenhogerberoep) stage canbeskipped. (“ Tribunal Industry Appeals With respecttoanumberofdecisions,directappealthe Trade and would havebeeninifhedidnotobject( interested partymaynotbeputinaworsepositionthanthehe decision madeandmakesanew, replacementdecision.Inprinciple,the that reconsiderationgivescausetodoso,the AFM orDNBrevokesthe decision madeattheobjection(art.7:11(1) ofthe Awb). To theextent During theobjectionstage,financialregulatorhastoreconsider regulator whomadetheenforcementdecision(art.6:4(1)of Awb). (“ period ofsixweeks(art.6:7theGeneral Administrative Law Act An interestedpartyis,inprinciple,abletoobjectadecision,within Written objection(bezwaar) Awb ICLG TO: FINANCIAL SERVICESDISPUTES 2019 ”)). Objectiontakesplacebylodginganobjectiontothefinancial exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon withdraw orlimitthelicenceofafinancialundertaking. give anadministrativefine;and compliance; order aparticularduty, backedbyapenaltyfornon- (instruction order); order acertaincourseofactiontocomplywiththe Wft accessible? Are decisionsofregulatorybodies publicly

Autoriteit Consument&Markt

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Netherlands

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regulators. and anexpansionofinformationenforcementpowers financial supervisionlegislation,theintroductionofabanker’s oath insurance companies,theintroductionofagenericdutycarein an EUlevel),anationalresolutionandrecoveryregimefor financial industrygenerally(inadditiontoapplicablerestrictionsat developments includerestrictionsonremunerationapplicabletothe wave oflegislation,bothatanEUandanationallevel.National The financialcrisisanditsaftermathhavetriggeredasubstantial 7.1 Stibbe © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 supervisory authoritiesarebound(seeCaseC-15/16 limits theobligationofconfidentialitytowhichfinancial Recently, theEuropeanCourtofJusticerenderedajudgmentthat 7.3 time protectingthelegitimateinterestsoftheircontractingparties. conclude bindingandenforceableagreements,whileatthesame mechanisms providefinancialsituationswiththepossibilityto called specialdutyofcarebankstowardstheirclients. These as professionalserviceproviders,hasincaselawresultedaso- combination withthefunctionofbanksinsocietyandtheirposition governed bytheprincipleofreasonablenessandfairness. This, in situations. At thesametime,allobligationsunderDutchlaware also includescaseswhereenforcementleadstotoughorpitiful obligations, orassociatedsecurityrights,canbeenforced,which civil law:ifapartyfailstocomplywithitsobligations,these Pacta suntservanda The Netherlandsfollowsarelativelymiddlecourseonthistopic. 7.2 7 customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding

isoneoftheunderlyingprinciplesDutch

Bundesanstalt

7.4 customers. concerned thedutyofcarefinancialinstitutionstowardstheir number ofcasesinfinancialservicesdisputesoverthepastyear authority fromtheregulatedpartyitself.Lastly, asignificant requesting theinformationexchangedwithsupervisory information aboutregulatedparties,cannotbe‘circumvented’ by of financialsupervisoryauthorities,suchasthe AFM, regarding made clearinarecentjudgmentthattheobligationofconfidentiality deliberations confidential.Inaddition,theDutchSupremeCourt given –financialinstitutionsareabletokeeptheirinternal case lawshowsthat–providedsoundandspecificreasoningis The criteriatoallowsucharequestarequitebroad.Nevertheless, documents insupportoftheirclaim,financialservicesdisputes. opposing partyorathirdparty, toprovidecertaininformationor Netherlands inwhichpartieslodgeademand,eitheragainstthe We havealsoseenanincreaseinthenumberofcases outdated andnolongersubjecttotheobligationofconfidentiality. information thatisolderthanfiveyearsis,inprinciple,considered addition, theEuropeanCourtofJusticeheldthatcommercial does notautomaticallyrenderthatinformationconfidential.In information ispresentinfilesofthefinancialsupervisoryauthority European CourtofJusticedecidedthatthemerefact für FinanzdienstleistungsaufsichtvEwaldBaumeister of theircolleague,NielsDidden,inthepreparationthischapter. The authorswouldliketoacknowledgetheinvaluablecontribution Acknowledgment consumers havetoputintheirownmoneyaswell. amount equaltothefullmarketvalueofaproperty, meaningthat that preventconsumersonthehousingmarketfromborrowingan tackled ‘overlending’ by, amongotherthings,implementingrules that theerrorsfrompastwillbemadeagain.It,forinstance, the Dutchlegislatorhasspecificallytakenstepstolimitchances current periodofrelativeglobaleconomicgrowth,wenoticethat Against thehistoricback-dropoffinancialcrisesandgiven jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

WWW.ICLG.COM Netherlands

). The

101 Netherlands 102 Netherlands Stibbe © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM regularly activeintheareaofinstitutionalassetmanagement,acting transactions inthefinancialservicesindustry. Furthermore,Roderikis on alargenumberofsignificantfinancingtransactions,IPOsandM&A banking andcapitalmarketspracticein Amsterdam, whereheacted broadest sense.HisexpertiseisbuiltonexperienceinStibbe’s supervision –specialisinginfinancialmarketsregulationthe Roderik providesadviceinrespectofsecuritieslawandfinancial Advising financialinstitutionsactivebothnationallyandinternationally, Stibbe hasmainoffices in Amsterdam, BrusselsandLuxembourgalsobranchoffices inDubai,LondonandNew York. Stibbe isanindependentlawfirmwitharound400lawyersadvisingonthelawsofNetherlands,BelgiumandLuxembourg,asw board ofthe Dutch Association forSecuritiesLawandisamemberoftheeditorial Highlights Programme(2015).Inaddition,Roderikisamemberofthe University (2008, institutional investors.RoderikhasaMasterofLawsfromUtrecht for someoftheworld’s largestassetmanagersaswellfor Dutch FinancialLawReview cum laude Netherlands 1077 WM Amsterdam Beethovenplein 10 Stibbe Roderik Vrolijk URL: Email: Tel: ). HealsoattendedtheStibbeMBA

www.stibbe.com/en [email protected] +31 205460158

(2017). Daphne attendedtheStibbeMBA HighlightsProgrammeatINSEAD proceedings regardingfinancialdisputes. Netherlands. Inaddition,sherepresentsfinancialinstitutionsin international clientsontheexecutionofforeignjudgmentsin Daphne isexperiencedincivilattachmentlawandregularlyadvises and tortdisputes,mattersofenforcementexecutionclaims. She handlesavarietyofmatterssuchascorporatefraud,contractual on complexcaseswithclearpragmatism. Daphne specialisesincommerciallitigation,combiningherexpertise ICLG TO: FINANCIAL SERVICESDISPUTES 2019 URL: Email: Tel: Netherlands 1077 WM Amsterdam Beethovenplein 10 Stibbe Daphne Rijkers

www.stibbe.com/en [email protected] +31 205460954

Netherlands

ell asEUlaw.

Chapter 18 New Zealand Jane Standage

MinterEllisonRuddWatts Matthew Ferrier

1 Bringing a Claim – Initial Considerations It can also (for example) de-register organisations from being Financial Service Providers (FSPs) and make banning orders. Criminal offences can result in imprisonment. 1.1 What are the most common causes of actions taken Disciplinary proceedings against Authorised Financial Advisers by or against financial institutions and service (AFA) can result in a range of penalties, most commonly including providers in your jurisdiction? censuring the AFA, imposing a fine or making a recommendation that the FMA cancel or suspend an AFA’s authorisation. There are a range of different causes of action brought against financial services institutions including typical commercial causes 1.3 Who has a right of action in financial services of action (e.g. breach of contract and negligence) and regulatory disputes? Does it make a difference if the customer is prosecutions. an individual or a commercial entity? The main regulators of financial institutions in New Zealand are the Financial Markets Authority (FMA), the Reserve Bank of New An individual or entity can bring a claim for breach of contract or Zealand (the Reserve Bank) and the Commerce Commission. negligence against a financial services entity. Under the FMCA, They have statutory rights of action – criminal and civil – under (for individuals or entities can also bring claims for compensation or example) the Financial Markets Conduct Act 2013 (FMCA), seek other remedies such as variation or cancellation of an Financial Advisers Act 2008, the Fair Trading Act 1986 and the agreement or an order restraining rights in relation to financial Credit Contracts and Consumer Finance Act 2003 (CCCFA). products. These claims arise, for example, for breach of the fair There has not been a large volume of litigation by the main financial dealing provisions under Part 2 of the FMCA (prohibitions on regulators in the past 12 months as the FMA and the Reserve Bank misleading and deceptive conduct in dealing in financial products or have been focused on a thematic Conduct and Culture Review of the supply or promotion of financial services) or for false or misleading banking, insurance, superannuation and financial adviser sectors. statements in offer documents. Under the Financial Advisers Act This review was the New Zealand regulators’ response to the issues 2008, persons receiving “financial adviser services” can also claim raised in the Australian Royal Commission into Misconduct in the compensation for losses as a result of breaches of duties such as the Banking, Superannuation and Financial Services Industry. duty to exercise care, diligence and skill. However, the Financial Recent causes of action in regulatory proceedings, however, relate Advisers Act is set to be repealed by the Financial Services to insider trading, market manipulation, untrue or misleading Legislation Amendment Bill (FSLAB) with those duties being statements in offer documents, failing to meet continuous disclosure incorporated into the FMCA (see question 7.1 below). requirements, and failure to meet record keeping, monitoring and The FMA can itself also prosecute a financial services entity or a reporting obligations under anti-money laundering and countering person who has contravened the FMCA. Under s 34 of the FMA Act financing of terrorism legislation. 2011, the FMA has the right to bring proceedings on behalf of The Commerce Commission is also active with a key focus on financial markets participants where it is in the public interest for it responsible lending primarily targeting high-cost, short-term and to do so. This provision permits the FMA to bring an action on online lenders rather than major financial institutions. Relevant behalf of a class of financial markets participants. causes of action in this sphere are under the Fair Trading and Consumer Credit Contract legislation. 1.4 Is third-party funding available in financial services litigation (crowdfunding, maintenance, champerty, etc.)? Does litigation insurance operate in your 1.2 What remedies are most likely to be awarded? jurisdiction and, if so, what are the implications for this? The main remedies are monetary. For instance, damages for loss in ordinary civil proceedings, civil pecuniary penalties and Litigation funding is available in financial services litigation in New compensation orders in civil regulatory proceedings, fines and Zealand. The New Zealand courts do not currently regulate reparation orders in criminal prosecutions, and compensation orders litigation funding arrangements, save that they will ensure that for complaints resolved by dispute resolution schemes. litigation funding does not result in an abuse of process. The New The FMA may also prohibit organisations from doing certain things Zealand Law Commission is currently reviewing the regulation of (e.g. offering financial products, distributing disclosure documents). litigation funding.

ICLG TO: FINANCIAL SERVICES DISPUTES 2019 WWW.ICLG.COM 103 © Published and reproduced with kind permission by Global Legal Group Ltd, London 104 New Zealand will generallyhave asix-yearstatutorylimitationperiod fromwhen Civil disputeswillbebroughtbefore thecourtsand,inthatevent, This dependsonthetypeofproceedings beingfiled. 2.2 unfair termsiscurrentlyunderreview. Commission obtainsadeclarationfromthecourts. The lawon However, aterm isonlyunfairiftheNewZealandCommerce necessary toprotectlegitimateinterestsofthefinancialentity. imbalance” betweenaconsumerandthefinancialentityisnot standard formconsumercontractandcauses“significant provisions intheFair Trading Act 1986ifthetermiscontainedina potentially beingdeclared“unfair”undertheunfaircontractterms in financialservicescontracts.However, theseclausesaresubjectto Exclusionary clausesanddutydefiningaresometimesused above. actions andthird-partylitigationfunding–seequestions1.41.5 $200,000 (seequestion3.4below).NewZealandalsoallowsclass resolution servicewhichprovidesfreeofclaimsunder registered inNewZealandmustbelongtoanapproveddispute The costofcourtproceedingscanbeabarrier. However, allFSPs 2.1 question 7.3below. dishonoured payments,andthe for thelatepaymentofcreditcards,unarrangedoverdraftsand against themajorbanksinNewZealandrelationtofeescharged included the“FairPlayonFees”classaction,whichwasissued increase inclassactionsrecentyears.Notablehave applications tocommencesuchproceedings. This hasledtoan courts havegenerallytakenapermissiveapproachtowards Class actionsarerelativelynewinNewZealand;however, the persons withthesameinterestorfollowinganapplicationtocourt. interest inthesubjectmatterofaproceeding sued “ Court Rule4.24. This Ruleallowsoneormorepersonstosuebe class actions;however, theseproceedingsarepermittedunderHigh New Zealanddoesnothaveaformallegalframeworkfordealingwith 1.5 award maybelessthaninotherjurisdictions. costs –seequestion4.2below)andsoexposuretoanadverse courts generallyawardcostsonascalebasis(i.e.lessthanactual Zealand, butisnotcommon. This maybebecausetheNewZealand “ MinterEllisonRuddWatts © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM Litigation 2 on behalfoforforthebenefitallpersonswithsame class actionsuitspostthefinancialcrisis? services litigation?Hastherebeenanincreasein jurisdiction? Ifso,hasthisimpactedfinancial Are classactionlawsuitsavailableinyour clock’? the commencementofaregulatory process‘stopthe before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary What arethemainbarrierstofinancialservice Before CommencingProceedings

” or“

after theevent

” insuranceisavailableinNew Feltex

litigation,discussedat ” withtheconsentof

litigation privilegeand/orlegaladviceprivilege. Parties tofinancialserviceslitigationcanavailthemselvesof 2.3 the deadlockoccurring. There isnolong-stop. The complainttotheschemehasbemadewithintwomonthsof complaint canbemadetotheprovider’s disputeresolutionscheme. not respondwithinasettimeframe,orthereisdeadlock, complainant hastofirstcomplaintheFSP andiftheproviderdoes process havetimelimitsbasedaroundtheofa“deadlock”. A Complaints toauthoriseddisputeresolutionschemesundertheFSPs stop theclockwhilstinvestigationcontinues. proceedings (bothcivilandcriminal)arecommencedinorderto regulatory mattersaroundthelimitationperiodandsometimes sometimes beaflurryofactivitytocompleteinvestigationsin A regulatoryprocessdoesnot“stoptheclock”andsotherecan period beginningafterthedateonwhichoffence wascommitted. common offences undertheFMCA haveathree-yearlimitation years), butthereareexceptionsinparticular Acts. The more penalty fortheoffence (andcanbesixmonths,12monthsorfive respect ofcriminaloffences generallydependsonthemaximum the relevantactoromissionoccurred. The limitationperiodin Banking Practicewhichisgoverned bytheBankingOmbudsman. the CodeasaresultofFSLAB. Inaddition,thereistheCodeof question 7.1belowforadiscussion ofreformstothesedutiesand right tocontractoutofthesestatutorydutiesortheCode.See minimum standardsintheCodeofConductfor AFAs. There isno deceptive conduct.Inaddition, AFAs mustcomplywiththe with care,diligenceandskillnotengageinmisleadingor 2008 whichrequire(forexample)thatfinancialadvisersmustact There aredutiesundertheFMCA andtheFinancial Advisers Act 2.5 such asthe Auckland DistrictLawSocietyformsformortgages. which applytocustomersandtherearestandardformdocuments industry. Forinstance,bankshavestandardtermsandconditions form agreementsfordifferent sectorsofthefinancialservices amended asnecessarytosuitthetransaction. There arestandard The ISDA Master Agreement isusedinNewZealandand 2.4 regulatory investigationhascommenced. proceeding, andaproceedingmaywellbeapprehendedwhere made forthedominantpurposeofpreparinganapprehended Litigation privilegecanbeclaimedinrelationtocommunications communications madeduringthecourseofregulatoryinvestigations. claim litigationprivilegeinrelationtoinformationand It isalsolikelythatentitiessubjecttoregulatoryinvestigationscan ICLG TO: FINANCIAL SERVICESDISPUTES 2019 considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howarethey treated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour

New Zealand

3.3 No, itdoesnotdiffer. 3.2 back tothegenerallistandwillbeheardbyanyHighCourtjudge. case management;whenaisreadyforhearing,ittransferred “Commercial List”. The purposeofthisLististoallowforefficient No; however, theNewZealandHighCourtdoesoperatea 3.1 MinterEllisonRuddWatts © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 ■ ■ ■ a numberofdifferent statutes: Negligent misstatementandmis-sellingclaimsaredealtwithunder 3.5 decision-maker (arbitrator)areimportanttotheparties. services contractswhereprivacyandtheabilitytoselect sometimes prefertohavean ADR clauseforsignificantfinancial financial servicescontractsinNewZealand.Sophisticatedparties in NewZealand.However, ADR clausesarenotcommonplacein Parties canchoosetoresolvedisputesbymediationandarbitration $200,000, thenormalrouteisviacourts. binding decisionontheFSP. However, iftheclaimisformorethan this forum. The disputeresolutionserviceisfreeandresultsina Ombudsman). Retailclientscanmakeclaimsofupto$200,000in belong toanapproveddisputeresolutionscheme(e.g.theBanking All entitieswhichprovidefinancialservicestoretailclientsmust 3.4 Commercial List. No –butclassactionshavedifferent proceduresandthereisa 3 jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypically included regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase term ofthecontractthathasbeenbreached. damages aretobecalculatedasif therepresentationwerea misrepresentation, whetherinnocent orfraudulent. These damages whereapartyhasbeeninduced intoacontractby the ContractandCommercialLaw Act 2017providesfor pecuniary penaltyorder;and can prosecuteand(amongstotherthings)applyfora representations. Iftheseprovisionsarebreached,theFMA financial productsorservices,andunsubstantiated the FMCA prohibitsfalseormisleadingrepresentationsabout conduct intrade; the Fair Trading Act 1986 prohibitsmisleadingordeceptive dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling

3.7 rules shouldbeextendedtobusinesses. Business, InnovationandEmploymentonwhethertheunfairterms A discussionpaperhasrecentlybeenreleasedbytheMinistryof contract. these provisionsifitispartofthemainsubjectmatter of theadvantagedparty. A termwill,however, beexemptfrom the termisnotreasonablynecessaryinordertoprotectinterests in theconsumer’s rightsunderthecontracttotheirdetrimentandif A termwillbedeclared“unfair”ifitcreatesasignificantimbalance use. acquisition ofgoodsorservicesforpersonal,domestichousehold contract included inanystandardformagreementorenforced.“ consumer contractisunfair. Ifthatdeclarationismade,itcannotbe apply tothecourtforadeclarationthatterminstandardform The Fair Trading Act 1986allowstheCommerceCommissionto 3.6 fails tocomplywithanaccessorder. request, anda$10,000fineifanagency, withoutreasonableexcuse, deadline forwhenanagencywill berequiredtocomplywitha on accessrequestsarebinding. This includestheabilityto set a bolster thepowersofPrivacyCommissionersothatitsdecisions in theirapproachtocompliance. Accordingly, theBillproposesto information isanareawhereagencieshavebeensomewhatrelaxed to handlepersonalinformationappropriately. Access topersonal Commissioner withgreaterpowerstoaddressfailuresbyagencies their personalinformationissecureandtoprovidethePrivacy of thereformistorestoreindividuals’ confidenceinagenciesthat Parliament isintheprocessofreformingPrivacy Act. The aim request, itmustcitethereasonforitsrefusal. to beconsidered“readilyretrievable”. Where anagencyrefusesa unreasonably costlyordifficult toretrieveinformationitisunlikely found. While mostinformationis“retrievable”,ifitwillbe information isnotreadilyretrievable,doesexistorcannotbe from apracticalperspective,anagencymayrefuserequestifthe involve disclosureoftheaffairs ofanotherindividual.Inaddition, disclosure wouldbreachlegalprofessionalprivilegeor agency isalsoabletorefuseaccesspersonalinformationwhere days ofreceivingarequest,unlessanextensiontimeapplies. An There isanobligationonagencytorespondwithin20working have accesstosuchinformation. the agencyaboutwhetherornotitholdspersonalinformation,and individual concernedshallbeentitledtoobtainconfirmationfrom information insuchawaythatitcanreadilyberetrieved,the Privacy PrincipleSixprovidesthat,whereanagencyholdspersonal information, heldbyanagency, underthePrivacy Act 1993. same waythatanyindividualmayrequestaccesstopersonal A financialservicescustomercanaccesstheirpersonaldata,inthe

services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation ” isdefinedbroadlytoincludeanycontractthatinvolvesthe

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Consumer

105 New Zealand 106 New Zealand have nodirectoperation inNewZealandbutcanbe enforcedeither Similarly, foreignjudgmentsagainstNewZealandfinancialentities between NewZealandandtherelevant jurisdiction. judgments overseas. This dependsonreciprocalagreements key issuesforplaintiffs ishowtoenforceNewZealand court Where adefendantdoesnothave assets inNewZealandoneofthe substantial connectiontoNewZealand. outside NewZealandandmustshowthattheclaimhasareal to obtainleavefromtheNewZealandcourtsserveproceedings into inNewZealand.Inothercircumstances,theclaimantwillneed contract atissueisgovernedbyNewZealandlaworwasentered Zealand asofrightinspecifiedcircumstances,e.g.wherethe Zealand proceedingscanbeservedonadefendantoutsideNew Focusing onserviceofproceedings,underNewZealandlaw, New another jurisdictionandthelawgoverningdispute. factors suchaslocationofwitnesses,existencelitigationin Whether NewZealandisthemostconvenientforumwilldependon properly servedunderNewZealandlawonapersonorentity. The NewZealandcourtswillhavejurisdictionifproceedingsare whether theNewZealandcourtsaremostconvenientforum. the NewZealandcourtshavejurisdictiontoheardisputeand The keyquestionsinacross-borderfinancialdisputearewhether 5.1 direction ofthecourt. or defendingaproceeding,hasignoreddisobeyedanorder frivolously, improperlyorunnecessarilyincommencing,continuing award indemnitycostswhereapartyhasactedvexatiously, exceed themaximumscalecostsavailable. The courtsmayalso of theproceedingissuchthattimerequiredwouldsubstantially unnecessarily tothetimeorexpenseofproceedingnature The courtsmayawardincreasedcostsifapartyhascontributed the party’s actuallegalcosts. “scale” costsareintendedtoallowfortherecoveryoftwo-thirds classified accordingtotheircomplexityandsignificance. These are ordinarilyawardedona“scale”basis,withproceedings In general,asuccessfulpartytolitigationisentitledcosts.Costs 4.2 There isarightofappealagainstanycourtdecisioninNewZealand. 4.1 provided onacounsel-to-counselbasis. disclosed tothepublicand/orthatinformationwillonlybe information suchasagreeingthatcertainwillnotbe However, partiescanseekordersfromthecourttoprotectsuch information isrelevanttothesubstanceofproceeding. information isstilldiscoverableincivilproceedingsifthe Regarding commerciallysensitiveorconfidentialinformation,this MinterEllisonRuddWatts © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM 5 4 disputes? Is therearightofappealinfinancialservices Post Trial how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues services disputes? How doesthecourtdealwithcostsinfinancial

■ foreign courtsinfinancialservicesdisputesby, forexample: The NewZealandcourtsandregulatorsseektoco-operateassist 5.2 courts andfinancialregulatorsco-operatewithoverseasregulators. See question5.2belowforasummaryofhowtheNewZealand 1996 exceptinlimitedcircumstances. Arbitral awardsarebindingundertheNewZealand Arbitration Act jurisdiction andregistrationofjudgments. Australia, introducesstatutorycriteriafordeterminingappropriate Act 2010whichstreamlinesserviceofNewZealandproceedingsin There isnowaspecialregimeunderthe Trans-Tasman Proceedings based onthecommonlaw. jurisdictions) orbybringinganactionintheNewZealandcourts Judgments Act 1934(whichonlyappliestoaspecificlistof by registeringthejudgmentunderReciprocalEnforcementof entities inNewZealand. However, ifthistypeofclauseisincluded sue. These clausesareenforceableasbetweenfinancialbusiness in onejurisdictiononlyandpermit the otherpartytochoosewhere Unilateral jurisdictionclausesrequire onepartytobringproceedings 5.4 whether theconductisinNewZealandoroutsideZealand. relation toquotedfinancialproductsorlistedissuersregardlessof and seniormanagementoflistedissuersallapplytoconductin and disclosureofrelevantinterestsinfinancialproductsbydirectors disclosure, disclosureofsubstantialproductholdersinlistedissuers The lawsoninsidertrading,marketmanipulation,continuous supplying financialservicesinNewZealand. the extentconductrelatestodealinginfinancialproductsor incorporated, registeredorcarryingonbusinessinNewZealandto apply toconductoutsideNewZealandbyanypersonresident, products orthesupplypossibleoffinancialservices) misleading anddeceptiveconductinrelationtodealingfinancial under s33oftheFMCA,fairdealingprovisions(whichprohibit provisions applytoconductoutsideNewZealand.Forinstance, persons outsideNewZealand.However, undertheFMCA,some Generally, NewZealandlawdoesnotapplytoactivities,propertyor 5.3 assist witharequestbyoverseasregulators. information, documentsorevidencethat,initsopinion,islikelyto taking placeinoverseasjurisdictions. The FMA mayobtain In addition,regulatorsassistinobtainingevidenceforproceedings ■ ■ ICLG TO: FINANCIAL SERVICESDISPUTES 2019 procedure inaccordancewiththeagreementbetweenparties; arbitration underNewZealandlaw, andfollowthecorrect under law, relatetoadisputecapableofbeingsettledby a NewZealandcourt,anarbitralawardmustsimplybevalid country inwhichtheawardwasmade. To beenforceablein enforcing arbitralawardsinNewZealandirrespectiveofthe disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour enforceable inyourjurisdiction? Are unilateraljurisdictionclauses validand your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin orders inaidofsubstantiveforeignproceedings. the NewZealandHighCourthaspowertomakefreezing Zealand or Australia; and enforcing subpoenas,whethertheywereissuedinNew

New Zealand

6.2 enforcement actionandsanctions. investigate arangeoffinancialservicesissuesandtoseek Commission andReserveBankofNewZealandhavepowersto complaints regardingadviserconduct. The FMA,Commerce ( Ombudsman). The Financial Advisers DisciplinaryCommittee must belongtoadisputeresolutionscheme(e.g.theBanking All entitieswhichprovidefinancialservicestoretailcustomers 6.1 declared bythecourtstobeunfair–seeaboveatquestion3.6. negotiation betweentheparties),thereisarisktheycouldbe consumers wherethetermshavenotbeensubjecttoeffective in standardformfinancialconsumercontracts(agreementswith MinterEllisonRuddWatts © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 decisions arebinding. harm toconsumersorNewZealand’s financialmarkets. These registration ofinstitutionsandindividuals wherethereispotential Providers Register( The FMA canalsodirecttheRegistrar oftheFinancialService to aboveatquestion6.2. confidentiality orders,andmaketemporarybanningordersreferred decision tousecompulsoryinformationgatheringpowers,issue Some decisionsofregulatorsarebinding,however, suchasthe on thepartiestodisputeratherthananydecisionofregulator. court ortribunal,anditisthedecisionofthatbodywhichbinding Generally, proceedingsarebroughtbeforeanotherbody, suchasa 6.3 seizure powers. the registeredbankand,incertaincircumstances,hassearchand report preparedbyanapprovedpersononcertainmattersrelatingto gathering powers,canrequirethattheregisteredbankprovidea prudential supervisionofregulatedbanks,hasinformation (New Zealand’s centralbank),whichisresponsibleforundertaking consumer creditcontracts. The ReserveBankofNewZealand investigate andtakeactioninrelationtocreditcontracts The CommerceCommissionhaspowersundertheCCCFA to High Courtifthereisnon-compliancewiththoseundertakings. public warnings,oracceptundertakingsandenforcetheminthe enforcement spectrum,theFMA canissueinfringementnoticesor powers unders29ofthesame Act. At thelowerendof to giveevidenceinpersonunders25oftheFMA Act andhassearch FMA canalsorequireproductionofinformationoraperson financial marketsparticipantswhereitisinthepublicinterest. The 2011 tobringproceedingsseekingcompensationonbehalfof High Court. The FMA alsohas arightunders34oftheFMA Act in respectofpayment/transferfundsorotherpropertyfromthe licences, orseekinginjunctiverelief,banningordersandotherrelief orders, issuingtemporarybanningordersorstoprevoking The FMA hasenforcementpowersincludinggivingdirection FADC 6 have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon ) conductsdisciplinaryproceedingsarisingoutof

FSPR

) tode-registerand/orprevent the

can beappealedtotheDistrictCourt. Decisions oftheFADC totakedisciplinaryactionagainstan AFA taken elsewhere,includingtothecourts. binding ontheproviderifacceptedbycomplainant,socanbe resolution schemesinrelationtoFSPsbutthesedecisionsareonly There isnorightofappealfromdecisionsauthoriseddispute right ofgeneralappealtotheHighCourt. from and/orpreventedregisteringontheFSPRissubjecttoa A directionthatabusinessorindividualshouldbede-registered of appealtotheHighCourtonaquestionlawonly. Temporary banningordersmadebytheFMA aresubjecttoaright grounds (althoughthisisrare). supervisory jurisdictionrelyingontraditionaljudicialreview of appeal,butcangenerallybechallengedintheHighCourt’s The useofcompulsoryinvestigativepowersarenotsubjecttorights 6.4 question. Disciplinary decisionsoftheFADC arebindingonthe AFA in on theFSP. are membersofthescheme)andcanmakedecisionsthatbinding have authoritytodeterminecomplaintsagainstFSPs(wherethey Dispute resolutionschemes,whicharequasi-regulatorybodies, appropriate opportunities toflexthoseenforcementmuscles. FMCA waspassed. We expect theFMA beonthelook-outfor enforcement toolswhichwerebolstered followingtheGFCwhen question 6.2,theFMA hasawide rangeofinvestigativeand the FMA’s GuidetoConductdatedFebruary 2017. As notedaboveat (not justbanks)toproactivelyfocus onmeasuringthemselvesagainst all financialmarketparticipantswith theFMA expectingparticipants FMA/Reserve Bank.Conductandculturewillbeanongoingfocusfor working onaplantoaddresstheirspecificrisksidentifiedbythe measurement andreportingofcustomeroutcomes.Bankswilleachbe management ofconductrisks,and“significantgaps”inthe The regulatorsidentifiedweaknessesinbanks’ governanceand and lifeinsurers’ conduct andculture. echoed inareviewbyNewZealandregulatorsofthemajorbanks Banking, SuperannuationandFinancialServicesIndustry. This was result ofthe Australian RoyalCommissionintoMisconductinthe 2018 sawscrutinyin Australia offinancialservicesentitiesasa 7.1 commercially sensitive. and willdependonwhetherthedecisionisconfidentialor Decisions ofregulatorybodiesarenotalwayspubliclyaccessible 6.5 7 exist? What rightsofappealfromregulatorydecisions against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly

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107 New Zealand 108 New Zealand in theclassactionarea,islikelytocementthis. relatively recentinfluxoflitigationfunders,anddevelopingactivity seen byfinancialinstitutions)asaclearshotacrossthebows. The foreseeable future.Itisbeingpromotedbytheregulators(and is likelytotipthebalancetowardaconsumer-friendly focusforthe FMA andReserveBank(referredtoaboveatquestions1.17.1) The recentthematicConductandCultureReviewcarriedoutbythe citizens arenotoverlycommon. civil proceedingsagainstfinancialservicesinstitutionsbyprivate Against that,thejurisdictionisgenerallynotlitigiousandordinary focused ondeliveringgoodcustomeroutcomes. that financialinstitutionsshouldnotjustcomplywiththelawbutbe financial regulators–theFMA andtheReserveBankinparticular– are increasinglyactive. There isalsoaclearexpectationfromkey There isstrongconsumerprotectionlegislationandtheregulators This isfinelybalanced,butprobablymoreconsumer-friendly. 7.2 See question7.3belowforadiscussiononsignificantcases. compliance withtheResponsibleLendingCode. focus onresponsiblelendingprinciplesundertheCCCFA and the lendingsector, theCommerceCommissionhascontinuedto of thefirstcivilproceedingsfiledwithsubstantialfinessought.In Laundering/Countering Financingof Terrorism Act 2009withsome There hasalsobeenconsiderablefocusonthe Anti-Money regime. 2019. Financialentitieswillthentransitiontoanewlicensing Conduct forfinancialadvisersisexpectedtobefinalisedbymid- the dutyprovisions.Followingthis,anewversionofCode encouraging arepresentativetoengageinconductthatcontravenes inappropriate incentivesthatarelikelytohavetheeffect of and controlstooverseerepresentativesnotprovide duties underthelegislation;andthatFAPs haveeffective processes persons engagedtoprovideregulatedadvicecomplywiththeir states thatFAPs mustalsotakeallreasonablestepstoensure: give oroffer togiveinappropriateincentives.Furthermore,theBill interests andthedutyonFinancial Advice Providers( creates newdutiessuchasthedutytogivepriorityclients’ Advisers Act andmovestheadviserdutiestoFMCA.Italso FSLAB likelytobepassedin2019. The BillrepealstheFinancial The reformofthefinancialadviceregimecontinueswith MinterEllisonRuddWatts © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe

FAPs

) notto

■ ■ include: the ReserveBankandFMA;however, recentsignificantcases focused ontheConductandCultureReviewconductedjointlyby Over thepast12months,financialservicessectorhasbeen 7.3 on effect inNewZealand. As notedabove,theRoyalCommissionin Australia hashadaflow- both resultedfromtheGFCreforms. Securities Commission). The FMCA andtheFinancial Advisers Act transparent financialmarkets(previouslytheregulatorwas FMA wasestablishedtopromoteandfacilitatethefair, efficient and financial marketswereregulatedinNewZealand.In2011, the The globalfinancialcrisis( 7.4 ■ ICLG TO: FINANCIAL SERVICESDISPUTES 2019 will besatisfiedifaninvestorreliedonaprospectus that relianceandlosswillnotbedifficult toprove.Reliance result. This decisionissignificant becauseitdemonstrates on theprospectusgenerally, andthattheysuffered lossasa liability, providedthatinvestorsacquiredsharesinreliance held in August 2018thatthisforecastcouldgiveriseto whether itcouldgiverisetoliability. The SupremeCourt dividend forecastamountedtoanuntruestatementand shareholders. There wasanissueastowhetherarevenueand receivership in2006,resultingatotallosstoits in thatcompany’s 2004prospectus.Feltexwentinto shareholders inFeltexrelationtomisstatementsincluded Feltex imposed. to marketmanipulation.Inthiscase,a$400,000penaltywas Zealand casewhichanalyseswhatdoesandnotamount by afundmanagerataninvestmentbank,andisthefirstNew Warminger drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany ensure compliancearenottaken. their compliance,andwillprosecuteifadequatestepsto Affairs willmonitorentities whohavebeenwarnedabout 2015. This caseevidences thattheDepartmentofInternal Act 2009. The defendanthadreceivedawarninginmid- Money LaunderingandCounteringFinancingof Terrorism pay a$5.3millionpecuniarypenaltyforbreachesofthe Anti- Ping An higher thaniftheprospectushadnotbeenmisleading. will havesuffered alossif the pricetheypaidforshareswas relied onthespecificstatementsaidtobeuntrue.Investors generally; theydonotneedtohavereadtheprospectiveor

: thiscasewasbroughtbyalarge numberofformer : inthiscase,theCourtorderedamoneyremitterto

: thiscaseconcernedallegedmarketmanipulation

GFC ) ledtoanoverhauloftheway

New Zealand

MinterEllisonRuddWatts © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 under theInsurance(PrudentialSupervision) Act. in relationtodealingwiththeFMA,CommerceCommissionandReserveBankofNewZealand. The teamisalsoexperiencedinadvi Markets Conduct Act, theFinancial Advisers Act, the Anti-Money LaunderingandCounteringFinancingof Terrorism Act, andonpr The teamisregardedasopinionleadersonnewregulatoryandmarketdevelopmentsaffecting thefinancialservicessectorsuch sector andothersubstantialfinancialservicesregulatoryinvestigations. resolving disputes.In2018,thefirmhasadvisedclientsinrelationtoFMA/ReserveBankConductandCultureReviewth development inthishighlyregulatedandfast-evolvingsector. The teamprovidesseamlesssolutionsfrommanagingregulatoryr The legalteamscollaboratetodeliverexceptionaloutcomesforclients. The firm’s dedicatedfinancialservicesteamisatth MinterEllisonRuddWatts isoneofNewZealand’s premierlawfirms. Overy inLondonandcompletedherLL.M.atNew York University. Prior toreturningNewZealand,Janewasanassociateat Allen & account feesandcreditfees. New Zealandbankindefenceofaclassactionclaimregarding invested clientmoneyinMadoff feederfunds;andactedforamajor engagements; actedinproceedingsagainstaninvestmentfundwhich firms defendingaprofessionalnegligenceclaiminrelationtoaudit regulators. Inaddition,Janehas:actedforoneofthetopfouraudit regulatory investigationsandengagementwiththeNewZealand and internationally. Sheregularlyadvisesclientsinrelationto Jane hasactedonlarge-scalecommercialdisputesinNewZealand law. disputes, anddisputesinvolvingissuesofcompaniessecurities financial serviceslitigation,classactiondisputes,complexcontractual She isanexperiencedlitigatorwithparticularexpertiseinbankingand Jane isapartnerinMinterEllisonRuddWatts’ DisputeResolutionteam.

URL: Email: Tel: New Zealand Auckland 1010 88 ShortlandStreet Lumley Centre,Level20 MinterEllisonRuddWatts Jane Standage

www.minterellison.co.nz [email protected] +64 93539754

secondment intheFinancialMarkets Authority’s litigationteam. Serious FraudOffice. In2016,Matthewspentninemonthson regulatory enforcement,includingtheFinancialMarkets Authority and a numberofmajorregulatorsinrelationtobothcivilandcriminal In additiontoCrownprosecutionandcivillitigationwork,heactedfor prosecutor workingfortheoffice oftheCrownSolicitorinWellington. Prior tojoiningMinterEllisonRuddWatts, Matthewwas aseniorCrown New Zealand. Zealand, theFinancialMarkets Authority andtheReserveBankof Review beingcarriedoutjointlybythemainregulatorsinNew a major Australasian bankinrelationtotheConductandCulture criminal investigations.Heisamemberoftheteamcurrentlyadvising significant experienceassistingclientsrespondtoregulatoryand He hasabroadcommerciallitigationandregulatorypractice Resolution team. Matthew isaseniorassociateinMinterEllisonRuddWatts’ Dispute

URL: Email: Tel: New Zealand Wellington 6011 18/125 TheTerrace MinterEllisonRuddWatts Matthew Ferrier www.minterellison.co.nz [email protected] +64 44985057

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e financialservices oviding guidance as theFinancial equirements to e forefrontof sing insurers

109 New Zealand Chapter 19 Poland Peter Daszkowski

Wolf Theiss Marcin Rudnik

1 Bringing a Claim – Initial Considerations 1.3 Who has a right of action in financial services disputes? Does it make a difference if the customer is an individual or a commercial entity? 1.1 What are the most common causes of actions taken by or against financial institutions and service providers in your jurisdiction? The customer and the financial institution have a full right of action in financial service disputes and there is no difference if the customer is an individual or a commercial entity. Causes of actions taken against financial institutions vary depending on the circumstances of each case; however, one of the most In disputes concerning the protection of consumer rights, legal common causes are disputes concerning Swiss franc loan actions may be brought by non-governmental organisations but only agreements. In the past (years 2005–2007), loans denominated in with the consent of the consumer. Such an organisation can also Swiss francs were particularly popular in Poland, as both the Swiss join a pending case and take necessary actions at any stage of the franc exchange rate and the applicable loan interest were fairly low. proceedings. Favourable loan conditions could be obtained. However, since mid- Moreover, in those disputes, the district (municipal) consumer 2008, the Swiss franc exchange rate has increased significantly to ombudsman may bring actions on behalf of consumers and, with the detriment of borrowers, who then needed to purchase Swiss their consent, join a case at any stage. francs at a much higher rate to repay their loans. The Financial Ombudsman is also entitled to take action for As a result, borrowers have initiated many successful disputes consumers in cases concerning unfair market practices by financial against the banks using various argumentation in order to invalidate institutions. He may also, with the consent of the consumer, take the loan agreements, in part or in full, or to convert the Swiss franc part in pending proceedings. loan into a Polish zloty (“PLN”) loan. Generally, the main The public prosecutor may request the initiation of proceedings in arguments of the consumers are the following: (i) misrepresentation any civil case, as well as take part in ongoing proceedings, if, by the banks; (ii) the banks not providing sufficient information on according to his assessment, it is required to protect the rule of law, the risks connected with a Swiss franc denominated loan; (iii) citizens’ rights or public interest. abusive clauses leaving the bank too much leeway to determine the substance of the obligations of the customer; and (iv) violation of good business practices and good faith principles by the banks. 1.4 Is third-party funding available in financial services litigation (crowdfunding, maintenance, champerty, Financial institutions in turn claim for payment of due and payable etc.)? Does litigation insurance operate in your financial obligations of their customers (in the event of defaults or jurisdiction and, if so, what are the implications for early termination of loan agreements). However, in many cases, this? such claims are assigned to debt collection companies or securitisation funds which pursue the claim on their own. Third-party funding is still not fully developed and well-established There is also a relatively steady number of cases connected with in Poland, thus it is not covered by any relevant legal provisions, insider trading and an increasing number of cyber crime cases and including those regarding financial services litigation. As a rule, related disputes. third-party funding is admissible under Polish law; however, the specific content of a third-party funding agreement would be based on the freedom of contract. A third party cannot formally take part 1.2 What remedies are most likely to be awarded? in the proceedings, unless the claim is assigned to it. Litigation insurance is available in Poland; however, similarly to As a rule, claims made against or by a financial institution constitute third-party funding, it is not common and broadly known or payment claims. Depending on the circumstances of the case, the accepted. According to public information, only around 3% of customer might also pursue damages, compensation or partial/full Poles have litigation insurance and the quality of such products still reimbursement of the amounts already repaid to the financial needs improvement. We are not aware of any specific insurance institution. product that covers financial services litigation. Basic litigation In the Swiss franc cases, the consumers would also like the court to insurance covers legal counsel’s fees and court fees, leaving the declare the contract, or particular provisions of the contract, null and scope of insurance protection in the financial services litigation to void or ineffective. be quite limited.

110 WWW.ICLG.COM ICLG TO: FINANCIAL SERVICES DISPUTES 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London late 2009(i.e.,duringthefinancialcrisis),itisstillnotpossibleto Because thelawonclassactionswasonlyintroducedinPoland claims wereinitiatedinPoland. date forwhichwehaveofficial information,onlyafewclassaction class actionsistodateverylimited.Forexample,in2017,thelatest committed bybanksorotherfinancialinstitutions,thepopularityof joint oppositiontoillegalpracticeswhichcouldhavebeen than bymeansofindividualclaims,ascollectivelawsuitsallowfor big financialinstitutionsbymeansofclassactionsuitsseemseasier financial servicesdisputes.Eventhoughtakinglegalstepsagainst However, theimplementationofthislawhashadlittleimpacton action lawsuitmaybeinitiatedifthepartytodisputeisaconsumer. ustawa odochodzeniuroszczeń wpostępowaniugrupowym December 2009onpursuingclaimsingroupproceedings(inPolish: they wereintroducedtothePolishlegalsystemby Act of17 Class actionlawsuitsareanoptionavailabletopursueinPolandas 1.5 Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 A timelimitissetby theprovisionsregardinglimitation ofclaimsin 2.2 two orthreeyears. first instanceregardingSwissfrancloanagreementstakesaround example, theaveragelengthofaproceedingbeforecourt proceedings alsousuallytakelongerthanaveragedisputes.For This isnotcommoninPoland(seequestion3.1below).Such requires judgespossessingcomprehensivefinancialknowledge. Financial servicelitigationcasesaregenerallyquitecomplexwhich excessive lengthoftheproceedings,andlackspecialisedcourts. Another possiblebarriertofinancialservicelitigationwouldbethe supporting theconsumerinvariousways. including, forexample,theFinancialOmbudsman,mainlyby providing balanceamongthepartiesoffinancialservicesdisputes, Poland, therearemultiplespecialisedinstitutionsthataimat entering intoadisputeagainstbigspecialisedinstitutions.Still,in of practicalnature. A consumerissetinadifficult situationwhen The onlybarriersthatacustomerwouldhavetoovercomebe exclusionary clausesordutydefiningarenotapplicable. party cannotbelegallyrestrictedfrombringingacasetocourt,so to financialservicelitigationforcustomers.UnderPolishlaw, a Apart fromcourtandlawyerfees,therearenospecificlegalbarriers 2.1 financial serviceslitigation,inparticularSwissfrancloans. class actionclaims,asignificantnumberareconnectedwith fully assessthistypeoflitigation.Still,amongthecurrentbatch 2 case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary What arethemainbarrierstofinancialservice Before CommencingProceedings class actionsuitspostthefinancialcrisis? services litigation?Hastherebeenanincreasein jurisdiction? Ifso,hasthisimpactedfinancial Are classactionlawsuitsavailableinyour clock’? the commencementofaregulatory process‘stopthe before aregulatorybodyor thecourts?Does depending onwhetherproceedings arebrought disputes mustbecommenced? Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices

). A class

proceedings beforetheFinancialOmbudsman(seequestion3.4 financial institutionmayalsoberesolvedbythemeansofspecial In financialservicesdisputes,adisputebetweenclientand period startstorunanew. because aftertakingtheabovementionedactionslimitation The aboveregulationsinPolanddonotformally‘stoptheclock’ ■ ■ ■ The runningofthelimitationsperiodisinterruptedby: as suchclaimswillalwaysbeconnectedtotheirbusinessactivity. pursue aclaimissixyearsandforfinancialinstitutionsthreeyears, six-year periodlapsed.Sothegeneraltimelimitforconsumersto period alwaysendsonthelastdayofyearinwhichthree-or became orcouldhavebecomedueandpayable. The limitation business activity, threeyearscalculatedfromthemomentaclaim periodical performancesandclaimsconnectedwithconducting rule, thelimitationperiodissixyears,andforclaimsconcerning waives hisrighttousethestatuteoflimitationsasadefence. As a against whomaclaimismademayavoidsatisfyingitunlesshe of limitations. After thelimitationsperiodhaslapsed,person the CivilCode.Propertyclaimsbecometime-barredbystatute language) prepared bythePolishBanking Association. Inbilateral banks usethePolishMaster Agreement (providedinthePolish used inmajortransactionswithinternational parties.MostPolish In hedgingtransactions,ISDA Master Agreements arecommonly drafting LMA-styleloanagreements. standard loanagreementthatis taken intoconsiderationwhile Banking Association hasalsoprepareditsownPolishlaw-governed first draftthatissubsequentlyheavilynegotiated. The Polish LMA standarddocumentationveryoftenconstitutesthebasisfora typically basedonLMA documentation. As inmostjurisdictions, Poland. Majorfinancingtransactions(exceedingEUR10M)are Many standardformsareregularlyusedbyfinancialinstitutionsin 2.4 significant) attorney-clientprivilegeisalsorespected. conducted byregulatorybodiesbecausearegular(andnotonly Attorney-client privilegeisevenstrongerininvestigations violated. answer questionsifasignificantattorney-clientprivilegemaybe legal advisor/advocatebeingcalledasawitnessmayrefuseto privilege. BasedontheregulationsofPolishCivilProcedure,a The partiesinfinanciallitigationmaybenefitfromattorney-client 2.3 of thestatutelimitations. with afinancialdisputedoesnothaveanyinfluenceontherunning However, thecommencementofregulatoryproceedingsconnected clock’. below). The commencementofsuchproceedingswill‘stopthe commencement ofmediation. is made;and recognition ofaclaimbythepersonagainstwhom satisfy orsecureaclaim; arbitration tribunaltakendirectlytoeitherassert,establish, cases orenforceclaimsofagiventypebeforean any actionbeforeacourtorotherauthorityappointedtohear ISDA Master Agreement)? Howaretheytreated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof

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111 Poland 112 Poland counterpart ofthe statementofclaimtotheopposing party. directly withthecompetentcourt andthecourtdeliversa is nodifferent thaninregularlitigation. A statementofclaimisfiled The methodofserviceproceedings infinancialserviceslitigation 3.2 within the ADR procedures. financial disputesaretheonesmentionedinquestion3.4below The onlyspecialistcourts/institutionsavailabletodecideupon litigation. judge willbeanexpertorexperiencedinfinancialservices assigned randomly. Forthisreason,thereisnoguaranteethatthe via aspecialIT systembasedonalottery, so,generally, casesare litigation. The allocationofjudgestospecificcasesiscarriedout There arealsonospecialistjudgesdecidinguponcasesinfinancial caused ortheagreementwas(tobe)performed. competent initsseatoracourtlocatedwherethedamagewas contractual basis,torts),apartycanbesuedbeforecourt jurisdiction clauseinplace(forexample,claimsbasedonnon- decide uponthecase.Insituationswherethereisnosuch court competentfortheseatoffinancialinstitutionshould jurisdiction clauseinthecontract,whichusuallyprovidesthat law divisions).Inthemajorityofcases,partiesincludea matters aredecidedbyregularcommoncourts(civilorcommercial There isnospecialistcourtforfinancialserviceslitigation.Such 3.1 of financialinstitutions. which constituteasetofrulesontheinternalandexternalbehaviour Authority (inPolish: recommendations publishedbythePolishFinancialSupervision regulatory burden.Financialinstitutionsshouldalsofollow implementation ofEuropeanlaw. Nationallegislationaddstothat for banks.Mostofsuchobligationscomeasaresultthe We haveobservedinrecentyearsincreasingregulatoryobligations secrecy rulesandheavycompliance/notificationsduties. intentional damages.Furthermore,banksareboundbystrict cannot becontractedout,especiallywithrespecttopotentially consumers orothercommercialmarketplayers.Suchdutyofcare staranność public trustandtheextentoftheirdutycare(inPolish: Under Polishlaw, banksareconsideredprofessionalentitiesof 2.5 such formsisusuallyverylimited. particular transaction.Indealingswithconsumers,negotiationof the commercialstrengthofcustomerandspecificsa process. The willingnessofbankstointroducechangesdependson Standard formdocumentationisusedasabasistostartnegotiation master agreementsapply. transactions, banksusuallyinsistthattheirinternalstandardform Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM 3 they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare financial servicelitigation? Does themethodofservice proceedings differfor financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase

) isgreaterthan,inparticular, thedutyofcare Komisja NadzoruFinansowego

) (“

należyta

FSA

”),

Apart fromthegeneralregulationsofPolishCivilProcedure 3.4 procedure thatneedstobeundertaken. however, alsooptionalanddoesnotconstituteanyformalpre-trial financial institution,regardingtheinfringementofitsrights. This is, At apre-trialstage,consumermayalsofilecomplaintagainst does not,however, haveanynegativeconsequencesfortheclaimant. abovementioned formalrequirement.Non-fulfilmentofthispractice a requestforpaymentissentbythecreditortodebtorsatisfy the claim,and,ifnot,whatwasreasonfornotdoingso,inpractice, about whetherthepartiesengagedinasettlementattemptpriortofiling However, becauseastatementofclaimneedstocontaininformation undertaken infinancialserviceslitigationbeforeinitiatinglitigation. There arenoobligatorypre-trialproceduresthatneedtobe 3.3 provisions. might beagroundtoinvalidate contractorspecificcontractual than regularmarketplayers,negligent misstatementsormis-selling Because financialinstitutionsarebound byahigherstandardofcare actions inclaimsraisedbyconsumers againstfinancialinstitutions. Negligent misstatementandmis-selling aretheprincipalcausesof 3.5 courts inPoland. services disputesastheyarepredominantlydecidedbycommon so. Inpractice, ADR isnotcommonlyusedtoresolvefinancial mediation centre/institution,evenwithoutaprioragreementtodo contracts. Nonetheless,partiescanreferadisputetopotential ADR clausesaretypicallynotincludedinfinancialservices ■ ■ ■ disputes, inparticular: several ADR regulationsthatcanapplystrictlytofinancialservices regarding mediationandreconciliationproceedings,thereare ICLG TO: FINANCIAL SERVICESDISPUTES 2019 jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypicallyincluded regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling proceedings beforetheFinancialOmbudsmaniscompulsory. disputes. The participationofafinancialinstitutionin specialist entityestablishedbylawtodealwithfinancial Parties canreferadisputetotheFinancialOmbudsman, also aMediationCentreestablishedatthiscourtofarbitration. services providedbythem(includingconsumers). There is entities subjecttothesupervisionofFSA andrecipientsof participants ofthefinancialmarket,inparticular, between independent courtcompetenttoresolvedisputesbetween The Courtof Arbitration attheFSA isapermanent, an opportunitytoappeal. arbitrator isfinalforthebank,whereasconsumerstillhas average oftwomonths,andthedecisionissuedby 12,000 (approx.EUR2,800). The wholeproceduretakesan bank andthevalueofdisputemustnotexceedPLN needs togothroughtheentirecomplaintprocesswith banks. Inordertofileacaseanarbitrator, theconsumer the amicablesettlementofdisputesbetweenconsumersand Bank Consumer Arbitration isaninstitutioncompetentfor

Poland

apply toprovisionssettingforththemainobligationsofparties, parties areboundbytheremainingpartofcontract. This doesnot provisions willnotbebindingupontheconsumer;however, the to goodpracticeorgrosslyviolatesconsumers’ interests.Such it declaresconsumers’ rightsandobligationsinawaythatiscontrary Code. A contractprovisionwillbedeemedasanunlawfulclauseif Unfair termsincontractshavebeendirectlydefinedtheCivil 3.6 substantial administrativefineupontheinfringer. collective consumerinterestsandmayresultinimpositionofa initiating administrativeproceedingsregardinginfringementof Protection (“ report suchpracticestotheOffice forCompetitionandConsumer collective consumerinterests.Consumersaregrantedtherightto Competition andConsumerProtectionaspracticesinfringing Misstatement andmis-sellinghavebeendefinedinthe Act on Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 ■ ■ data whichisconsideredabanksecret. Those are: describes inwhichproceedingsa bank maybeobligedtodisclose With regardto thedisclosureofinformation,Polishlawexplicitly sensitive dataispunishable(forexample,byimprisonment). permission oftheconsumer/client. The unauthorisedprocessingof data orconfidentialinformationmaynotbedisclosedwithout confidential bankingdata,andmayrequestaccesstoit.Sensitive consumer/client istheholderofpersonaldata,aswell data fromafinancialservicesinstitutionatanytime. The services litigation. A customer/clientmayrequesttheirpersonal There arenospecificrulesregardingdataprotectioninfinancial 3.7 deprive thepersonoftheirconsumerstatus. legal act(forexample,abankloaninhighamount)doesnot or professionalactivity. As arule,highvalueofthecontent entrepreneur alegalactwhichisnotdirectlyrelatedtohisbusiness Code. A consumerisanynaturalpersonundertakingwithan applicable tofinancialservicesmaybefoundinthePolishCivil act toact. The definition ofaconsumerthatispredominantly legal actsusetheirownconsumerconcept,whichmaydiffer from There isnounifieddefinitionofaconsumerinPolishlawandmany clauses canbefoundat: extensive listofclausesconsideredtobeabusive. The listofthe abusive afterconductingrelevantproceedingsandmaintainsan respect tounfairtermsinconsumercontracts,maydeclarethem contract. Moreover, theOCCP, whichinvestigatesthemarketwith the consumerofrighttodissolve,rescindorterminate liability towardstheconsumerforpersonalinjuryordeprivingonly considered unlawful;forexample,aclauseexcludingorlimiting Article 385 including priceorremuneration,solongastheyarewordedclearly. jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted spouses; proceedings regardingthedivision ofpropertybetween inheritance proceedings; dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt 3 of theCivilCodeexplicitlystateswhichclausesmaybe OCCP

”). Suchanoticecanserveasthebasisfor

https://www.rejestr.uokik.gov.pl/

directly withthecourtofsecondinstance. within twoweeksofbeingservedwithanappeal,fileareplybrief the judgmentbeingservedonappellant. The appelleemay, court whichrenderedtheappealedjudgmentwithintwoweeksof forth intheCodeofCivilProcedure. An appealisfiledwiththe financial servicesdisputesonthebasisofgeneralprinciplesset A partynotsatisfiedwithajudgmentisgrantedtherighttoappealin 4.1 will notbeopentothepublic. information mightbedisclosedtoathirdparty, thecourthearing information infinancialservicesdisputes.Ifthereisariskthatsuch specific restrictionsindealingswithcommerciallysensitive Moreover, thePolishCivilProcedureCodedoesnotprovideforany considered abanksecretforthepurposeoffinancialdispute. As arule,bankswillnotbeobligedtodiscloseinformation ■ ■ ■ market ornotknowntoitsjudges. complex financialstructures/mechanisms notcommononthePolish with. This holdstrue,inparticular, foranycommonlawconceptsor foreign lawconceptswhichthePolish legalsystemisnotfamiliar Moreover, cross-borderdisputesoftennecessitate ananalysisof are locatedoutsideofPoland. because ofthelackjurisdictionPolishcourtsoverassetsthat This maycreateaseriousobstacleintheeffectiveness ofajudgment connected withsecuringorenforcingaclaimoutsideofPoland. The mainissuesthattypicallyariseincross-borderdisputesare 5.1 dispute). (which arecappedanddependentonthevalueofsubject for costsinaccordancewiththelegalprovisionsonattorneyfees Additionally, partiesrepresentedbyanattorneywillbereimbursed party’s appearanceincourt. or itsattorneyandtheequivalentofearningslostasaresult fees incurredbytheparty, travellingexpensesincurredbytheparty present itscase. The necessarycostsofproceedingsincludecourt obliged toreimbursetheopposingpartyforanycostsnecessary General principleprovidesthattheunsuccessfulpartywillbe refer tothegeneralrulessetforthinCodeofCivilProcedure. disputes, whichmeansthatwhiledecidingoncosts,thecourtswill There arenospecificrulesregardingcostsinfinancialservices 4.2 4 5 disputes? Is therearightofappealinfinancialservices Post Trial wrongful moneytransfer. maintenance allowance;and party toacontractregardingmaintenance; proceedings commencedagainstanaturalpersonwhois how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues services disputes? How doesthecourtdealwithcostsinfinancial

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113 Poland 114 Poland Polish: The FSA hasextensiveinvestigative powers. An investigation(in 6.2 documentation abusive. selling ormisstatements),aswelldeclaringclausesincontractual institutions thatviolatecollectiveconsumerinterests(likemis- of mattersconnectedwitheliminatingillicitpracticesfinancial financial serviceslitigation. The maintasksoftheOCCP comprise affect consumers’ interests,whichoftenisthe basisofclaimsin abusive clausesandalsoactsoffinancialinstitutionsthatgenerally indirect influenceonregulatingthoseissues. The OCCP dealswith regulate orsettlefinancialservicesdisputes;however, ithasan of competitionandconsumerprotection.Itdoesnotdirectly The OCCP isthebodythatoverseesmarketfromperspective services sector. regulatory proceedingsincasesofmisconductwithinthefinancial to overseethefinancialservicesmarketinPolandandconductany From aregulatoryperspective,theFSA isthemainregulatorybody 6.1 clause. should respecttheparties’ choiceandupholdthevalidityof foreign lawwhichmaygovernacontract,asrule,Polishcourts clauses governedbyPolishlaw. When suchclauseisvalidunder the principleofequality. This holdstrue,however, onlyforthe prohibition ofunilateraljurisdictionclausesastheyareinbreach The PolishCodeonCivilProcedureprovidesforageneral 5.4 foreign courts. Wales), aresuchagreementsusuallysubjecttothejurisdictionof governed byforeignlaw(inparticular, thelawsofEnglandand Only incommercialfinancingcases,wherealoanagreementis No. As arule,extra-territorialjurisdictionisnotassertedinPoland. 5.3 financial servicesdisputes. operation ofPolishcourtswithregulatorybodiesorofficials in services disputes,thereisnostandardpracticewithregardtoco- Due tothefactthatthereislittlecross-borderlitigationinfinancial before aforeignlocalcourt. limited tosummoningandquestioningaforeign-basedwitness The co-operationofPolishcourtswithforeignisinprinciple 5.2 Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM 6 your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour have? enforcement/sanctions) dothese regulatorybodies What powers(investigative/inquisitorial/ services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand

postępowanie wyjaśniające

) maybecommencedinorderto

consumers thatconcludedacontractwiththeentrepreneurbasedon both theentrepreneur, whichappliedtheclause,andall If aclauseisdeclaredabusivebytheOCCP byafinaldecision,then addressed inthedecision. decisions are,however, bindingforthefinancialinstitutionthatwas actions thatweretakenornotbyafinancialinstitution. The directly refertothefinancialservicesdispute,butrelevant As arule,thedecisionsissuedbyOCCP ortheFSA donot 6.3 under the Act onCompetitionandConsumerProtection. may imposeheavyfinesoncompaniesorpersonsviolatingtherules with aparticularviolationofcompetitionlaw. Finally, theOCCP OCCP mayconductraidsinordertocollectevidenceconnected implementation ofunfaircontractualterms.Incertaincases,the practices violatingcollectiveconsumerinterests,aswellthe The OCCP hasthepowertoinvestigatemattersconnectedwith infringer. sanctions imposedbytheFSA willbeafinetopaidbythe established inrelevantadministrativeproceedings,thenthemain under thesupervisionofFSA.Shouldaviolationlatterbe administrative proceedingswithinthescopeofviolationsmatters offence tothepublicprosecutororforFSA toconduct establish whethertherearegroundstofileastatementoncriminal redacted. (including, insomecases,descriptions oftheparties)willbe contains confidentialinformation, therelevantinformation directly onthewebsiteofrelevantbody. However, ifa decision available ifrequestedbyathirdparty. Somedecisionsarepublished accessible. They constitutepublicinformationandshouldbemade Yes. As arule,decisionsoftheregulatorybodiesarepublicly 6.5 two weeksfromthetimeofreceiptjudgment. can beappealedagainsttotheCourtof Appeal in Warsaw within Consumer ProtectionCourtin Warsaw. Any judgmentofthiscourt it toaspecialistcommoncourt,namelytheCompetitionand one monthfromthedateofdeliverydecision,appealagainst administrative proceedings,apartytotheproceedingsmay, within Even thoughtheproceedingsbeforePresidentofOCCP are cassation claimtotheSupreme Administrative Court. judgment ofthe Voivode Administrative Court,itmay file a Administrative Courtin Warsaw. Ifapartyisnotsatisfiedwiththe from thetimedecisionisdeliveredtoaparty, tothe Voivode second decisionoftheFSA canbeappealedagainst,within30days second decisionisissuedbytheFSA onthesamematter. The reconsider themattertoFSA. As aresultofsuchmotion, content ofthedecisionmayfile,within14days,amotionto If theFSA issuesadecision,partythatisnotsatisfiedwiththe 6.4 such clauseareboundbydeclaration. ICLG TO: FINANCIAL SERVICESDISPUTES 2019 parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon accessible? Are decisionsofregulatorybodiespublicly exist? What rightsofappealfromregulatorydecisions

Poland

time-consuming. to thelawconcerningbailiffs mayresultinenforcementbeingmore examine creditworthinessoftheirconsumers. Additionally, changes their customers. The banksclaimitmaylimittheirabilityto the scopeofpersonalinformationthatbankscancollectabout objecting totheproposedchangesbankinglawwhichwouldlimit GDPR withparticularprovisionsofPolishlaw. Banksareactively working onanewlawamending160statutesandreconcilingthe already enteredintoforceinMay2018,thePolishParliamentis Although theGeneralDataProtectionRegulation(“ 7.1 Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 of civillawand,assuch,ismorecustomer-friendly. However, inthe The PolishlegalregimeisbasedonFrenchandGermanprinciples 7.2 be basedonmis-sellingandmisstatements. financial institutionswill,similartotheSwissfrancloancases,still It istobeexpectedthatinthefuturemajorityofcasesagainst lose theirinvestments. circumstances onthefinancialmarketwhichcausedconsumersto with, anddependson,whethertherehavebeenanyrecent Such increasedactivityoftheregulatorybodiesisalsoconnected diligently andtomakeuseofthelegalinstrumentsgrantedthem. to controlandinfluencethemarket/financialinstitutionsmore particular, theOCCP andtheFSA)havestartedtousetheirpowers as aresultofthefinancialcrisis.However, regulatorybodies(in There hasbeennotrueincreaseinthepowersofregulatorybodies charge interestoninterest. changes totheCivilCode,bankshavebeendeprivedoftheirright longer issuetheirownenforcementtitleand,bywayofrecent treating themasequaltoordinaryentrepreneurs.Bankscanno privileges and,intermsoftheirpowerstowardsthirdparties, There isavisibletrendinPolandofdeprivingbankstheirhistoric 7 against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe

GDPR

”)

licence ofabrokeragehouse. The GetBackaffair willplaya first decision,theFSA imposedaheavyfineandwithdrewthe misbehaviour indealingwithbondsissuedbyGetBackS.A.Intheir (brokerage housesandinvestmentfunds)inconnectionwith Currently, theFSA isinvestigatingseveralfinancialmarketplayers contract. determined withareferencetothetimeofconclusion ruled thattheunfairnatureoftermscontractshouldbe June 2018(casefileno.IIICZP 29/17)inwhichtheSupremeCourt indirectly confirmedbyaresolutionoftheSupremeCourt20 by judgmentsoftheCourt Appeal in Warsaw). This trendwas Swiss francsasnullandvoid(whichwas,inparticular, confirmed continuing thetrendofdeclaringloanagreementsdenominatedin courts mostlyconcernedSwissfrancloans. The courtsare During thepast12months,financialserviceslitigationinPolish 7.3 receivables relativelyquicklyandefficiently. court settlementprocedures,allowsthebankstoenforcetheir of notarialsubmissiontoenforcementwhichletscreditorsskip including theextensivescopeofsecurityinterestsandinstitution commercial financeregime,thebroaduseofLMA documentation, the trendsintroducedbyvariouslegalinstrumentsatanEUlevel. they areheavilyinfluencedbyEuropeanlawandthereforefollow economic changes. With regardtofinancialservicesregulations, visible changestofinancialserviceslitigationsasaresultofglobal specialised commoncourtsinPoland,wehavenotobservedany Because financialservicesdisputesaredealtwithbyvariousnon- 7.4 offering securities/bondsto investors. authorities inPolandandthedutyofcareentitiesinvolved significant roleinshapingthestandardofvigilancefinancial drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

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115 Poland 116 Poland Wolf Theiss © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM estate andlabourlaw. Hiscareerexperienceincludesadvising every aspectofPolishcorporateandbusinesslawaswellonreal arbitration proceedings.Headvisesinternationalclientsonnearly transactions. Healsorepresentsclientsinmajorlitigationand banking andfinancemattersaswellprojectrealestate corporations onvariousM&A transactions,includingprivatisations, Poland. Forover20yearshehasbeenadvisingmajorinternational Peter DaszkowskiistheCo-ManagingPartnerofWolf Theiss in For moreinformationgototheinteractivewebprofilebyfollowingthislink: international networkofoffices, weworkcloselywithourclientstohelpthemsolveproblemsandcreateopportunities. We haveconcentratedourenergiesonauniquepartoftheworld:complex,fast-developingmarketsCEE/SEEregion. T Construction; Regulatory&Procurement;Retail;and Tax. Renewables; Infrastructure;IntellectualProperty&Information Technology; International Arbitration; InvestmentFunds;LifeS Crime; CapitalMarkets;Competition& Antitrust; Compliance;Corporate/Mergers & Acquisitions; DisputeResolution;Employment Over 80%ofourworkinvolvescross-borderrepresentationinternationalclients.Ourfullrangeservicescovers:Banking backgrounds, workinginoffices in13countriesthroughouttheCEE/SEEregion. of unrivalledlocalknowledgeandstronginternationalcapability. Ourteamnowbringstogetherover340lawyersfromadivers Wolf Theiss isoneoftheleadinglawfirmsinCentral,EasternandSouth-EasternEurope(CEE/SEE).We havebuiltourreputati of numerouslegalpublications. lawyer admittedtotheBarinGermanyandPoland.Heisauthor Peter isagraduateoftheUniversityBonnandGermanqualified public procurementandPFI/PPP contracts. toll collectionsysteminPoland.Peterhasparticularexperienceof international technologycompanyonimplementationofanelectronic matters, onrestructuringloansandsecurities.Headvisedaleading leading Europeanbanksandentrepreneursonprojectfinance Poland 00-542 Warsaw Mokotowska 49 Wolf Theiss Peter Daszkowski URL: Email: Tel:

www.wolftheiss.com [email protected] +48 223788900

http://brochures.wolftheiss.com/de/zudhJrSO/short-firm-profile fluently. admitted tothePolishBarandspeaksPolish,EnglishGerman organised inco-operationwiththeUniversityofCambridge.Heis degree. HealsocompletedtheEnglishandEuropeanlawschool University ofRegensburg,Germany, andwasawardedanLL.M. Marcin studiedlawattheUniversitiesofGdańskand Toruń, andatthe leasing ofcommercialandindustrialpremises. and developmentmatters,includingFIDICcontracts,aswellonthe mostly onthesideoflenders,andalsoadvisesclientsconstruction numerous publicprocurement,PPP andprojectfinancetransactions, estate, corporateandcompetitionlaw. Hehasparticipatedin and arbitrationproceedingsregardingconstructioncontracts,real advising andrepresentingclientsincivil,administrative,insolvency Procurement practicegroupsofWolf Theiss inPoland.Hefocuseson Resolution, Competitionand Antitrust andRealEstatePublic Marcin RudnikisaSenior Associate andamemberoftheDispute

ICLG TO: FINANCIAL SERVICESDISPUTES 2019 URL: Email: Tel: Poland 00-542 Warsaw Mokotowska 49 Wolf Theiss Marcin Rudnik

www.wolftheiss.com [email protected] +48 223788900

cience; RealEstate& &Finance;Business on acombination

Law;Energy& hrough our e rangeof Poland .

Chapter 20 Portugal Rita Samoreno Gomes

PLMJ Rute Marques

1 Bringing a Claim – Initial Considerations 1.4 Is third-party funding available in financial services litigation (crowdfunding, maintenance, champerty, etc.)? Does litigation insurance operate in your 1.1 What are the most common causes of actions taken jurisdiction and, if so, what are the implications for by or against financial institutions and service this? providers in your jurisdiction? Portugal has no legislation that directly regulates third-party In Portugal, the most common cause of action taken against funding and, although some players claim to have resorted (or are in financial institutions and financial services providers is the breach the process of resorting) to third-party funding solutions, there are of legal and contractual duties (such as suitability, information, no official numbers regarding this issue. Also, there are no judicial transparency and fiduciary duties) in transactions involving the precedents about third-party funding on Portuguese courts and the subscription/acquisition of financial instruments by investors (mis- debate around it amongst scholars is still in a very early stage. selling). The causes of actions most commonly taken by financial Being a very immature market as far as third-party funding is institutions are related to the non-performance of financing or loan concerned, there is an increasingly growing appetite from funders agreements by costumers (credit default or other events of default). regarding Portugal and it will be interesting to follow the upcoming debate on the challenges it poses vis-à-vis the Portuguese legal 1.2 What remedies are most likely to be awarded? system. Although it pretty much depends on the features of the contractual and business models to be implemented, we see no The most common remedies to be awarded by Portuguese courts in fundamental legal obstacle to implementing third-party funding actions against financial institutions are compensation for loss and schemes in Portugal. In fact, while quota litis or arrangements of damage and the declaration of invalidity (nullity or annulment) of share of the lawyer’s fees are forbidden by the Portuguese Bar the agreements and/or transactions between financial institutions or Association Statute, maintenance and champerty are not forbidden financial services providers and their customers. In actions taken by per se. financial institutions (or financial services providers), credit As for litigation insurance, this form of managing the litigation risk recovery is the most common remedy to be awarded by the courts. exists and is commonly used in Portugal in cases of tort liability (especially accidents, automobile and otherwise) and, more 1.3 Who has a right of action in financial services recently, in cases of directors’ and officers’ liability. disputes? Does it make a difference if the customer is an individual or a commercial entity? 1.5 Are class action law suits available in your jurisdiction? If so, has this impacted financial Both individuals and commercial entities have right of action services litigation? Has there been an increase in against financial institutions and financial services providers. class action suits post the financial crisis? Under Portuguese law, the important distinction is between professional and non-professional investors. The latter are usually Class action law suits are available in Portugal under the general individuals but, under some circumstances, commercial entities can class actions rules and, in particular, under the Portuguese Securities also be classified as such. Non-professional investors generally Code. This Code gives non-professional investors and associations benefit from greater protection under Portuguese law, as they are that protect investors in financial instruments (under some treated as consumers for the purposes of financial intermediation circumstances) a class action right to protect individuals’ shared agreements and benefit from protection resulting therefrom and interests or the collective interests of this class of investor. Class from the stricter duties of conduct imposed on financial institutions actions have seen a large increase in the wake of the recent financial and financial services providers. Moreover, the Portuguese crisis, which saw the collapse of important financial and credit Securities Code also gives non-professional investors that invest in institutions including: Banco Espírito Santo, S.A.; Banco Português financial instruments (and the associations that protect those de Negócios, S.A.; and Banif – Banco Internacional do Funchal, investors) a class action right to protect individuals’ shared interests S.A. Against this background, Portugal witnessed a significant or the collective interests of this class of investor. increase in class action law suits brought by groups of customers and investors, and by consumer protection organisations. Several

ICLG TO: FINANCIAL SERVICES DISPUTES 2019 WWW.ICLG.COM 117 © Published and reproduced with kind permission by Global Legal Group Ltd, London 118 Portugal intermediaries issubjecttoatwo-year limitationperiodfromthe Portuguese SecuritiesCodeestablishes thattheliabilityoffinancial may besubjecttostatutorytime limitations. Forinstance,(i)the Depending onthegroundsof claim, financialservicesdisputes 2.2 poses onafinanciallevelarealsoissuestobeconsidered. opponents andthelengthofjudicialcasesextrapressurethis customers face. The factthat theyarelitigatingagainstwell-funded financial expertiseareamongstthemostrelevantobstaclesthat litigating againstfinancialinstitutions.Litigationcostsandlackof as customer-friendly, customersstillexperiencesome barriersto Whilst Portugueselawandthecourtscanbedescribed should beconsideredunfairandhencenullvoid. clauses theyarerelevanttodeterminewhethercontractual relevant tohelpinterpretcontractsandwithregardsstandard financial intermediationagreement. These representationsarealso courts whenassessingtheobligationsassumedbypartiesina misrepresentations areusuallytakenintoaccountbyPortuguese Although thisisacontroversialissue,pre-contractual they arecommunicatedinwritingtothecustomer. execution-only regimearevalidunderPortugueselaw, provided that applytothefinancialinstitutionswithinscopeof in thecontextofmis-selling,clausesexcludingsuitabilityduties of clauses excludingorlimitingaparty’s contractualliability, incases Even iftheypassthecommunicationtest,standardclausessuchas of thecase,bedeemedinvalid). list oftheclausesthatare void (thePortugueseStandardContracts Act setsoutanindicative customer andanystandardclausesagainstgoodfaitharenull clauses areonlyvalidiftransparentlycommunicatedtothe Another generalruleisthatstandardexclusionaryordutydefining cases againstfinancialinstitutionsorservicesproviders. clauses aimedatpreventingorhamperingcustomersfrombringing As ageneralrule,Portugueselawseekstomitigatetheeffect of 2.1 Santo, S.A.). to somefinancialandcreditinstitutions(includingBancoEspírito Bank ofPortugalseekingtoreversetheresolutionmeasuresapplied (CMVM)). Classactionlawsuitshavealsobeentakenagainstthe Portugal andthePortugueseSecuritiesMarketCommission Portuguese Stateandtheregulatorybodies(theBankof their boardmembers,externalauditorsandevenagainstthe same economicgroup–werebroughtagainstfinancialinstitutions, issued orplacedbythoseinstitutionsotherinthe – mainlyasaconsequenceofinvestinginfinancialinstruments class actionsseekingcompensationforthelossanddamagesuffered PLMJ © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM date thecustomer acknowledgestheconclusionof agreementor 2 dolus What arethemainbarrierstofinancialservice Before CommencingProceedings clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary orseriousfault,maybedeemednullandvoid.Conversely,

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2.4 outside oftheattorney-clientrelationship. attorney-client privilege.Conversely, nolitigationprivilegeexists communications betweenalawyerandtheirclientareprotectedby The PortugueseBar Association Statuteprovidesthatany 2.3 proceedings doesnot“stoptheclock”. which therelevantlegalclaimscanbebrought.Startingregulatory The abovelimitationperiodsarethemaximumwithin the agreement),initsturn,issubjecttoaone-yearlimitationperiod. and thecustomerbasedonarelevanterror(relatingtoobjectof entered intobetweenthefinancialinstitutionsorserviceproviders liability, and(iii)theannulmentofagreements/transactions and ageneral20-yearlimitationperiodforcasesofcontractual limitation periodofthreeyearsforcasesnon-contractualliability which appliesonasubsidiarybasistofinancialservices,provides 20-year limitationperiodapplies),(ii)thePortugueseCivilCode, serious misconductofthefinancialintermediary, whereageneral transaction andofitsactualterms(exceptincases specialist court. Competition, RegulationandSupervision Court,whichisa regarding regulatoryinfringements areheardbeforethe judicial reviewoftheBankPortugal andtheCMVM’s decisions customers arebroughtinthecommon civilcourts.Conversely, the between financialinstitutionsor servicesprovidersandtheir judges forfinancialserviceslitigation. Any disputesarising In Portugal,regardingcivilclaims,therearenospecialistcourtsor 3.1 governed differently bytheparties. them, exceptforthesecrecyduty, whichcanbemitigatedor are mandatoryandthereforeitisnotpossibletocontractoutof duties andofsecrecy. The legalrulesonthesetypesofduties well asrespectfortheinterestsentrusted,informationandassistance having ahightechnicalcompetence,diligenceandtransparency, as contractual duties(i.e.,legalduties). These includethedutiesof Portuguese financialinstitutionsaresubjecttoseveralnon- 2.5 thus, subjecttothePortugueseStandardContracts Act. types ofagreementsareusuallytreatedasstandardcontractsand, institutions inswapsorotherOTCderivativestransactions. Those Agreements) arecommonlyusedbyPortuguesefinancial Standard formmasteragreements(especiallytheISDA Master 3 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howarethey treated?

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3.3 signed orratifiedtheConvention. Commercial Matters,providedthatthecountriesinquestionhave Service Abroad ofJudicialandExtrajudicialDocumentsinCivilor be effected undertheConventionof15November1965on Matters (ServiceofDocuments).OutsidetheEU,servicemust Judicial andExtrajudicialDocumentsinCivilorCommercial of 13November2007ontheServiceinMemberStates (EC) no.1393/2007oftheEuropeanParliamentandCouncil abroad butwithintheEUiseffected underthetermsofRegulation or bypublicnotice,dependingonthespecificsofcase.Service of receipt,throughanenforcementagent,acourtclerk,orlawyer; to allothertypesofcourtlitigation:byletterwithacknowledgment No, serviceofproceedingsforfinanciallitigationissimilar 3.2 PLMJ © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 provided, orto whomanyrightsaretransferred, fornon- individual oracommercialentity, towhomgoodsorservicesare Under Portugueselaw, “consumer”meansanyperson,whetheran 3.6 refer toquestion2.2above). other typeofcommoncivilclaim,saveforlimitationperiods(please subject toanyspecificrulesandaredealtonthesamebasisas In Portugal,claimsfornegligentmisstatement/mis-sellingarenot 3.5 are notoftenusedtoresolvefinancialservicesdisputes. the partiestofinancialservicescontracts,otherformsof ADR Nevertheless, exceptforarbitration,whichiscommonlyagreedby securities marketsorissuers. independent consultants,andthemanagementbodiesof investors asregardstheactivitiesoffinancialintermediaries, conflict. This servicealso seekstoprotectnon-institutional Service aimedatmediatingbetweenthepartiesandresolving arbitration. Inparticular, theCMVMprovidesaConflictMediation ADR providedforinPortugueselaw:mediation;conciliation;and Financial servicesdisputescanbesettledbyanyoftheforms 3.4 with thoseproceduresmaygiverisetocontractualliability. parties agreetosometypeofpre-trialprocedures,non-compliance procedures tobefollowedforfinancialserviceslitigation.Ifthe Unless otherwisecontractedbytheparties,therearenopre-trial jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypically included regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecifically toconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling

3.7 terms instandardcontracts. proponent, amongothers,thusprotectingtheconsumerfromunfair protection; or(iv)limitchangetheobligationsundertakenby (iii) excludeorlimitinadvancethepossibilityofrequestingjudicial proponent theexclusiverighttointerpretanyclauseofcontract; liability, incasesof prohibits clausesthat:(i)excludeorlimitaparty’s contractual could impactthebalanceofcontract.Forexample, Act good faithareforbiddenandprohibitsawiderangeofclausesthat Contracts Act provisions,whichprovidethatanyclausesagainst Consumers mayalsobenefitfromthePortugueseStandard consumer. clauses thatcauseasignificantimbalancetothedetrimentof service providersarepreventedfrommakinguseofanycontractual conclusion oftheservicecontract.Moreover, underthatsameLaw, seven workingdaysofthedatereceiptgoodsor or services,theconsumermaywithdrawfromcontractwithin insufficient orunclearandcompromisestheproperuseofgoods Consumer ProtectionLaw, whenevertheinformationprovidedis provider towardstheconsumers.Forinstance,underPortuguese which isparticularlystrictontheinformationdutiesofservice Consumers benefitfromgreaterprotectionbyPortugueselaw, economic activityaimedatobtainingbenefits. professional usebyapersonengaged,onbasis,inan exceeds EUR30,000. to theSupremeCourtwhenvalue attributedtotheproceedings 5,000 and,inturn,thedecisionsof the appealcourtmaybeappealed court whenthevalueattributedto theproceedingsexceedsEUR decisions ofthefirstinstancecourt maybeappealedtotheappeal specific circumstancesinwhich the appealisalwaysallowed, same generaltermsasanyothercivil dispute:generally, andsavefor Judgments infinancialservicesdisputesaresubjecttoappealthe 4.1 request andbybalancingtheinterestsatissueincase). by anappealcourtortheSupremeCourt,atopposingparty’s information coveredbysecrecy(thecan,however, belifted secrecy canbeinvokedtoopposeanydiscoveryrequestsrelating secrecy. As aresult,andasrule,commercialorprofessional In addition,Portugueselawprovidesforcommercialandbank specifically requiredandthefactsintendedtobeprovenwiththem. documents mustidentifyasmuchpossiblethe so-called fishingexpeditionsarenotpermittedandallrequestsfor In turn,discoveryisonlypermittedinrestrictedterms:forinstance, Portuguese lawdoesnotimposeadutyofdisclosureontheparties. personal data,eitherbymeansofanin-orout-of-courtrequest. relevant interestinaccessingthem.Customerscanalsoaccesstheir but alsotoanyattorneyandthirdpartythatevidencesa that thesecourtfilesarepubliclyavailablenotonlytotheparties, for injunctionsorifotherwisedeterminedbythecourt. This means Like mostcivilclaims,financialserviceslawsuitsarepublic,save 4 How isdataprotection/freedomofinformationdealt disputes? Is therearightofappealinfinancialservices Post Trial dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana

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119 Portugal 120 Portugal instance, Portuguesecourtshaverecently declinedjurisdictionover jurisdiction clausesattributing toforeigncourts(for financial servicesdisputes. This happensusuallyinfaceof valid Yes, it iscommonforPortuguesecourtstodeclinejurisdictionover 5.3 delays theprogressandconclusionoflawsuits. extremely lengthy(andthereverseisalsotrue)whichsubstantially In spiteoftheabove,co-operationPortugueseentitiesis other foreignindividualsorentities. states andallowdirectcommunicationbetweentheirauthorities seek tostrengthenandfacilitateco-operationbetweenthesignatory and the1970EvidenceConvention. These internationalagreements context, suchastheConventionof1March1954onCivilProcedure some importanttreatiesandconventions,especiallyintheEU through consularordiplomaticchannels. Yet, Portugalispartyto of rogatorylettersaddressedtoforeigncourtsorentitiesandsent requests, anyevidentiaryproductionorjudiciaryacts)bymeans are somewhatrigidandonlyprovideforco-operation(information Portuguese proceduralrulesonco-operationwithforeignentities 5.2 and foreignbodyoverthefactsunderinvestigation. difficulties relatetoestablishing thejurisdictionofPortuguese investigations carriedoutbytheregulatorybodies,main clauses andontheapplicablelaw. When itcomestothe law. This typeofissueiscommonlypreventedthroughjurisdiction these areresolvedunderthegeneralrulesofprivateinternational determining theapplicablelawandcompetentjurisdiction, The issuesthattypicallyariseincross-borderdisputesrelateto 5.1 economic utilityoftheclaim. attributed totheproceedings,which,inturn,dependson disputes. InPortugal,courtcostsaredirectlyrelatedtothevalue There arenospecificrulesregardingcostsinfinancialservices 4.2 a secondinstancejudgmentonthefacts. only decidesonmattersoflawand,asageneralrule,cannotreview Supreme Courtinverynarrowcircumstances. The SupremeCourt decisions onproceduralmatterscanonlybesubjecttoappealthe similar groundsandwithoutanydissentingopinions. Appeal court instance courtjudgmentisupheldbytheappealonbroadly Appeal totheSupremeCourtisexcluded,however, ifthefirst the defendants–canbesubjecttoappealSupremeCourt. otherwise extinguishtheproceedings–inrelationtooneorallof Only theappealcourtdecisionsonmeritsofcaseorthat PLMJ © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM several disputes related withstandardformmaster agreements– 5 services disputes? How doesthecourtdealwithcostsinfinancial your jurisdictionand,ifso,inwhat circumstances? Is extra-territorialjurisdictiontypicallyassertedin disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues

that mayresultintheapplicationofafinetofinancialinstitution. customers. They maythenopenadministrativeoffence proceedings regulated servicesproviders’ activityand/orconducttowardstheir customer’s complaint,inspect andassessfinancialinstitutions CMVM may, however, bytheirownmotionorfollowinga on financialservicesdisputes. The BankofPortugalandthe can awardcompensationtocustomersorthefinancialinstitutions In Portugal,onlycourts(andtheformsof ADR referredtoabove) 6.1 other party. and providedthatitdoesnotinvolveseriousinconveniencetothe on aseriousinterestofbothpartiesor, atleast,ofonetheparties agreed bybothparties.Moreover, thistypeofclausemustbebased No. UnderPortugueselaw, jurisdictionclausesareonlybindingif 5.4 a foreignparty). ISDA Master Agreements –enteredintobetweenaPortugueseand agents aresafeguarded. with someinformationduties),to ensurethemarketsandtheir activities/functions tocertainconditions (forinstance,compliance the infringerorsubjecting the engagementinthose preventive suspensionoftheactivities orfunctionscarriedoutby precautionary measuresagainstthe infringers. These include the Both theBankofPortugalandCMVMmayalsoimpose transmission. disclosure oftelephonerecordsorothermeansdata related tothecrime;andaskcompetentauthoritiesfor freeze orinspectanydocuments,assetsotherobjectspossibly items, documentsandinformationfromanypersonorentity;seize, investigation, amongotherthings,itcan:demandorrequireany also decidetoopenapreliminaryinvestigation.Inthis securities orotherfinancialinstrumentsmarket,theCMVMmay acknowledges anyfactsthatmaybeconsideredacrimeagainstthe the investigationinproceedingsunderitscompetence.Onceit person orentityforalltheclarificationsandinformationneeded or otherobjectsrelatingtotheinfringement.Itmayalsoaskany handing overorproceedwiththeseizureofanydocuments,assets In administrativeoffence proceedings, theCMVMmayaskfor information relatingtocustomersortransactionsisstored. access totheirsystemsandfiles(includingcomputerfiles)where the supervisionofBankPortugalmustgiveitunrestricted freezing ofanysecurities.Duringtheinspections,entitiessubjectto the interventionofajudge. The BankofPortugalmayalsoorderthe homes andsearchesinlawyers’,auditors’ ormedicaloffices require seize anydocumentsorotherobjects.Onlysearchesandseizuresin proceedings, theBankofPortugalmaysearchanylocationsand investigative andinquisitorialpowers.Inadministrativeoffence The BankofPortugalandtheCMVMhaveawiderange 6.2 6 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/

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precautionary measuresappliedwithinadministrativeoffence obstruct orfrustratetheexecutionofancillarysanctions disobedience. The sameappliestothosewhofailcomplywith, obstacles totheirexecution,commitsthecrimeofqualified legitimate ordersoftheBankPortugalorCMVM,creates expressly providethatanyonewhorefusestocomplywiththe The PortugueseSecuritiesCodeandtheBanking Act of theentitiessubjecttosupervisionBankPortugal. holding anypositionsincorporatebodiesormanagementfunctions publication oftheadministrativedecisionandaprohibitionon loss oftheeconomicbenefitobtainedfrominfringement, applicable fine.Inbothcases,theancillarysanctionsinclude economic benefitobtainedbytheoffender exceedsthelimitof the infringementandtheymayalsobeincreasedifdoubleof may varybetweenEUR2,500and5,000,000,dependingon the limitofapplicablefine. The finesimposedbytheCMVM the doubleofeconomicbenefitobtainedbyoffender exceeds commercial entity).Furthermore,thesefinesmaybeincreasedif infringement andontheoffender (whetheritisanindividualor between EUR3,000and5,000,000,dependingonthe sanctions. The finesimposedbytheBankofPortugalmayvary These regulatorybodiesmayimposefinesand/orancillary PLMJ © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 the infringer–publicdisclosuremay beexcludedbytheregulators. ongoing criminalinvestigationorcause disproportionatedamageto stability orsoundnessofthefinancial markets,compromisean in whichthedisclosureofdecisionscouldjeopardise bodies’ websites.However, incertaincases–forexample,the offences aredisclosed,partiallyorinfull,ontherelevantregulatory CMVM thatholdtheinfringerhascommittedoneormoreserious As ageneralrule,thedecisionsofBankPortugaland 6.5 and SupervisionCourt. bodies mayalsobesubjecttoappealtheCompetition,Regulation case. Insomecircumstances,interimdecisionsfromregulatory Lisbon Appeal Court,althoughlimitedtothelegalaspectsof Decisions fromthiscourtmayalsobesubjecttoappealthe appealable totheCompetition,RegulationandSupervisionCourt. or anancillarysanction,thatimposeaprecautionarymeasure,are The BankofPortugalandtheCMVMdecisionsthatimposeafine 6.4 authority overthecourt. binding, thedecisionsofregulatorybodiesmayhavepersuasive documentary evidenceforlitigationpurposes). Although not regulatory bodies’ decisions,whichareonlytakenintoaccountas freely assesstheevidenceproducedbyparties(including litigation, courtsarenotboundbyanyregulatorydecisionsandcan parties toafinancialservicesdispute(noronthecourt).In No. The decisionsoftheregulatorybodiesarenotbindingon 6.3 proceedings. parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon accessible? Are decisionsofregulatorybodiespublicly exist? What rightsofappealfromregulatorydecisions

of financialinstruments. These changesincreasedthepowersof framework forfinancialintermediaryactivityandtothenegotiation August 2018,broughtsweepingchangestotheregulatory financial companies. The recent Lawno.35/2018,inforcesince changes inthecorporategovernanceofcreditinstitutionsand financial leveragelevels. They alsoincludedsomesignificant assumed bytheseentities),increasingliquiditylevels,andlowering the qualityofcapitalfinancialinstitutions(tosupportrisks through different prudentialmeasures. These included strengthening The stabilityandsoundnessofthefinancialmarketswerepursued stability ofthefinancialmarkets. legislation tosafeguardtheprotectionofinvestorsandprotect development ofthefinancialmarkets–madeitnecessarytoadopt and EUlegislation.Infact,suchadeepcrisis–alongwiththe The financialcrisisundoubtedlyhadaseriousimpactonPortuguese 7.1 bonds) soldatthebranchesofthese banks. As mentionedabove, in equityandotherfinancialinstruments (commercialpaperand resolution measures,whichcaused lossestothousandsofinvestors Espírito Santo,S.A.andBanif– Banco InternacionaldoFunchal customers andinvestors. This litigationarosefromtheBanco Portugal andtheCMVM–evenPortugueseState)by service providers(andagainsttheregulatorybodies–Bankof increase inthelitigationbroughtagainstfinancialinstitutionsand It isalsobeyondanydoubtthatthefinancialcrisisledtoamassive Funchal. Banco EspíritoSanto,S.A.andBanif–Internacionaldo test” inthefailureofsomeimportantinstitutions,asiscase including inrelationtoresolutionmeasures,whicharestill“under certainly besubjecttofurtherdevelopmentsinthecomingyears, authorities, financialinstitutionsandservicesproviders. They will legislative measuresarestillachallengetothePortuguese Although someyearshavepassed,thesenewpackagesand failure ontheeconomyandfinancialsystem. functions, whiletryingtominimisetheimpactofaninstitution’s continuity oftheinstitution’s criticalfinancialandeconomic sufficiently earlierinanunsound orfailinginstitution,toensurethe measures, whichwereprovidedwithanewsetoftoolstointervene supervision authorities’ powers,includingwithregardtoresolution New legislationalsosoughttoimproveandreinforcethe conflict-of-interest policies),amongseveralothers. organisation offinancialintermediaries (productgovernanceand collaborators, and(iii)introducedimportantchangestothedutiesof qualifications forfinancialintermediaries’ employeesand categorisation), (ii)requiredahighlevelofexperienceand evaluation oftheadequacyproductsandservicescustomers’ financial intermediariestowardscustomers(informationduties, instruments. The changesalso(i)increasedtheconduitdutiesof commercialisation, distributionorsellingofcertainfinancial intervention ofthenationalauthoritiestoprohibitorlimit 7 against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends

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121 Portugal 122 Portugal as wellinvestors’ claims(mis-sellingandotherwise). perimeter oftheassetsandliabilitiestransferredtobridgebanks, related totheeffects ofsuch measuresandthedelimitationof thus, themainnovelissuesraisedinfinanciallitigationareclosely Banif –BancoInternacionaldoFunchalresolutionmeasuresand, suffering fromtheimpact oftheBancoEspíritoSanto,S.A.and As mentionedabove,Portugalanditslitigationsystemarestill 7.3 comply withtheapplicablerulesandregulations. financial institutions(andservicesproviders)areadequateand quite demandingintheirassessmentofwhethertheactions towards them.Ontheothersideofsamecoin,theseentitiesare relationship. Therefore, theyadoptamoreprotectiveapproach turn, tendtolookatcustomersasthemostfragilepartyinafinancial investors themselves.Portuguesecourtsandregulatorybodies,in efficiency inthefinancialmarketsandprotectionof decisions made,whichcouldcertainlycontributetogreater education policiesandpersonalresponsibilityforinvestment towards theircustomersoverimplementingorpromotingfinancial increasing andreinforcingfinancialinstitutions’ dutiesofconduct jurisdiction. Indeed,asonecanseeabove,Portugalfavours The Portuguesejurisdictioncanbeconsideredacustomer-friendly 7.2 institutions. bodies ormembersofcorporateforthecollapsethose intermediaries’ dutiesofconductorontheliabilityregulatory these lawsuitshaveaparticularfocusonthebreachoffinancial PLMJ © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding

to aprogressiveincreaseofjudges’ expertiseinthisarea. financial servicesdisputesandlegislationthan10yearsago,leading Portuguese courtsarenowmoreexperiencedinandfamiliarwith of financialinstitutionsandservicesproviders.Furthermore,the increasingly moreconsciousabouttheirrights,andtheduties customers andinvestors,especiallynon-professionalare services litigationandregulationinPortugal.Financial Yes, globaleconomicchangescausedsometofinancial 7.4 the Euriborreferenceratesincontextof2008financialcrisis. terminated ormodifiedonthebasisofanunforeseenabruptfallin abnormal changeincircumstances”conceptand,therefore,canbe the referencerate,theyarestillcoveredby“unforeseeableand nature, interestrateswapagreementsinvolvetheriskofvariationin year, theSupremeCourtofJusticeheldthat,although,bytheir indexed toEuriborfollowingthe2008financialcrisis.Inpast example ofthisisthecaseabruptfallinratesinterest in circumstances”providedforthePortugueseCivilLaw. An aimed atmanagingacertainrisk–basedonthe“abnormalchange to terminateormodifyaswapagreement–which,bydefinition,is significant casesaddressingthequestionofwhetheritwaspossible In recentyears,thePortuguesecourtshavealsodealtwithsome ICLG TO: FINANCIAL SERVICESDISPUTES 2019 jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

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PLMJ © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Competition, RegulationandSupervisionCourt. regulatory andadministrativeoffence proceedingsbeforetheBankofPortugal,PortugueseSecuritiesMarketCommission(CMV and litigationinvolvingconsumerrights;pre-litigationrelatingtoD&Oliabilityinsuranceclaimsbydirectors construction financingandcontractualliability;derivatives;liabilityforissuingprospectusespublicoffers ofsecuriti sector. This teamcanprovidearesponsetothespecificneedsofsectorinlitigationandriskmanagementmattersincludi operating inPortugal,PLMJistheonlyPortugueselawfirmthathasateamoflitigationlawyersfocusedonrepresentingclien With manyyears’ experienceinworkingonthehighest-profilefinanciallitigationcasesPortugalandinternationally, invol key marketsforoutboundandinboundinvestmentinPortuguese-speakingcountries. Cape Verde. PLMJalsohasspecialiseddesks forFrance,Switzerland,Germany, theUnitedKingdom,Benelux,ScandinaviaandIta network thatincludespartnershipswithlocal,independentfirmsin Angola, Mozambique, China,Guinea-Bissau,São Tomé andPrín recognised foritsunparalleledqualityinadvisingPortuguese,internationalandforeigninvestmentclientsonawiderangeof stands outasafull-servicefirmthatoffers ahighdegreeofspecialisationgainedfromworkingacrossindustries,sectorsan PLMJ isPortugal’s largestandmostseniorlawfirmwithover280lawyers,including61partners.With50yearsofhistor international banks. several high-profilecourtcases,representingawiderangeofmajor and disputeresolutioncases.Shehasbeensuccessfullyinvolvedin litigation andrepresentsinternationalclientsinverycomplex from thefinancialsector. Ritaspecialisesinbankingandfinancial Litigation team.Shehasover15years’ experienceinadvisingclients Rita SamorenoGomesisapartnerinPLMJ’s BankingandFinance URL: Email: Tel: Portugal 1250-148 Lisboa Av. Liberdade,224 PLMJ Rita SamorenoGomes

www.plmj.com/en [email protected] +351 213197300

financial litigation. clients fromthefinancialsector. Rutespecialisesinbankingand Litigation team.Shehasalmost10years’ experience inadvising Rute MarquesisaseniorassociateinPLMJ’s BankingandFinance

URL: Email: Tel: Portugal 1250-148 Lisboa Av. Liberdade,224 PLMJ Rute Marques

www.plmj.com/en [email protected] +351 213197300

es; classactions;injunctions ofbankinginstitutions;and

mattersthroughitssolid

y andexperience,PLMJ WWW.ICLG.COM d countries. The firmis ving thelargestbanks ts fromthebanking

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123 Portugal Chapter 21 Singapore

Allen & Gledhill LLP Vincent Leow

1 Bringing a Claim – Initial Considerations There have also been recent amendments to Singapore law in 2017 to generally allow third-party funding for international arbitration and related proceedings (third-party funding contracts for other 1.1 What are the most common causes of actions taken types of proceedings remain generally unavailable). by or against financial institutions and service In particular, the 2017 amendments allowed third-party funding for providers in your jurisdiction? the following categories of proceedings: (a) international arbitration proceedings; The most common causes of action taken by or against financial (b) Court proceedings arising from or out of or in any way institutions and service providers in Singapore would be claims connected with international arbitration proceedings; under contract and/or tort. In relation to tort claims, they would (c) mediation proceedings arising out of or in any way connected generally include misrepresentation and/or negligence. with international arbitration proceedings; (d) application for the enforcement of an arbitration agreement, 1.2 What remedies are most likely to be awarded? including an application for a stay of Court proceedings; and (e) proceedings for or in connection with the enforcement of an The most common remedy is an award of damages. The Singapore arbitration award. Courts may, in certain cases, also award injunctive relief including Litigation insurance (in particular D&O policies) is used in specific performance where it is just and equitable to do so. Singapore, though this is still an emerging market. Litigation insurance may be utilised as a strategic tool to help businesses 1.3 Who has a right of action in financial services manage and mitigate litigation expenses. disputes? Does it make a difference if the customer is an individual or a commercial entity? 1.5 Are class action law suits available in your jurisdiction? If so, has this impacted financial This generally depends on the nature of the claim in question. services litigation? Has there been an increase in Generally, in a claim for breach of contract, only the contracting class action suits post the financial crisis? parties would have the right of action. Third parties (including subsidiaries of the contracting parties) are generally excluded save Singapore law does not recognise class action law suits insofar as in certain limited circumstances such as if the contract expressly this is conventionally referred to in the United States of America. provides that the third party can make a claim under the contract. However, Singapore law provides for representative proceedings in which a single person can commence a proceeding on behalf of As for a claim in tort, this would depend on the tort in question. In various persons who have the same interest in any proceedings. claims for negligence, the party commencing the action would have to establish that he is owed a duty of care. Whether the customer is an individual or a commercial entity does 2 Before Commencing Proceedings not generally affect the right of action.

2.1 What are the main barriers to financial service 1.4 Is third-party funding available in financial services litigation for customers? Are there exclusionary litigation (crowdfunding, maintenance, champerty, clauses or duty defining clauses in customer etc.)? Does litigation insurance operate in your contracts which prevent customers from bringing a jurisdiction and, if so, what are the implications for case? this? The main barriers to financial service litigation would include the Third-party funding is generally prohibited for contravening the costs of litigation as well as the contractual limitations to liability. laws of maintenance and champerty. However, there is some For the latter, it is common for customer contracts to include clauses Singapore case law where the Courts have allowed limited litigation to exclude or limit the financial institution’s/service provider’s funding where there is a legitimate interest by the funder in the liability for any representation, statement, act or omission litigation. (including negligence but excluding fraud). It is also common to

124 WWW.ICLG.COM ICLG TO: FINANCIAL SERVICES DISPUTES 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London The limitationperiod,however, doesnotvarysimplybecausethe have beendiscoveredwithreasonablediligence(whicheverisearlier). starts torunfromthetimefraudisactuallydiscoveredorcould example, incasesinvolvingfraud,thelimitationperiodgenerallyonly years, thoughthisperiodcanbeextendedincertainsituations.For The limitationperiodforclaimsincontractandtortisgenerallysix 2.2 unless exercisedinanarbitrary, capriciousorirrationalmanner. the Courtswillgenerallynotinterfereinexerciseofsuchdiscretion institution/service providerhasthediscretionincertainmatters,and The contractmayalsoexpresslyprovidethatthefinancial uphold theseclauses. are owedtothecustomer. The SingaporeCourtswillgenerally include dutydefiningclausestosetoutclearlytheobligationsthat Allen &GledhillLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Financial institutions (whichincludebanks,finance companies, 2.5 unconscionability). except whereanyvitiatingfactorsapply(e.g.undueinfluence, by consent.Generally, theSingaporeCourtsupholdsuchclauses transactions. The termsofsuchagreementsmay, however, bevaried agreements suchastheISDA Master Agreement forapplicable Financial institutionsinSingaporedousestandardformmaster 2.4 can beprotectedunderlegaladviceprivilege. However, thelegaladvicegivenincourseofinvestigation considered “litigation”inthecontextoflitigationprivilege. Investigations conductedbyregulatedbodiesarenotgenerally requirements aresatisfiedislargely aquestionoffact. created forthedominantpurposeoflitigation. Whether ornotthe reasonable contemplationoflitigationandthedocumentwas Litigation privilegecoversanydocument,providedthattherewasa have becomeacquaintedwith,andtheadvicegiventocustomer. the customer’s lawyers,documents whichthecustomer’s lawyers Generally, legaladviceprivilegecoverscommunicationsmadeto respective requirementsaremet. themselves oflitigationand/orlegaladviceprivilegeifthe Parties infinancialserviceslitigationmaygenerallyavail 2.3 generally “stoptheclock”. Courts. The commencement ofaregulatoryprocessdoesnot proceedings arebroughtbeforearegulatorybodyinsteadofthe considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices they becontractedoutof? particular fiduciarydutyoracode ofconduct)?Can binding onfinancialservicesentities (forexample,a Are thereanynon-contractualduties whichare ISDA Master Agreement)? Howaretheytreated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour

Singapore InternationalCommercialCourt(SICC)wherethe Where thedisputeistransnationalinnature,itmaybeheardby hear suchmatters. litigation aregenerallyplacedbeforeaspecialistlistofjudgeswho hearing financialserviceslitigationalthough The SingaporeHighCourtdoesnothaveaspecialistfor 3.1 Contract Terms (UCTA)).Act such limitationisexcludedbystatute(forexample,undertheUnfair is possibletolimitthescopeofthisdutybycontractsavewhere generally oweatortiousdutyofcaretotheircustomersalthoughit Further, financialserviceentities(andtheirrepresentatives)would established categoriesofrelationshipsorbycontract. relationship generallyarisesonlyifitfallswithinoneofthe In regardstofiduciaryobligations,underSingaporelaw, afiduciary Conduct whichdonothavetheforceoflaw. Association ofBanksinSingaporePrivateBankingCode Singapore. There arealsoself-imposedcodesofconductsuchasthe imposed bytheregulator, namelytheMonetary Authority of insurance companies,etc.)aresubjecttovariousregulations commercial disputeswouldapply, andthegeneraltrendisthat ADR services disputes. The generalframeworkthatapplies to There arenospecific ADR regulations thatapplytofinancial 3.4 procedures thatarespecifictofinancialserviceslitigation. as thoseforgeneralcivildisputes. There arenoadditionalpre-trial The pre-trialproceduresforfinancialserviceslitigationarethesame 3.3 located outsideSingapore. jurisdiction, andleaveoftheCourtisrequiredifdefendant Court documentspersonallyonthedefendantwithin service litigation.Generally, theclaimantwillhavetoserve The methodofserviceproceedingsdoesnotdiffer forfinancial 3.2 a casetobetransferredfromtheHighCourtSICC. the formofaprerogativeorder. Additionally, itisalsopossiblefor jurisdiction agreement;and(c)thepartiesdonotseekanyreliefin parties havesubmittedtotheSICC’s jurisdictionunderawritten the claimisofaninternationalandcommercialnature;(b) High Courtandithasthejurisdictiontoheartryanactionif:(a) jurisdictional requirementsaremet. The SICCisadivisionofthe 3 financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase jurisdiction? used toresolvefinancialservices disputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypicallyincluded regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor

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125 Singapore 126 Singapore ■ ■ ■ namely: certain specifiedobligationsowedundertheFinancial Advisers Act, may bepossibleforthecustomertomakeaclaimbreachof Separately, wherethedefendantisalicensedfinancialadviser, it defendant breacheditsdutytocausetheclaimantsuffer loss. show thatitisowedadutyofcarebythedefendant,and For aclaiminnegligentmisstatement,theclaimantgenerallyhasto statement offactwhichinducedtheclaimanttoenterintocontract. the claimantgenerallyhastoestablishthatdefendantmadeafalse negligent misstatement.Foraclaimincontractualmisrepresentation, may beframedasanactionforcontractualmisrepresentationor Under thecommonlaw, aclaimfornegligentmisstatement/mis-selling (Cap 110, Rev. Ed.2007). with underthecommonlaworFinancial Advisers Act Claims fornegligentmisstatement/mis-sellingaregenerallydealt 3.5 This optionis,however, notavailabletofinancialinstitutions. through otheravenues(e.g.bycommencingfreshCourtproceedings). consumer isentitledtorejectthedecisionandpursuecomplaint adjudicators. However, asthedecisiondoesnotbindconsumer, the There isnoappealfromthedecisionofadjudicatororpanel binding onthefinancialinstitution,butnotconsumer. The decisionoftheadjudicatororpaneladjudicatorsisfinaland appointed byFIDReC. adjudicated eitherbyasingleadjudicatororpanelofadjudicators If thedisputecannotbesettledbymediation,itwillheardand In appropriatecases,FIDReC’s casemanagermediatesthedispute. the partiesarefirstencouragedtoresolvedisputebymediation. After aconsumerfilescomplaintwithinFIDReC’s jurisdiction, S$100,000 perclaim. or sole-proprietors.Unlessotherwiseagreed,thereisalimitof Access toFIDReCisavailableallconsumerswhoareindividuals subscribe asmembersofFIDReC. institutions thathavedealingswithretailconsumersarerequiredto insurance andfinancialsectorsinSingapore. All regulatedfinancial provide an ADR schemeformosttypesofdisputesthebanking, The FIDReCisanindependentinstitutionthatwassetupin2005to Ltd (FIDReC). be resolvedattheFinancialIndustryDisputesResolutionCentre However, itiscommonforlowvaluefinancialservicesdisputesto services contracts. clauses (includingarbitration)areoftenincludedinfinancial Allen &GledhillLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM the recommendation. financial adviserdoesnothaveareasonable basisformaking reasonably beexpectedtorelyon the recommendationif with respecttoaninvestmentproduct toapersonwhomay Third, thefinancialadvisermustnot makeanyrecommendation have knownthatthestatementisfalseormisleading. statement istrueorfalseitknowsoughtreasonablyto breached ifthefinancialadviserdoesnotcarewhether product orfinancialadvisoryservice. This obligationis false ormisleadingstatementinrespectofanyinvestment Second, thefinancialadviserhasanobligationnottomakea client. product thatitrecommendstoeveryclientandprospective material informationrelatingtoanydesignatedinvestment First, thefinancialadviserhasanobligationtodiscloseall dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling

dealing asconsumercannotbemadetoindemnifyanotherpersonin can befoundinsection4oftheUCTA, whichprovidesthataperson contract inthecourseofabusiness. An exampleofsuchprotection himself outasdoingso;and(b)theotherpartydoesmake neither makesthecontractincourseofabusinessnorholds “dealing asconsumer”. A person“dealsasconsumer”if:(a)he The UCTA alsoprovidesspecificprotectionsforanyperson answered onlybyhavingregardtoallthecircumstances. reasonable. Reasonablenessisaquestionoffactwhichcanbe losses arisingfromnegligencemaybeexcludedorrestrictedonlyif personal injuryresultingfromnegligence.Liabilityforallother UCTA prohibitstheexclusionorrestrictionofliabilityfordeath other breachofdutycanbecontractedoutof.Forexample,the extent towhichcivilliabilityforbreachofcontract,negligenceor applicable. The firstistheUCTA, whichimposeslimitsonthe In additiontothecommonlaw, therearetwostatuteswhichmaybe is againsttheinterestsofdrafter. meaning ofaterm,theCourtmayinterpretterminmannerthat form contract,intheeventthatthereisanyambiguityasto Under thecommonlaw, wherethecontractinquestionisastandard 3.6 other thantheindividualwhomade therequest. threaten thesafetyorphysical mentalhealthofanindividual provision ofthatpersonaldatacould reasonablybeexpectedto providing thepersonaldataincertain situations,suchasifthe frivolous orvexatious.Organisations arealsoprohibited from are notrequiredtoprovidethepersonaldataifrequestis request. However, thereareexceptions.Forexample,organisations soon asreasonablypossible,anindividual’s personaldataupon obligation underthePersonalDataProtection Act toprovide,as Generally, allorganisations, includingfinancialinstitutions,havean A financialservicescustomercanaccesshis/herpersonaldata. 3.7 individual. goods orservicesthathavebeenaretobesuppliedanother from asupplier, or(b)hasalegalobligationtopaysupplierfor business, (a)receivesorhastherighttoreceivegoodsservices an individualwho,otherwisethanexclusivelyinthecourseof action againstthesupplier. UndertheCPFTA, a“consumer”means practice, theCPFTA providesthattheconsumermayhaveacauseof Where aconsumerhasenteredintotransactioninvolvinganunfair financial productsandservices)thatdonotconformtocontract. additional rightsinrespectofgoodsandservices(including protect consumersagainstunfairpracticesandtogivethem Protection (Fair Trading) Act (CPFTA). The CPFTA wasenactedto The secondstatutethatmaybeapplicableistheConsumer determined byhavingregardtoallthecircumstances. reasonable. Again, reasonablenessisaquestionoffactthathastobe or breachofcontract,exceptinsofarasthecontracttermis respect ofliabilitythatmaybeincurredbytheotherfornegligence ICLG TO: FINANCIAL SERVICESDISPUTES 2019 jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt

Singapore

S$50,000, andleaveofCourtisotherwiserequired. the amountindisputeorvalueofsubject-matterexceeds Courts, thereisanautomaticrightofappealtotheHighCourtwhere Generally speaking,wherethedisputeisheardbeforeState 4.1 or confidentialinformation. where theCourtfileordocumentcontainscommerciallysensitive or aspecificdocumentbesealedagainstaccessbythirdparties It isalsopossibletoapplytheCourtforanorderthatfile discovery isgiven,unlessleavegrantedbytheCourttodoso. disclose suchinformationotherwisethanintheproceedingswhich would provideanimpliedundertakingtotheCourtnotuseor That beingsaid,thepartytowhominformationisdisclosed not agroundforrefusingtodisclosetheinformationindiscovery. The factthatinformationiscommerciallysensitiveorconfidential Allen &GledhillLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 dispute. This islargely aquestionoffact. jurisdiction hasthemostrealand substantialconnectiontothe inquiry involves(butisnotlimited to)aconsiderationofwhich foreign jurisdiction)isthenaturalforum tohearthedispute,and Singapore Courtswoulddetermine whichforum(Singaporeorthe However, ifthereisnoapplicablejurisdiction clause, thenthe enforce theclauseunlessthereisstrongcausefornotdoingso. (in favourofSingapore),theSingaporeCourtswouldgenerally where thepartieshaveagreedtoanon-exclusivejurisdictionclause Singapore Courtwouldgenerallyenforcethatclause.Similarly, Where thepartieshadagreedtoanexclusivejurisdictionclause, inquiry startswithwhetherthereisanapplicablejurisdictionclause. jurisdiction inwhichthedisputeshouldbeheard.Inthisregard, In cross-borderdisputes,oneissuethatnormallyarisesisthe 5.1 Court. would usuallyhaveregardtotheguidelinessetoutinRulesof costs, thoughforcertaincases(e.g.defaultjudgmentapplications)it The Courtultimatelyhasthediscretiontodeterminequantumof litigation). if thesuccessfulpartyactedunreasonablyincourseof from thisprincipledependingonthecircumstancesofcase(e.g. of thesuccessfulpartyatlitigation,thoughCourtmaydepart speaking, theCourtwillnormallymakeanawardofcostsinfavour Costs areawardedatthediscretionofCourt.Generally 4.2 exceeds S$250,000,andleaveofCourtisotherwiserequired. where theamountindisputeorvalueofsubject-matter Court, thereisanautomaticrightofappealtotheCourt Appeal Generally speaking,wherethedisputeisheardbeforeHigh 4 5

services disputes? How doesthecourtdealwithcostsinfinancial disputes? Is therearightofappealinfinancialservices Post Trial how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues

The SingaporeCourtsdonotunilaterallycooperatewithforeign 5.2 between theChinaSecuritiesRegulatoryCommission. People’s BankofChina,andaMemorandumUnderstanding Financial Technology (FinTech) Cooperation Agreement withthe and exchangedcooperationagreementswithChina,includinga counterparts. Forexample,inNovember2018,Singaporeconcluded strengthening internationalcooperationwiththeirforeign Presently, Singaporeregulatorshavetakenvariousstepstowards foreign jurisdictions. documents/evidence isoftencircumscribedbythelawsof financial institutionand/orregulatortoobtainthese often locatedoutsideSingapore.Insuchinstances,theabilityof As forthelatterissue,locationofdocuments/evidenceis of anyinvestigation. aware ofthesedifferences andaddressthematthecommencement between jurisdictions.Hence,thefinancialinstitutionshavetobe difference inthetreatmentoflegaladviceand/orlitigationprivilege With respecttothefirstissue,onekeyfactorthatarisesis difference inlawsandthelocationofdocuments/evidence. In cross-borderinvestigations,twoissuesthatoftenariseisthe clauses. Courts willrequirestrongcausebefore decidingnottoenforcesuch valid andenforceableinSingapore. Generally, theSingapore sue inaparticularforumwhilethe otherpartyisnotsobound,are Unilateral jurisdictionclauses,inwhich onlyonepartyisboundto 5.4 and reasonablyforeseeableeffect inSingapore. in question,whilecommittedoutsideSingapore,hasasubstantially Futures Act providesthatextraterritorialitycanbeassertediftheact for actscommittedoutsideSingapore),whiletheSecuritiesand Singapore citizensmayincurcriminalliabilityineven jurisdiction insofarasSingaporecitizensareconcerned(i.e. Prevention ofCorruption Act providesforextraterritorial By wayofanexample,foroffences relatingtocorruption,the offences. Extraterritorial actsmay, incertaincases,alsoconstitutecriminal the specificlawinquestion. extraterritorial jurisdiction. The scopeofsuchapplicationturnson the SingaporeParliamenthasenactedlawsprovidingfor However, theremaybeexceptionstothisgeneralprinciplewhere over persons,propertyandactswithinthejurisdiction). Generally, Singaporelawsonlyapplyonaterritorialbasis(namely, 5.3 the lawgoverningthoseapplications. behalf oftheforeignentity, andmakedeterminationsaccordingto the partytolitigationor Attorney GeneralofSingaporeon Courts wouldhearapplicationsthatarenormallybroughteitherby Courts orregulatorybodiesofficials. Instead,theSingapore disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin

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127 Singapore 128 Singapore 16% againstgeneralinsurers. The balancewereagainstindividual life insurers,44%wereagainstbanks andfinancecompanies FIDReC received893complaints, outofwhich32%wereagainst This shouldbecomparedtothe previousfinancialyearwhere financial advisersandbrokersorcapital marketsserviceslicensees. were againstgeneralinsurers. The balancewereagainstindividual insurers, 33%wereagainstbanksandfinancecompanies,14% received 1,251complaints,outofwhich47%wereagainstlife For example,forthefinancialyearended30June2018,FIDReC are nowresolvedbywayof ADR methods. financial serviceprovidersinthepastyear, althoughmorematters There arenosignificantchangesintheclaimsbroughtbyoragainst enhancement ofregulatorysanctionsformarketmisconduct. of safeguardsforprotectingretailinvestorsaswellthe provide foradditionalregulatoryscrutinyincludingtheprotection The SingaporeSecuritiesandFutures Act wasrecentlyamendedto 7.1 This isnotapplicableinourjurisdiction. 6.5 This isnotapplicableinourjurisdiction. 6.4 This isnotapplicableinourjurisdiction. 6.3 including investigation,overfinancialinstitutionsthatitregulates. The Monetary Authority ofSingaporehasextensivepowers, 6.2 address anycomplaintsthatareraisedtoitbyconsumers. is theprimaryregulatoroffinancialinstitutionsinSingaporeanditwill disputes inSingapore.However, theMonetary Authority ofSingapore There isgenerallynobodythatspecificallyregulatesfinancialservices 6.1 Allen &GledhillLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM financial advisers andbrokersorcapitalmarketsservices licensees. 7 6 have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon

and heldthatthecontractualdocumentationclearlyshowed of itsfiduciaryduties. The Courtrejectedthecustomer’s arguments bank’s claimonthebasisofmistakeandthatbankwasinbreach agent withanotherthirdparty. Hence,thecustomerdenied under thebeliefthatswapwouldbeeffected bythebankasits swap agreement.Initsdefence,thecustomerclaimedthatitwas result ofthecustomer’s wrongfulrepudiationofthecommodity heard intheSICC. The bankhadclaimedforlossessuffered asa customer inrelationtoacommodityswapagreement. This casewas [2018] 4SLR87)involvedadisputebetweenbankandits The firstcase( disputes thatweredecidedin2018. We havesetoutbelowthreecasesregardingfinancialservices 7.3 friendly. Singapore isgenerallyviewedasbeingmorefinancialinstitution- 7.2 party topersuade the Courtnottoenforcesuchclauses. jurisdiction clauses,anddemonstrates thehighthresholdrequiredfora the SingaporeCourtswouldrespect partyautonomyinrelationto to proceedinSingapore. This decisionhighlightstheextentto which this wouldnotinitselfbesufficient fortheCourttoallowlitigation Hence, eveniftheplaintiff hasanopen-and-shutcaseonthe merits, merits ofanydefencethatthedefendant intendstoraiseareirrelevant. Singapore Courtof Appeal departedfromprecedentandheldthatthe substantive claim(i.e.theplaintiff hasanopen-and-shutcase). The defendant isunabletoraiseanymeritoriousdefencetheplaintiff’s jurisdiction clauseinfavourofaforeignjurisdiction,evenwherethe whether tograntastayofproceedingsgiveeffect toanexclusive services disputes. This caseinvolvedtheCourthavingtodecide clause whichisarelevantconsiderationinmostcross-borderfinancial Courts’ approachtowards givingeffect toan exclusivejurisdiction involve afinancialservicesdisputebutitillustratestheSingapore International Trading PteLtd The lastcase( have exerciseditscontractualdiscretionimproperly. and ahighthresholdhastobecrossedbeforepartycansaid demonstrates thattheCourtswouldrespecttermsofcontract capricious orperversemanner, orinbadfaith. This case evidence thatthebankexerciseditsdiscretioninanarbitrary, not inanarbitrary, capriciousorperversemanner. There wasno subject onlytothebankexercisingsuchdiscretioningoodfaithand whether toacceptanyincomingpayment,andthisdiscretionwas between thepartiesconferredonbankdiscretiontodecide Court rejectedthecustomer’s claimafterfindingthatthecontract refusing toacceptincomingpaymentsintoitsaccount. The High SGHC 143)involvedacustomer’s claimagainstitsbankfor The secondcase( established categoriesofrelationshipsorbycontract. relationship generallyarisesonlyifitfallswithinoneofthe have existed. This caseservesasareminderthatfiduciary fiduciary anditwasnotinbreachofanydutiesthatmight as counterparties. The Court furtherheldthatthebankwasnota transaction wasbeingenteredintobetweenthebankandcustomer ICLG TO: FINANCIAL SERVICESDISPUTES 2019 drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe

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within awell-definedspaceandduration.Further, theMonetary leeway toexperimentwithinnovativefinancialproductsorservices FinTech RegulatorySandboxtoallowfinancialinstitutionsmore The Monetary Authority ofSingaporehasalsointroducedthe risks acrosspaymentsvaluechainsaremitigated. environment forinnovationinpaymentservicesandensurethat the SingaporeParliament)toprovideamoreconducive new PaymentServicesBill(whichispresentlybeingconsideredby For example,theMonetary Authority ofSingaporehasproposeda steps toregulatethisarea. challenges. The Monetary Authority ofSingaporehasbeentaking distributed andconsumed,thishascreatednewrisks transform thewayinwhichfinancialservicesareproduced, computing, blockchain,artificialintelligence,etc.hasbegunto especially withtheemergence ofFinTech. FinTech suchascloud the economyandjobs. The financialservicessectorisnodifferent The emergence ofnewtechnologieshasresultedinareshaping 7.4 Allen &GledhillLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 intermediaries thatprovidevirtualcurrencyservices. associated withdigitaltokenofferings andsoughttoregulate Authority ofSingaporehasbeentakingstepstohighlighttherisks Allen &Gledhillhasover450lawyersintheregion,makingitoneoflargestlawfirmsSouth-east Asia. matters involvingSouth-east Asia andthe Asia region. Together withitsassociatefirm,RahmatLim&Partners,inMalaysiaan associate firmsandoffices, Allen &Gledhilliswell-placedtoadviseclientsontheirbusinessinterestsinSingaporeandbey been named‘RegionalLawFirmofthe Year’ and‘SE Asia LawFirmofthe Year’ bymanyprominentlegalawards.Withagrowingn of practiceareas,andisonethefirmswithhighestnumberlawyersrecognisedasleadingindividuals.Overyear awards andaccoladesithasreceivedfromindependentcommentatorsclients. The Firmisconsistentlyrankedbandoneinth are firstofitskind. The Firm’s reputationforhigh-qualityadviceisregularlyaffirmed bythestrongrankingsinleadingp market leadersinSingaporeandSouth-east Asia, havingbeeninvolvedinanumberofchallenging,complexandsignificantdeals clients, includinglocalandmultinationalcorporationsfinancialinstitutions.Establishedin1902,theFirmisconsisten Allen &Gledhillisanaward-winningfull-serviceSouth-east Asian commerciallawfirmwhichprovideslegalservicestoawide jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

Directors, andteachesattheSingaporeInstituteofLegalEducation. Vincent ispresentlyonthefacultyofSingaporeInstitute very goodservice Benchmark Litigation Asia Pacific providing “ reliable describes Vincent as“ The Legal500 Asia Pacific resolution, andlabouremploymentbyleadinglegalpublications. Vincent isconsistentlyrecognisedforhisexpertiseintheareasofdispute issues. also regularlyadvisesclientsonregulatoryandriskmanagement major corporates,andregulatorsoncomplexcontentiousmatters.He substantial experienceinactingforbankingandfinancialinstitutions, disputes, aswellcontentiousinvestigationsandinquiries.Hehas Vincent’s practicefocusesonbanking,employment,andshareholder ”, “

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129 Singapore Chapter 22 Sweden Andreas Johard

Hannes Snellman Attorneys Ltd Björn Andersson

1 Bringing a Claim – Initial Considerations 1.4 Is third-party funding available in financial services litigation (crowdfunding, maintenance, champerty, etc.)? Does litigation insurance operate in your 1.1 What are the most common causes of actions taken jurisdiction and, if so, what are the implications for by or against financial institutions and service this? providers in your jurisdiction? There is no legislation or other rules that specifically regulate the The most common claims brought by private customers against funding of claims. Third-party funding is not particularly common financial institutions before the Swedish general courts involve in Sweden, but it has increased in recent years. misleading prospectuses and negligent advice. Many cases also Most insurance policies in Sweden contain legal assistance derive from the mis-selling of financial products, such as credit insurance, from which the insurance holder may receive loans and investment products. Insurance intermediaries are also compensation up to a limited amount for their legal costs in increasingly facing claims concerning negligent advice. litigation, usually approximately EUR 20,000 excluding a As most disputes between institutional customers and financial deductible, which arises after such insurance has come into force. institutions are resolved through arbitration, it is difficult to draw In Sweden, there are no available insurances for claimants for after general conclusions but it would be fair to say that breach of the event (“ATE”) litigation cost protection through policies issued contract is a common cause for action between such parties; albeit it by underwriters on a case-by-case basis. is not possible to state any fact-specific circumstances that would constitute breaches of contract that commonly occur. 1.5 Are class action law suits available in your jurisdiction? If so, has this impacted financial 1.2 What remedies are most likely to be awarded? services litigation? Has there been an increase in class action suits post the financial crisis? Remedies that can be awarded in financial services disputes are the same as those which are awarded in any other dispute under Class action law suits are available in Sweden and are regulated by the Swedish law. Remedies may include an order to pay damages Group Proceeding Act (2002:599) (“GPA”), according to which class (including liquidated damages), a rescission of a contract or actions can be brought with regard to claims that can be raised in general injunctive relief. The most likely remedies to be awarded are court in accordance with the Swedish Code of Judicial Procedures injunctive relief and damages. (1942:740). Furthermore, in some cases, the ARN can review a dispute between a group of consumers and a company as a class action. If such a collective action is being examined by the ARN, the decision by the 1.3 Who has a right of action in financial services ARN applies to all consumers with similar requirements, including those disputes? Does it make a difference if the customer is an individual or a commercial entity? who have not been in contact with the ARN. Even though there has been an increase in class action suits since the Anyone that has legal competence has a right of action in financial financial crisis, such actions are rare and have not impacted services disputes before the general courts in Sweden. There is no financial services litigation in any particular way. difference depending on the claimant being an individual or a commercial entity. 2 Before Commencing Proceedings Furthermore, consumers have a right to bring a claim before the National Board for Consumer Disputes (“ARN”), which is an alternative dispute resolution mechanism in Sweden. Decisions 2.1 What are the main barriers to financial service issued by the ARN are not binding legally or formally, but are litigation for customers? Are there exclusionary recommendations on how the assessed disputes rightfully should be clauses or duty defining clauses in customer contracts which prevent customers from bringing a resolved. Nonetheless, companies that do not follow the ARN’s case? decisions are included on a public blacklist, which is why most companies choose to comply with the recommended solution to the Even though it should not be categorised as a barrier, claimants are dispute.

130 WWW.ICLG.COM ICLG TO: FINANCIAL SERVICES DISPUTES 2019 © Published and reproduced with kind permission by Global Legal Group Ltd, London unreasonably burdensomearenotvalidunderSwedishlawandmay provisions incustomercontractsthatwouldbeconsidered towards commercialcustomerstoanextent.However, any financial institutionsarefreetolimittheircontractualliabilities duties andliabilitiestowardsconsumers.Incomparison,however, Financial institutionsmaynot,inprinciple,limittheirstatutory there isanimminentdangerfortheclaimant). to theclaimpriorinitiatinglegalaction(saveinsituationswhere notify therespondentandprovideitwithopportunitytorespond representing aclaimant,suchcounselhasanethicalobligationto counsel –whoisamemberoftheSwedishBar Association –is communications arecustomaryinSweden.Furthermore,ifa communications witharespondent.However, pre-action be initiated. A claimantisalsonotrequiredtohavepre-action financial serviceslitigationthatneedtobemetbeforeanactionmay There arenolegalrequirementsorspecificproceduralrulesfor exceed thesumofSEK2,000. For aconsumertobringclaimbeforethe ARN, thesaidclaimmust 2,800 (dependentonthesizeofclaim). courts inSweden. The applicationfeeiseitherSEK900or required topayanapplicationfeeinorderbringaclaimbeforethe Hannes SnellmanAttorneysLtd © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Standard formmaster agreements,suchasthe ISDA Master 2.4 disclosed, evenuponrequest. business practicesisgenerallydeemedconfidentialandwillnotbe both processes.Businessinformationorregarding relation toprivilege.Partiesmayrequestrestrictdisclosurein by government-regulatedbodiesand“litigation”isthesamein are consideredgovernmentalagencies.Inthatsense,investigation Financial Supervisory Authority (“ generally consideredpublic.Bothregulatedbodiessuchasthe Documents senttoandfromSwedishgovernmentalagenciesare 2.3 review thecomplaint. institution. Ifamatterisundercourt’s review, the ARN willnot complaint withinayearfromthefirstnotificationtofinancial For filingaclaimwiththe ARN, theconsumermusthavefileda constitute aproceduralhindrancefrombringingclaimincourt. commencement ofaregulatoryprocess. The statuteoflimitationdoesnot to theeventgivingriseallegeddamages. This includesthe claimant mustnotifytherespondentofitsdamageinduetimesubsequent The generalstatuteoflimitationinSwedenis10years.However, the 2.2 for damagescausedbyintentorgrossnegligence. very likelymitigateanycontractualprovisionthatlimitstheliability Contracts Act (1915:218).Forexample,theSwedishcourtswould be mitigatedinaccordancewithSection36oftheSwedish clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices ISDA Master Agreement)? Howaretheytreated? jurisdiction forfinancialinstitutions (forexample,the Are standardformmasteragreements usedinyour considered ‘litigation’ inthecontext ofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof

FSA ”) andtheSwedishcourts

services disputesinSweden. There arenospecialistcourtsorjudgesforfinancial 3.1 how theentityisexpectedtoactonmarket. conduct, whicharenotlegallybinding Many financialservicesentitieshavetheirownregulatorycodesof the otherparty. Swedish law. However, apartymayhavedutyofloyaltytowards The conceptoffiduciarydutiesisnotformallyrecognisedin 2.5 English lawandsubjecttothejurisdictionofcourts. Swedish courtssincetheagreementsarenormallygovernedby relation tosuchagreementsareuncommon,ifnotnon-existent,in Agreement, arecommonlyusedinSweden.However, disputesin commercial parties andconsumers. though settlement,mediationis common, withrespecttoboth However, asSwedishcourtsareobligedtotry resolvedisputes party. financial servicescontractstowhich consumersareacontractual consumer relations. ADR clausesare notcommonlyincludedin Resolution inConsumerRelations(2015:671)regulates ADR for With respectto consumers,theSwedish Act on Alternative Dispute institutions andcommercialcustomers. mechanism incontractualrelationshipsbetweenfinancial by anylaw. Arbitration isacommonchoiceof dispute resolution (1999:116) ifseatedinSweden,ormediation, whichisnotgoverned arbitration, whichisgovernedbytheSwedish Arbitration Act commercial parties.Partiesmayresolvethedisputethrough There arenospecific ADR regulationsthatapplybetween 3.4 in Sweden. No, therearenospecificpre-trialproceduresthatmustbefollowed 3.3 a generalcourt. No, itisthesameproceedingasforanyotherdisputebroughtbefore 3.2 3

financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypically included regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor

per se WWW.ICLG.COM , butanestimateon

Sweden

131 Sweden 132 Sweden be publiclyaccessible. the courtshaveapossibilitytodecide thattheinformationshallnot must onlybedisclosedifexceptional reasonsexist.Furthermore, e.g., tradesecretsorotherconfidential informationthedocument group ofdocuments.Shouldthe requesteddocument(s)contain, the otherpartyorathirdtodiscloseanidentifieddocument parties toadispute.However, apartycanobtaincourtorderfor Sweden islimited,andtherenosuchgeneralobligationforthe The righttoobtaindocumentsthroughdiscoveryordisclosurein institution andthecustomer. as copiesofanyloanagreemententeredintobythefinancial out inaccordancewiththefinancialinstitution’s guidelines,aswell supply thecustomerwithproofthatatransactionhasbeencarried A financialinstitutionmustalso,uponrequestfromacustomer, information. is thecasegiveaccesstothatpersonaldataandrelevant personal dataconcerningapersonisbeingprocessed,andwhenthat any othercompany, uponrequestconfirmastowhetherornot and repealingDirective95/46/EC,afinancialinstitutionmust,like processing ofpersonaldataandonthefreemovementsuchdata, 2016/679 ontheprotectionofnaturalpersonswithregardto According toarticle15ofGeneralDataProtectionRegulationNo. 3.7 there arenospecificremediesonlyavailabletoconsumers. Only consumersmayinitiateanactionwiththe ARN. Otherwise, binding upontheconsumer. terms thatareinferiorthanthosestipulatedintheSCSA arenot in consumerrelationsaredealtwiththeSCSA insuchawaythat Section 36oftheSwedishContracts Act. Furthermore,unfairterms Unfair termsincontractscanbemitigatedaccordancewith who isthefinalconsumerofgoodsandservices “Consumer” hasabroaderdefinitionandisdefinedas“ with asimilardefinition.Inaneconomiccontext,theterm non-business purposes (1990:932) (“ A consumerisdefinedintheSwedishConsumerSales Act 3.6 treated thesamewayasanyotherclaimunderSwedishlaw. into aclaimfordamagesordeclaratoryclaim.Suchclaimsare A claimfornegligentmisstatement/mis-sellingmustbetransformed 3.5 assessed disputesshouldberesolved. binding upontheparties;theyarerecommendationsforhow when reviewingacomplaint.Decisionsbythe ARN arenotlegally brought byconsumers. The ARN followsSwedishlawandcase Furthermore, the ARN isacommonlyused ADR methodforclaims Hannes SnellmanAttorneysLtd © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt jurisdiction? broad isthedefinitionofa‘consumer’ inyour

SCSA ”) as“

”. The termisalsodefinedinotherlegalacts a naturalpersonactingprimarilyfor

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each person

5.1 parties, thegeneralruleof“loserpays”applies. court cases.Unlessnothingisstipulatedinthecontractbetween The rulesoftheSwedishCodeJudicialProceduresapplyfor 4.2 be appealed. Decisions bythe ARN arenotbindinguponthepartiesandcannot appeal tothe Appeal CourtortotheSupremeCourt. appeal bythehigherinstancecourt,regardlessifitconcernsan appeal determined,anappealingpartyneedstobegrantedaleaveof in anyotherdisputebeforethegeneralcourts.Inordertohavean Yes. The righttoappealinfinancialservicesdisputesisthesameas 4.1 and assistingcourtsarewithin the EU,Regulation(EC)No. assistance offoreigncourtsforthe samepurpose.Iftherequesting applicable regulations.Likewise, Swedishcourtsmayrequestthe in civilmatters,suchashearingwitnesses, inaccordancewiththe Swedish courtsmayassistforeign withthetakingofevidence territory. foreign eventorexercisingauthorityoutsideoftheSwedish Swedish courtseverassertingjurisdictioninconnectionwithany In relationtofinancialservicesdisputes,wearenotawareof 5.3 as thetakingofevidence. co-operate withforeigncourtsonlyonadministrativematters,such services, nortakepartininvestigations. The Swedishcourtsmay neither co-operatewithregulatorybodiesorofficials infinancial The Swedishcourtsgenerallytakeapassiveroleinlitigationand 5.2 with itsfirstwrit,otherwisetherightisconsideredforfeited. respondent mustrequestsuchadepositofsecurityinconnection deposit asecurityforthecostsoflitigation.Generally, the (“ Economic Area If aclaimantisdomiciledincountryoutsideoftheEuropean operation betweencounsel. complied withinallcountries. This naturallydemandsalotofco- a cross-borderdisputeotherthanensuringthatnationallegislationis There isnodifference inhow themattersarehandledwhenthereis 5 4 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues services disputes? How doesthecourtdealwithcostsinfinancial disputes? Is therearightofappealinfinancialservices Post Trial your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour how aretheycateredforinyourjurisdiction?

EEA

”), therespondentmayorderclaimantto

Sweden

merit ornot,acourtcandecidetomitigatesuchclause. apply. Dependingonthespecificcaseandifpartiesareofequal jurisdiction clausesandthereforegeneralcontractualprinciples In Swedishlaw, therearenostatutoryregulationsagainstunilateral 5.4 relevant inrelationtotheUKafterBrexit. relation tojurisdictionssuchasMexico,Singaporeandmaybe Commercial Matters(HagueEvidenceConvention)isrelevantin March 1970onthe Taking ofEvidence Abroad inCivilor Swedish courtsaretherequestingcourts. The Conventionof18 when Swedishcourtsaretheassistingcourts,andlatter Evidence ataForeignCourt Act (1946:817). The formerapplies Evidence foraForeignCourt Act (1946:816)andthe Taking of applicable. Otherwise,theapplicablelegislationsare Taking of in thetakingofevidencecivilorcommercialmattersis 1206/2001 onco-operationbetweenthecourtsofMemberStates Hannes SnellmanAttorneysLtd © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 appealed tothegeneral administrativecourtsinSweden. The FSA isagovernmentauthority anditsdecisionsmaybe 6.4 recommendations arenotbinding on theparties. Decisions oftheFSA arebindingontheparties. The ARN’s 6.3 accessible, manycommercialpartiesfollowtherecommendations. parties followitsrecommendationsandsuchinformationispublicly legally binding.However, sincethe ARN keepsarecordofwhether The ARN canonlygiverecommendationsanditsdecisionsarenot apply fortheliquidationofacompany. for approvalofarequiredprospectusintime. The FSA canalso Furthermore, theFSA maypenaliseacompanythatdoesnotapply business infinancialservicesandalsoorderprohibitoryinjunctions. The FSA mayalsorevokeafinancialinstitution’s licencetoconduct order employeestosubmithearings,subjectaconditionalfine. FSA may, e.g.,orderafinancialinstitutiontosupplydocumentsand The FSA hasseveralratherextensiveremediesatitsdisposal. The 6.2 are generallycompliedwithinordertoavoidpublicblacklisting. consumer). The decisionsbythe ARN arenotlegallybinding,but disputes betweenconsumersandbusinesses(uponrequestbya Even thoughitisnotaregulatorybody, the ARN canreview regulations onthefinancialmarket. addition tothegeneralcourtsandarbitration,FSA supervisesthe Only theSwedishcourtshandlefinancialservicesdisputes.In 6.1 6 enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand exist? What rightsofappealfromregulatory decisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon have?

strengthened itsoperationsandsupervision. The FSA’s regulatory Furthermore, subsequenttothefinancialcrisis,FSA crisis. EU. Regulationhaschangedandtightenedfollowingthefinancial Legislation inSwedenfollowsdirectivesandregulationsfromthe 7.1 can belimitedbysecrecy. publicly accessible.However, therighttofreedomofinformation judgment bythegeneralcourtsinSwedenistherefore,general, agencies are,ingeneral,public. A decisionbytheFSA ora All documentssubmittedto,orsentfrom,Swedishgovernmental 6.5 services thatwecanaddressinthis context. There arenorecentsignificantarbitration casesconcerningfinancial significant casesusuallydonotbecome publiclyknownoravailable. financial institutionsareresolvedby wayofarbitration,whichiswhy Furthermore, mostdisputesbetween commercialcustomersand companies aswelltheiradvisors’ professionalliability. primarily beentargeting theliabilityofboardsandmanagement cases ofinterestinthefinancialservicessector, butsuchcaseshave As mentionedabove(question7.1),thererecentlyhasbeensome 7.3 an extensiveprotectionforconsumers. Sweden wouldbeconsideredfinancialinstitution-friendlybutwith 7.2 unsuccessful. Swedish investmentbank(HQInvestmentBank). The claimwas highly publicisedcasebetweentheshareholdersandboardofa liability orprofessionalliability. Inthiscontext,therehasbeena financial crisis,butthecasesprimarilyconcernboard/management There hasbeenanincreaseintheamountofcasesfollowing management. institutions, primarilyconcerningnegligentadviceandasset consumers havebroughtcasesagainstbanksandotherfinancial become amatteroffocus.Subsequenttothefinancialcrisis, Consumer rightsinfinancialservicesagreementshaveincreasingly powers havealsoincreased. 7

against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe

WWW.ICLG.COM

Sweden

133 Sweden 134 Sweden as creditloansandinvestmentproducts(seealsoquestion1.1). negligent adviceand/orthemis-sellingoffinancialproducts,such denominator andthecasesoftenconcernmisleadingprospectuses, rights ofconsumersagainstfinancialinstitutionsisacommon months. Ingeneral,asmostcourtcasesarefiledbyconsumers,the courts, thereisalimitedsupplyofsignificantcasesunderthepast12 As concernsfinancialserviceslitigationbeforetheSwedishgeneral Hannes SnellmanAttorneysLtd © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM regarding investmentsmadeundertheEnergyCharter Treaty (ECT). times ascounselforstatesincomplexsetting-asideproceedings construction andenergy. Furthermore, Andreas hasactedseveral international investmentlaw, complexdisputes in thefinancialsector, the fieldsofgeneralcommerciallaw, international sales,postM&A, Court. Andreas’ disputeresolutionexperienceencompasses, further actedascounselbeforedomesticcourts,includingtheSupreme SCC andtheICCrules,aswell both domesticandinternationalarbitrationsunder, forexample,the Young Arbitrators Sweden(YAS). Andreas hasactedascounselin specifically internationalarbitration.Heisamemberoftheboard transactions butisspecialisedincommercialdisputeresolutionand Andreas hasextensiveexperienceinbothcompetitionlawand colleagues inourBanking&Financeteam. a widevarietyofjurisdictionsinanefficient andresults-orientedmanner. Onfinancialservicesdisputes,weworkcloselyw complex internationalcases,weprovideadedicatedteamofexpertswholitigateandarbitratedisputesacrossdifferent busine litigation, clients intheirbusinessdisputes,regulatoryinvestigationsandcasesofinsolvency. We haveawealth ofexperienceindomes Hannes Snellman’s disputeresolutionpracticehasalongandproventrackrecordofgeneratingsuccessfulresultsfortheFirm’ ad hoc andadministeredarbitrationproceedingsaswellinmediationotherformsofalternativedisputeresolution.Withafo URL: Email: Tel: Sweden SE 10396Stockholm Kungsträdgårdsgatan 20,P.O. Box7801 Hannes Snellman Attorneys Ltd Andreas Johard www.hannessnellman.com hannessnellman.com andreas.johard@ +46 760000027

ad hoc proceedings. Andreas has

interalia

upon inthiscontext. follow fromEUdirectivesandregulationswillnotbeexpanded financial crisisin2008. The typeofchangesinregulationthat and regulation. This wasespeciallyevidentsubsequenttothe Swedish market. This willgiverisetofinancialserviceslitigation Negative globaleconomicchangesalsocauseinstabilityonthe 7.4 district courtsandtheofappeal.Heregularlyassistsclients and internationalarbitrationaswelllitigationbeforetheSwedish on allmattersrelatingtocommercialdisputes,withafocusSwedish Björn isanexperienceddisputeresolutionlawyerandadvisesclients general commercialagreements. construction, franchise,distributionandagency, IT, postM&A and advised andrepresentedclientsindisputesrelatingto, SCC’s rulesforordinaryaswellexpeditedproceedings.Hehas in both Björn hasactedascounselfornumerousSwedishandforeignclients disputes aswellforthepreventionoffuturedisputes. with riskanalysisandmanagementinconnectionongoing ICLG TO: FINANCIAL SERVICESDISPUTES 2019 jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany ad hoc andinstitutionalarbitrations,forexampleunderthe

URL: Email: Tel: Sweden SE 10396Stockholm Kungsträdgårdsgatan 20,P.O. Box7801 Hannes Snellman Attorneys Ltd Björn Andersson www.hannessnellman.com hannessnellman.com bjorn.andersson@ +46 760000038

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Chapter 23 Switzerland Roman Baechler

Homburger Reto Ferrari-Visca

1.5 Are class action law suits available in your 1.2 What remedies are most likely to be awarded? jurisdiction? If so, has this impacted financial services litigation? Has there been an increase in If a customer’s claim is approved, the financial institutions and class action suits post the financial crisis? services providers are usually ordered to pay a certain amount of money or recover other assets. Actual class actions are not available in Switzerland. However, pursuant to Article 71 of the CCP, two or more parties may jointly bring an action or be sued jointly if their rights and duties result 1.3 Who has a right of action in financial services from similar circumstances or legal grounds, and if each case is disputes? Does it make a difference if the customer is an individual or a commercial entity? subject to the same type of proceedings. In its recently published proposal for a revision of the CCP, the Federal Council further contemplated introducing a collective redress mechanism according In principle, each contracting party has the right to bring an action to which not-for-profit organisations would be able to bring claims against the other contracting party (for untrue or misleading on behalf of their members if they have been authorised to do so in statements in prospectuses or similar documents see question 3.5 a form that permits proof to be evidenced by text. Pursuant to below). Article 89 of the CCP, such mechanism is currently only available In cantons that have a commercial court, companies entered in the for requesting injunctive and declaratory relief concerning the commercial register must file claims against their bank with the infringement of personality rights. commercial court if the amount in dispute is over CHF 30,000. By contrast, individuals have the choice as to whether they wish to bring their action before the commercial court or the ordinary 2 Before Commencing Proceedings district courts (Article 6 of the Code of Civil Procedure (CCP)). In contrast to commercial entities, individual consumers also have the right to bring an action at their own domicile (Article 32 of the 2.1 What are the main barriers to financial service litigation for customers? Are there exclusionary CCP). clauses or duty defining clauses in customer contracts which prevent customers from bringing a case?

Procedural costs are a significant barrier to financial services

ICLG TO: FINANCIAL SERVICES DISPUTES 2019 WWW.ICLG.COM 135 © Published and reproduced with kind permission by Global Legal Group Ltd, London 136 Switzerland privilege, itisirrelevant whenthecommunication tookplaceor attorney-client privilege.For the purposeofattorney-client In Switzerland,attorney-clientcommunication isprotectedby 2.3 claim hasbecometime-barred. officio Swiss civilcourtsdonotobservestatutorylimitationperiods interrupt thestatutorylimitationperiods. However, thecommencementofaregulatoryprocessdoesnot submitting astatementofclaimtocourt(Article135(2)theCO). enforcement proceedings,filinganapplicationforreconciliation,or The statutorylimitationperiodsmaybeinterruptedbyinitiatingdebt 128(1) oftheCO). For interestoncapital,thestatuteoflimitationsisfiveyears(Article Tribunal, caseno.4A_508/2016). the customer’s claimforreimbursement ofretrocessions(Federal no. 133III37). The statuteoflimitations10yearsalsoappliesto years aftertherelationshipwasterminated(Federal Tribunal, case long asthebankingrelationshipexists.Itbecomestime-barred10 repay oftheassetsdepositedwithbankdoesnotcommenceas The statuteoflimitationsregardingthecontractualobligationto CO). barred after10yearsunlessotherwiseprovided(Article127ofthe Pursuant toSwisslaw, contractualclaimsgenerallybecometime- 2.2 the SwissCodeofObligations(CO)). liability forslightnegligenceattheirowndiscretion(Article100of negligence. Inaddition,courtsmayevennullifyanexclusionof institutions), however, cangenerallyonlyexcludeliabilityforslight limit theirdutyofcare.Swissbanks(i.e.,licensedfinancial financial institutionsandserviceprovidersuseclausesmeantto In mostagreementsandgeneraltermsconditions,Swiss half oftheexpectedcourtcosts. Federal Councilsuggeststhattheadvancepaymentbelimitedto In itsrecentlypublishedproposalforarevisionoftheCCP, the for theirlegalcostsiftheplaintiff isnotbasedinSwitzerland. financial institutionsandservicesprovidersoftenrequestasecurity security forpartycosts(Article99oftheCCP). Therefore, Swiss country thatenteredintoatreatywithSwitzerlandexcluding plaintiff hasnodomicileorregisteredoffice inSwitzerland orina potential legalcostsundercertainconditions,inparticular, ifthe the plaintiff mayberequiredtoprovidesecurityfortherespondent’s In addition,attherequestofrespondentinordinaryproceedings, costs inZurichisCHF30,750). an amountindisputeofCHF1million,thebasictariff forthecourt advanced dependsonthecourtandamountindispute(e.g.,for normally havetomakesuchanadvancepayment. The amounttobe expected courtcosts.Infinancialservicesdisputes,theplaintiff will courts mayrequiretheplaintiff tomakeanadvancepaymentforthe litigation forcustomers.Pursuantto Article 98oftheCCP, the Homburger © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM

. Therefore, therespondentmustraisedefencethat considered ‘litigation’ inthecontextofprivilege? investigations conductedbyregulated bodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices

the communicationandworkproductsoftheselawyersarenot Financial MarketSupervisory Authority (FINMASA)).However, entities andpersons(Article36oftheFederal Act ontheSwiss appoints lawfirmsorattorneystoconductauditsatsupervised The FinancialMarketSupervisory Authority (FINMA)often privilege forin-housecounsels. of theCCP, theFederalCouncilcontemplatedintroducinglegal counsels. However, initsrecentlypublishedproposalforarevision In Switzerland,thereiscurrentlynolegalprivilegeforin-house Swiss attorneysandthelegaldoctrine. by attorneys,thedecisionmetharshandunanimouscriticismfrom privilege inthecontextofinternalinvestigationsandfact-findings language, whichcouldbereadastheabolitionofattorney-client (Federal Tribunal, caseno.1B_85/2016).Duetothebroad represent legaladviceremainprotectedbyattorney-clientprivilege Tribunal confirmedthatpartsoftheinvestigationreportclearly law firmandrefertoattorney-clientprivilege.However, theFederal its obligationsunderSwissanti-moneylaunderingregulationstoa According totheFederal Tribunal, aSwissbankmaynotdelegate as aboardmemberorescrowagent). focus (e.g.,businessadvice,assetorrealestatemanagement,acting covered byattorney-clientprivilegeareactivitieswithacommercial activity intheformoflegalrepresentationandadvice.Not a clientandanattorneyrelatestotheattorney’s typicalprofessional attorney-client privilegeonlyappliesifthecommunicationbetween where therecordsofsuchcommunicationarelocated.However, Financial Instruments Regulation(MiFIR). They include Financial InstrumentsDirective(MiFID) andEuropeanMarketsin with dutiessimilartothosestipulated intheEUMarkets 1, 2020,allSwissfinancialservices providerswillneedtocomply Upon enactmentoftheFinancialServices Act (FinSA)onJanuary that abolishorcontradicttheseduties arenotvalid. duties maybespecifiedincontractual agreements.However, terms of duediligenceandbestexecution,dutyloyalty). These certain dutiestowardtheirclients(dutytoprovideinformation,duty Securities Trading (SESTA), Swisssecuritiesdealersmustobserve Pursuant to Article 11 oftheFederal Act onStock Exchanges and 2.5 OTC Derivatives Transactions isgovernedbySwisslaw. should benoted,however, thatonlytheSwissMaster Agreement for which specificrulesonvalidityandinterpretationwouldapply. It negotiated contractsandnotasgeneraltermsconditionsto master agreementsandtheirschedulesaretreatedasindividually recorded intradingconfirmations.UnderSwisslaw, standardform individual transactionsunderthiscontractualbasisarethen a scheduletomeetthespecificneedsofcontractingparties. The Agreement. These standard formmasteragreementsareadaptedin Derivatives Transactions ortheGlobalMasterSecuritiesLending Derivatives Transactions, theSwissMaster Agreement forOTC master agreementssuchastheISDA Master Agreement forOTC In Switzerland,financialinstitutionscommonlyusestandardform 2.4 FINMA andthusdonotactasattorneys. covered byattorney-clientprivilegebecausetheyareappointed ICLG TO: FINANCIAL SERVICESDISPUTES 2019 they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howarethey treated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour

Switzerland

3.2 available tothecourt. know-how andtheexperienceneededfordecidingeachcaseis (including specialistsfromthefinancialindustry)toensurethat of theCCP).Commercialcourtsemployspecialisedjudges cantonal instancesforcommercialandcorporatedisputes(Article6 however, specialisedcommercialcourtsactasfirstandsole Switzerland. Infourcantons(Aargau, Bern,StGallenandZurich), There arenospecialistcourtsforfinancialserviceslitigationin 3.1 and careinclientorders. documentation andrenderingofaccountsaswelltransparency appropriateness andsuitabilityofinvestmentadvicegiventoclients, provisions regardinginformationduties,theassessmentof Homburger © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 services disputes in Switzerland. contracts andthus ADR isnotcommonly usedtoresolvefinancial In general, ADR clausesarenotincluded infinancialservices question 3.3above). court proceedingsareprecededby reconciliationproceedings(see expectation thatthepartiesengage inmediation.However, most (Articles 213 There areprovisionsformediationinSwisscivilprocedurallaw 3.4 and 6(3)oftheCCP). between thecommercialcourtandordinary(Articles6(2) registered inacommercialregister, theplaintiff maychoose considered acommerciallitigation.Ifonlytherespondentis reconciliation proceedings(Article198(f)oftheCPC)ifclaimis an actionwiththecommercialcourtwithoutfirstgoingthrough In Aargau, Bern,StGallenand Zurich,theplaintiff maydirectlyfile the peace,cantonalcourtoffirstinstancewillrejectaction. without avalidauthorisationfromthecompetentcantonaljusticeof plaintiff filesanactionwith thecantonalcourtoffirstinstance 209 oftheCCP). The authorisation isvalidforthreemonths.Ifthe action withthecompetentcantonalcourtoffirstinstance(Article reconciliation proceedings,theplaintiff isauthorisedtofilean (Article 202oftheCCP).Ifnoagreementisreachedin application forreconciliationwithacantonaljusticeofthepeace A financialserviceslitigationisnormallyinitiatedbyfilingan 3.3 not differ fromothercivillaw litigation. In Switzerland,proceduralrulesforfinancialserviceslitigationdo 3 consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation? Does themethodofserviceproceedingsdifferfor financial serviceslitigation? Is thereaspecialistcourtorjudgesfor Progressing theCase jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypicallyincluded regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) et seqq.

oftheCCP)butthereisnorequirement or

to thenewprovisions,wilfulfalsestatementsorwithholding various changestothecurrentSwissprospectusregime. According FinSA, whichwillbeenactedonJanuary1,2020,introduce also becomesubjecttocriminalprosecution. person providingfalseormisleadinginformationintentionallymay general remediesavailableunderSwisscontractandtortlaw. A Apart fromaprospectusliabilitysuit,theplaintiff mayinvokethe negligence. burden ofprooffortheviolationduty, thedamage,causalityand issue prospectusesorsimilarstatements. The plaintiff bearsthe disseminating inaccurate,misleadingorunlawfulinformationin other securitiesmaybringanactionagainstanypersoninvolvedin Pursuant to Article 752oftheCO,acquirersshares,bondsor 3.5 court (Article76ofFinSA). proceedings anddirectlyfileanactionwiththecompetentcantonal plaintiff mayunilaterallyabstainfrominitiatingreconciliation mandatory. Ifthepartieswentthroughmediationproceedings, However, mediationproceedingsbeforeanombudsmanwillnotbe proceedings beforeanombudsman(Article74ofFinSA). financial servicesprovidersshallberesolvedinmediation principle thatfinancialservicesdisputesbetweenclientsand FinSA, whichwillbeenactedonJanuary1,2020,introducethe Most contracts with Swissfinancialinstitutions andservices 3.7 consumers. sophisticated andprofessionalinvestorsarenotconsidered in thepursuitofhisorherpersonaldomesticaffairs. Therefore, disadvantage oftheconsumer. A consumerisanindividualwhoacts imbalance betweencontractualrightsandobligationstothe in amannercontrarytogoodfaith,considerableandunjustifiable standardised agreementswithconsumersareunlawfuliftheycreate, Pursuant to Article 8oftheUnfairCompetition Act (UCA),termsin however, itisdifficult toestablishthatthey havebeenexploited. applies tobothconsumersandprofessionals.Forprofessionals, performance alreadymade(Article21oftheCO). This provision or shewillnothonourthecontractanddemandrestitutionofany exploitation, theexploitedpartymaydeclarewithinoneyearthathe consideration underacontractconcludedasresultofoneparty’s If thereisacleardiscrepancybetweenperformanceand 3.6 he orshewasnotatfaultandtherebyexcludeliability. causality. Culpabilityisassumed,buttherespondentmayprovethat the burdenofproofforviolationduty, thedamageand Article 11 ofSESTA (seequestion2.5above). The plaintiff bears Mis-selling mayconstituteabreachofcontractandviolation to CHF500,000. significant factsinaprospectuswillbesanctionedwithfineofup dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling dealt withinthecontextofdiscovery ordisclosure? commercially sensitiveorconfidential information services customeraccesstheir personaldata?Howis with infinancialserviceslitigation? Canafinancial How isdataprotection/freedom ofinformationdealt jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted

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137 Switzerland 138 Switzerland and grossfactualerrors(Articles95 FTA). The Federal Tribunal reviewscasesappealed toitforlegal exclusively beappealedtotheFederal Tribunal (Article 75ofthe Judgments renderedbyacommercial courtmaydirectlyand Federal Tribunal (FTA)).Act CHF 30,000(anyotherdisputes), respectively(Article74ofthe CHF 15,000(disputesrelatingtoemploymentandtenantlaw)or appealed totheFederal Tribunal iftheamountindisputeisaleast Decisions renderedbyacantonalcourtofappealmaybefurther of thefacts(Articles319and320CCP). incorrect applicationofthelaworobviouslyestablishment days incaseofsummarydecisionsandproceduralorders)for and proceduraldecisionsmaybeappealedwithin30days(or10 (Articles 308and310oftheCCP).Judgmentsbelowthisthreshold application ofthelawifamountindisputeisatleastCHF10,000 days ongroundsofincorrectestablishmentthefactsor court) maybeappealedtothecantonalcourtofappealwithin30 Decisions renderedbyacantonalcourtoffirstinstance(district way asdecisionsinothercivillawmatters. Decisions infinancialservicesdisputesmaybeappealedthesame 4.1 years afterthecontractualrelationshiphasended. of charge. The righttoobtaininformationbecomestime-barred10 must complywithsuchrequestsinwritingwithin30daysandfree relationship. Swissfinancialinstitutionsandservicesproviders financial serviceproviderhasproducedinthecourseofbusiness dossier andanyotherdocumentsrelatingtothem,whichthe provisions, clientsareatanytimeentitledtorequestacopyoftheir additional righttoinformationforclients.Pursuantthenew FinSA, whichwillbeenactedonJanuary1,2020,introducean 2(2)(c) oftheDPA). client hasalreadyinitiatedcivilorcriminalproceedings(Article any statuteoflimitation.However, Article 8isnotapplicableifthe to obtaininformationbasedon Article 8oftheDPA isnotsubjectto delayed undercertainconditions(Article9oftheDPA). The right in writingwithin30days. The requestmaybedenied,restrictedor institutions andservicesprovidersmustcomplywithsuchrequests individuals andlegalentities.Ingeneral,Swissfinancial request bytheclient. Article 8oftheDPA currentlyappliestoboth available personaldataofaclientintheircollectionupon financial institutionsandservicesprovidersmustprovideall Pursuant to Article 8oftheDataProtection Act (DPA), Swiss 10 yearsafterthecontractualrelationshiphasended. information. The righttoobtaininformationbecomestime-barred agreement, theclienthastobearcostsforprovisionof sensitive orconfidentialinformation.Intheabsenceofaspecific right toobtaininformationgenerallydoesnotcovercommercially may maketherequestforinformationatanytime.However, this correspondence, anddocumentationonclientcontacts). The client counterparty (e.g.,clientprofile,contracts,accountstatements, information regardingtheircontractualrelationshipwith of theiractivities. Therefore, clientshavearighttoobtain their activitiesfortheclientsandreturnanythingreceivedasaresult financial institutionsandservicesprovidersmustgiveaccountof 394 providers areatleastpartiallysubjecttoSwissagencylaw(Articles Homburger © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM

4 et seqq. disputes? Is therearightofappealinfinancialservices Post Trial oftheCO).Pursuantto Article 400(1)oftheCO,Swiss

et seqq.

oftheFTA).

5.1 principally dependontheamountindispute. 97 oftheCCP),costsdiffer fromcantontobut Since eachcantonhasitsowntariff fortheproceduralcosts(Article 109 oftheCCP). costs accordingtothetermsofsettlementagreement(Article In caseofasettlement,thecourtusuallyallocatesprocedural (Article 107oftheCCP). with theoutcomeofcasewouldleadtoaninequitableresult litigate ingoodfaithoriftheallocationofcostsaccordance the costsatitsowndiscretion,inparticular, ifapartywascausedto conditions, thecourtmaydiverge fromthisgeneralruleandallocate outcome ofthecase(Article106CCP).Undercertain court willallocatetheproceduralcostsinaccordancewith costs andpartycosts).Ifneitherhasentirelyprevailed,the As arule,thelosingpartymustbearproceduralcosts(court services disputesinSwitzerland. There arenospecialrulesregardingcostallocationforfinancial 4.2 that aredeemedto haveadequatedataprotection. Swiss DataProtectionCommissioner maintainsalistofcountries destination islackingadequatedata protectionregulation. The Such riskispresumedasamatter of statutorylawifthecountry endangers theprivacyofdata subject(Article6oftheDPA). be disclosedtorecipientsoutside ofSwitzerlandifthisseriously the DPA). Inaddition, theDPA providesthatpersonaldatamaynot lawfully, ingoodfaithandaproportionatemanner(Article4of The DPA requires, but alsoadministrativemeasuresorproceedingsandcivilliability. of Swissbankingsecrecymaynotonlytriggercriminalsanctions representatives ofSwissbanks,includingoutsidecounsel. A breach Swiss bankingsecrecyappliestoallemployees,agentsand information relatingtocurrentorformerclientsofaSwissbank. Pursuant to Article 47oftheBA,itisacrimetodiscloseconfidential disclose personaldatatoforeignauthorities. to obtainanauthorisationbytheSwissgovernmentiftheyintend Swiss-based financialinstitutionsandindividualsarethusrequired international conventionsonmutuallegalassistance.Ingeneral, preventing foreignstatesorpartiesfromcircumventing CC protectsSwitzerland’s territorialsovereigntyandaimsat administrative bodyhasgrantedanauthorisation. Article 271ofthe a foreignstateonSwissterritoryunlesstheresponsible Article 271oftheCCprohibitsandsanctionsactivitiesonbehalf disclosure ofdata. obligations orconfidentialityagreementsmaypreventthe data protectionandlabourlaws. Additionally, contractualsecrecy Swiss bankingsecrecy(Article47oftheBanking Act (BA)),Swiss on behalfofaforeignstate(Article271theCriminalCode(CC)), foreign authorities; Several legalprovisionsrestrictdisclosureofpersonaldatato foreign courts,regulators,orenforcementauthorities. involving financialinstitutionsisthetransferofpersonaldatato The typicalissueincross-borderdisputesorinvestigations 5 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 What issuestypicallyariseincross-borderdisputes Cross-Border Issues services disputes? How doesthecourtdealwithcostsinfinancial how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand

inter alia inter alia

, thatpersonaldataonlybeprocessed , theprohibitionofunlawfulactivities

Switzerland

abroad, (ii)apartyorthirdpersonisaskedtoindicatewhich directly andnecessarilyconnectedtotheunderlyingproceedings common lawcountriesif(i)therequesteddocumentsarenot purpose ofobtainingpre-trialdiscoverydocumentsasknownin reservation thatitwillnotexecutelettersofrequestissuedforthe letter ofrequest,toobtainevidence.However, Switzerlandmadea state mayalsorequestthecompetentSwissauthority, bymeansofa According totheHEC,judicialauthoritiesofanothercontracting of Evidence Abroad inCivilorCommercialMatters(HEC). authorised todosopursuanttheHagueConventionon Taking later onusetheminaforeignlitigationwithouthavingbeen private attorneysmaynotconductdepositionsinSwitzerlandand deemed tobeinthesolepurviewofSwisscourts.Forexample, without anauthorisation. Taking ofevidenceinSwitzerlandis perform activitiesonbehalfofaforeignstateSwissterritory As mentionedunderquestion5.1above,itisacriminalactto 5.2 Homburger © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Switzerland, (ii) the partiesmusthaveagreedon aSwissforum the respondentmusthavedomicile oraregisteredoffice in In general,inordertoestablishjurisdiction inSwitzerland,either(i) (Article 1ofthePILA). Judgments inCivilandCommercial Matters(LugC))isapplicable Lugano ConventiononJurisdiction andtheRecognitionof (PILA) forinternationaldisputesunless aninternationaltreaty(e.g., CCP fordomesticdisputes,andbythePrivate InternationalLaw Act In Switzerland,jurisdictionisgovernedby Articles 9 Extra-territorial jurisdictionisnottypicallyassertedinSwitzerland. 5.3 qualify asfinancialmarketsupervisoryauthorities. relate exclusivelytocriminalprosecutionandtaxationdonot (Article 42ofFINMASA).Foreignauthoritieswhoseactivities requesting authoritiesareboundbyofficial orprofessionalsecrecy exclusively toimplementfinancialmarketlaw, and(ii)the market supervisoryauthoritiesonlyif(i)thisinformationisused FINMA maytransmitnon-publicinformationtoforeignfinancial FINMASA). banking secrecy, dataprotectionandemployeerights(Article42cof However, theforeigninstitutionmustpreservebusinessandSwiss for grantinginternationaladministrativeassistancearefulfilled. foreign financialmarketsupervisoryauthoritiesiftheprerequisites Swiss financialinstitutionsmaytransmitnon-publicinformationto of Swisslaw(Federal Tribunal, caseno.142III116). letter ofrequestbecausethiswouldviolatefundamentalprinciples be heardwasnotrespected,Switzerlandwillcomplywitha to producedocumentsrelatingthatclient.Iftheclient’s rightto proceedings oftherequestingforeigncourtifbankisrequested client musthavebeengiventheopportunitytotakepartin In addition,accordingtocaselawoftheFederal Tribunal, abank Tribunal, caseno.132III291). connected toassertionsmadeintherespectivelitigation(Federal describes theevidencespecificallyandisreasonably foreign pre-trialdiscoveryproceedingsiftherequestingparty Consequently, Switzerlandonlyprovidesjudicialassistancefor legitimate interestsareendangered. documents relatingtothedisputeareinitspossession,or(iii)other disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour your jurisdictionand,ifso,inwhatcircumstances? Is extra-territorialjurisdictiontypicallyassertedin

et seqq.

ofthe

and independentbodywithintheSIXGroup.Itisresponsiblefor SIX ExchangeRegulation AG (SIXRegulation)isanautonomous their assetmanagersandfundmanagementcompanies. exchanges, securitiesdealers,collectiveinvestmentschemes,and FINMA’s maintaskistosupervisebanks,insurancecompanies, FINMA isSwitzerland’s independentfinancial-marketsregulator. 6.1 23 oftheLugC). relationship (Article17oftheCCP, Article 5ofthePILA and Article is basedontheparties’ consentandrelatestoaparticularlegal agreements. A unilateraljurisdictionclauseisvalid, long astheymeettheapplicablerequirementsforjurisdiction Swiss lawgenerallyrecognisesunilateraljurisdictionclausesas 5.4 contract lawortortlaw). applicable basedonalegalprovisionforspecialmatters(e.g., based onavalidjurisdictionclause,or(iii)Swissforumis measures torestore compliancewiththelaw, (v)issueadeclaratory independent andqualifiedperson toconductaudits,(iv)order proceedings againstsupervisedentities andpersons,(iii)appointan documentation beprovided,(ii) openformaladministrative seqq. FINMA hasawidesetofenforcement tools(Articles24aand29 6.2 cases arerelatedtobankingfees. Swiss BankingOmbudsmanconcluded2,027cases.20%ofthe proceedings beforeacourthavealreadybeeninitiated.In2017,the charge fortheclient.Mediationserviceswillnotbeprovidedif The mediationservicesoftheBankingOmbudsmanarefree complaints raisedbyclientsagainstbanksbasedinSwitzerland. The SwissBankingOmbudsmanisanindependentmediatorfor (Articles 119 and122 suffered damagesmaybring civilclaimsasaprivateplaintiff 12 whenever acriminalactmighthavebeencommitted(Articles1and level) assistedbythepoliceareresponsibleforcriminalproceedings General atthefederallevelandcantonalprosecutors Prosecution authorities(inparticular, theOffice ofthe Attorney (MROS). report totheMoneyLaunderingReportingOffice Switzerland qualified shareholdingsoromissionstofileasuspiciousactivity of Finance(FDF)isresponsibleforprosecutingfailurestonotify the CriminalProcedureCode(CrimPC)). The FederalDepartment authorities areincharge of theprosecution(Articles13and357of For certainadministrativeinfractions,thecompetent Swiss ExchangeLtdistheleadingstockexchangeinSwitzerland. Exchange Ltd,SIXCorporateBondsLtdandRepoLtd). laws andrulesatthetradingvenuesofSIXGroup(SIXSwiss the supervisionandenforcementofapplicablestockexchange 6 et seqq. ofFINMASA).Itmay(i)demand thatinformationand services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/

ofCrimPC).Incriminalproceedings,personswhohave

et seqq.

ofCrimPC).

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Switzerland

inter alia

, ifit

139 Switzerland 140 Switzerland Regulation andFDFthusmay notappealdecisionsofthese Bank clientsdonottakepartin proceedingsofFINMA,SIX be appealedtotheFederal Tribunal (Article78oftheFTA). FINMASA). The FederalCriminalCourt’s decisionsmayfurther appealed totheFederalCriminal Court(Article50(2)of The decisionsoftheFDFonadministrative infractionsmaybe independent appealboardorthecourtofarbitration. Sanctions Commission’s decisionsmaybeappealedeithertoan Commission oftheSIXGroup.Dependingonsanction, The decisionsofSIXRegulationmaybeappealedtotheSanctions FTA). may befurtherappealedtotheFederal Tribunal (Article82ofthe Procedure Act (APA)). The Federal Administrative Court’s decision Administrative Court(Article47(1)(c)ofthe Administrative The decisionsofFINMA maybeappealedtotheFederal 6.4 recommendation. from theSwissbankinquestion2017,followed which theSwissBankingOmbudsmanrecommendedconcessions binding. However, inthevastmajorityofcases(96%),for The recommendationsoftheSwissBankingOmbudsmanarenot regulatory bodieswithoutgoodcause. courts donotcommonlydiffer fromthefactsestablishedby of regulatorybodiesarenotbindingforcivilcourts.However, civil rule alsoappliestofinancialservicesdisputes. Therefore, decisions assessment oftheevidencetaken(Article157CCP). This As ageneralrule,civilcourtsformtheiropinionbasedonfree 6.3 Swiss BankingOmbudsman. client hasreleasedthebankfromSwisssecrecytowards obtain documentationandinformationfromthebankif Ombudsman isentitledtocontacttheSwissbankinquestionand mediator andthushasnopowers.However, theSwissBanking The SwissBankingOmbudsmanonlyactsasanindependent committed. sanctions tobeimposeddependontheviolationorcrime inspections, (iv)appointexperts,and(v)conductinspections. The accused person,witnessesandotherinformants,(iii)conduct information anddocumentationbeprovided,(ii)interviewan powers inordertogatherevidence,may, The FDFandprosecutionauthorities,whichhaveawiderangeof exclusion fromfurtherlistings;and(vi)withdrawalofrecognition. delisting orreallocationtoadifferent regulatorystandard;(v) million (incasesofwrongfulintent);(iii)suspensiontrading;(iv) fine ofuptoCHF1million(incasesnegligence)or10 Regulation mayimposethefollowingsanctions:(i)reprimand;(ii) parties involvedandthirdparties.Incaseofaviolation,SIX SIX Regulationmay(i)appointexperts,and(ii)interrogatethe supervised entitiesandpersons. has noauthoritytoimposeanyfinesorothersanctionson and ordertheliquidationoffinancialinstitutions.However, FINMA carry outthedisgorgement ofprofits,and(viii)withdrawlicences management capacityorexercisingaprofessionalactivity, (vii) supervisory provisions,(vi)prohibitindividualsfromactingina ruling ifthesupervisedentitiesandpersonshaveseriouslyviolated Homburger © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM regulatory bodies.

exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon

inter alia

, (i)demandthat

report, whichalsoincludesanonymisedcasereports. addition, theSwissBankingOmbudsmanpublishesanannual published around300anonymisedcasereportsonitswebsite.In publicly accessible.However, theSwissBankingOmbudsmanhas The recommendationsoftheSwissBankingOmbudsmanarenot published. not publishedwhereasthedecisionsofcourtsappealare In general,thedecisionsofEFDandprosecutionauthoritiesare enforceable onitswebsiteinanonymisedform. SIX Regulationpublishesthedecisionsthathavebecomelegally activity. references tocourtrulingsandstatisticsonFINMA’s enforcement processed anddecidedduringthepastyear. The reportalsoincludes these reports,FINMA publishesanonymisedsummariesofthecases since 2015,FINMA haspublishedanannualenforcementreport.In The decisionsofFINMA arenotpubliclyaccessible.However, 6.5 binding, thereisnorightofappeal. Since theSwissBankingOmbudsman’s recommendationsarenon- respect, Switzerland isnotveryplaintiff-friendly. against financialinstitutions(see question2.1above).Inthis Furthermore, costbarriersmayprevent clientsfromfilinganaction the damageandcausationlies with thecustomerasplaintiff. In general,theburdenofproofwith regardtoabreachofcontract, 7.2 observed. increase ofproceedingsandsanctionsagainstindividualscanbe FDF havebeenincreased.Sincethefinancialcrisis,however, an Following thefinancialcrisis,powersofneitherFINMA northe supervisory organisation approvedandmonitoredbyFINMA. supervision ofexternalassetmanagersbyanindependent rules (seequestion2.5above);(iv)uniformprospectusrules;and(v) EU conceptofprofessionalandprivateclients;(iii)marketconduct services inSwitzerland;(ii)clientcategorisationrulesbasedonthe for foreignservicesproviderstoregisteriftheyintendprovide several changestotheSwissregulatoryframework:(i)obligation FinSA, whichwillbeenactedonJanuary1,2020,introduce and classsettlements). procedural costs,reconciliationhearingsbeforecommercialcourts payments forcourtcosts,newrulesregardingtheliquidationof barriers forcustomerstolitigate(e.g.,reductionofadvance Federal Councilsuggestsseveralchangesthatwilllowerthe In itsrecentlypublishedproposalforarevisionoftheCCP, the 7.1 7 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly customer-friendly? considered tobemorefinancialinstitution-or On aninternationallevel,wouldyourjurisdictionbe against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea

Switzerland

information oradvice. Tribunal concludedthatthebankhadnospecialdutytoprovide wanted toinvestonhisorherowninitiative. As aresult,theFederal According totheFederal Tribunal, itwasmorelikelythattheclient establish thatthebankactuallyrecommendedinvestment. obligation toadvisetheclient.Inthiscase,clientwasunable based onthecircumstanceswhetherornotbankhasassumedan bank advisorhasrecommendedaninvestment,thecourtwillassess Federal Tribunal ruledthatifabankclientcannotprovethe In adecisionofJanuary29,2018(caseno.4A_54/2017),the 7.3 have becomeincreasinglystricter. requirements forthedutyofcaretobeobservedbySwissbanks sympathy andunderstandingforretailclients.Inaddition,the On theotherhand,inparticularatdistrictcourts,judgesshow Homburger © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 actually beenhacked. client wasunabletoestablishthathisorheremailaccounthad her identityormeansofcommunication.Inthiscase,however, the must proveintheeventoffraudthatathirdpartyhasmisusedhisor connection withtheexecutionofpaymentorders,bankclient Tribunal heldthatwhenabankfulfilsitscontractualobligations in In adecisionofMay29,2018(caseno.4A_81/2018),theFederal account. unauthorised investments,andtheactualvalueofsecurities between thebankadvisor’s statements,whichdidnotincludethe however, hadimproperlycalculatedthelossbasedondifference the clientmustprovelossforeachsingleinvestment. The client, substantiated theassertedlosses. According totheFederal Tribunal, the ZurichCommercialCourt,asbankclienthadnotsufficiently Tribunal upheldtheappealofaprivatebankagainstjudgment of In adecisionof April 16,2018(caseno.4A_586/2017),theFederal drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding

have ledtoawaveoflawsuitsconcerningdatatransfersabroad. adoption oftheautomaticexchangeinformationintaxmatters taxed assets.BoththecooperationwithUSauthoritiesand and havegenerallyadoptedthestrategyofonlyacceptingcorrectly also settledtheirdisputewiththeUSregardingundeclaredassets Switzerland andotherstates.Meanwhile,mostSwissbankshave for anautomaticexchangeofinformationtaxpurposesbetween has enteredintoseveralmultilateralagreementsthatprovideabasis Moreover, asanindirectresultofthefinancialcrisis,Switzerland must meethighercapitalrequirementsthanbeforethecrisis. Swiss bankingsectorweretightened.Forexample,bankstoday Following thefinancialcrisisof2008,variousregulationsin 7.4 surrender ofthepayments,commitsacriminalbreachtrust. for thisclient,andthuscausestheclienttobeunableclaim her clientaboutretrocessionsreceivedinconnectionwithactivities person who,inbreachofcontractualduties,doesnotinformhisor clients aboutthereceiptofretrocessions. According tothecourt,a manager forcriminalbreachoftrust,ashehadnotinformedhis Federal Tribunal confirmed theconvictionofanexternalasset In adecisionof August 14,2018(caseno.6B_689/2016),the jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

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141 Switzerland 142 Switzerland Homburger © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM with aMasterofLaws(LL.M.)fromColumbiaLawSchool.In2019, 2010, hejoinedHomburgerasanassociate,andin2014graduated Zurich andwasadmittedtothebarinSwitzerlandoneyearlater. In a lawclerkwithspecialdutiesanddeputyjudgeattheDistrictCourtof he obtainedadoctorateinlaw2007.Starting2008,workedas University ofZurichandasalawclerkattheDistrictCourtZurich, graduated in2002. After workingasanacademicassistantatthe Roman BaechlerstudiedlawattheUniversityofZurich,fromwhichhe proud ofitsdisputeresolutionteam,whichisonethelargestandmosteffective inSwitzerland. experienced specialists,Homburgercanoffer comprehensiveandprofessionaladviceinallkeyareasofcommerciallaw. Homburg more than150lawyersareregisteredwiththeBar Association oftheCantonZurichand/orpractiseastaxadvisors. Thanks through negotiations,representsthembeforepublicauthoritiesandincourt,protectstheirinterestsadministrativepr transactions, proceedingsandcomplexcasesinbothadomesticglobalcontext.Homburgeroffers itsclientslegaladvice As aleadingSwisscorporatelawfirm,Homburgeradvisesandrepresentsenterprisesentrepreneursinallaspectsofcommerc domestic andinternationalcommerciallitigation. Roman BaechlerbecameapartneratHomburger. Hespecialisesin Switzerland 8005 Zurich Hardstrasse 201 Prime Tower Homburger Roman Baechler URL: Email: Tel: www.homburger.ch [email protected] +41 432221000

and Italian. issues. HeisfluentinGermanandEnglishunderstandsFrench regularly advisesclientsoncross-borderprivacyanddataprotection practice alsofocusesonprivacyanddataprotectionlawhe in internalinvestigationsandregulatory/compliancematters.His and internationallitigationadministrativeproceedings,aswell Market LawfromtheUniversityofZurich.Hespecialisesindomestic same year. In2016,heobtainedapostgraduatediplomainFinancial in Switzerland2012andjoinedHomburgerasanassociatethe government ofthedistrictOberaargau.Hewasadmittedtobar later workedasalawclerkattheDistrictCourtof Thun andthe Reto Ferrari-Visca graduatedfromtheUniversityofBernin2009.He ICLG TO: FINANCIAL SERVICESDISPUTES 2019 URL: Email: Tel: Switzerland 8005 Zurich Hardstrasse 201 Prime Tower Homburger Reto Ferrari-Visca www.homburger.ch [email protected] +41 432221000

oceedings. Homburger’s Switzerland to theteamworkof

, supportsthem er isparticularly ial law–

Chapter 24 USA Matthew L. Biben

Debevoise & Plimpton LLP Mark P. Goodman

1 Bringing a Claim – Initial Considerations each and the breadth of financial services-related conduct they cover, including consumer lending and securities.

1.1 What are the most common causes of actions taken 1.2 What remedies are most likely to be awarded? by or against financial institutions and service providers in your jurisdiction? The most common remedies awarded in litigation involving financial institutions are money damages, civil money penalties (including Common causes of action brought by and against financial fines), and equitable relief to restrain future violations and remedy the institutions can be organised into several broad categories. effects of past violations. Regulatory agencies commonly seek The first category of claims is the sort of general business litigation monetary penalties, restitution to injured private parties, that all large corporations face: this includes employment and labour disgorgement of improper gains, cease-and-desist orders, and onerous disputes and suits with vendors for breach of contract. compliance plans that impose duties on the board of directors and The second category relates to litigation brought by or against sometimes must be monitored by an independent third party. counterparties and investors, including consumers, borrowers, joint venture partners, and shareholders, the most common forms of which 1.3 Who has a right of action in financial services include suits for breach of fiduciary duty, shareholder derivative disputes? Does it make a difference if the customer is claims, misrepresentation, negligence, breach of contract, statutory an individual or a commercial entity? claims under federal and state consumer protection laws (including pursuant to “unfair or deceptive practices” or “UDAP” laws), fraud The availability of a cause of action will depend on the jurisdiction and, for broker-dealers, suitability and failure to supervise claims. and the nature of the alleged injury. Typically, anyone who suffers a Some of these lawsuits are brought as class actions. In the last 10 statutory, common law, or contractual injury will have standing to years, many actions were brought both by and against financial bring suit. While the availability of a cause of action does not institutions relating to alleged fraud, misrepresentation, and breach typically turn on whether the customer is an individual or a of contract arising from mortgage securities, collateralised debt commercial entity, sophisticated entities may face a higher burden in obligations, and credit derivative products. establishing certain elements of a cause of action or defence – e.g., the The third category involves civil and occasionally criminal cases detrimental reliance that is an element of fraud claims in many states. brought by government agencies, such as state attorneys general and Certain statutes create a right of action that can only be enforced by district attorneys acting under their respective state’s UDAP statute government actors or agencies and not private parties. Other federal and other laws, and federal agencies such as the Securities and and state laws contain, or have been interpreted to contain, a private Exchange Commission (“SEC”), Consumer Financial Protection right of action authorising private parties to bring claims for breach Bureau (“CFPB”), Commodity Futures Trading Commission of regulatory duties. While the general rule of statutory (“CFTC”), Department of Housing and Urban Development interpretation is that in the absence of express legislative intent, (“HUD”), and Department of Justice (“DOJ”), acting pursuant to duties imposed by statute or regulation may not form the basis for a federal securities, banking, and consumer protection laws. In the private right of action, courts have sometimes found that a private last 10 years, federal and state agencies were especially active in right of action is “implied” in the text of the statute. For example, bringing enforcement actions against financial institutions for courts have ruled that there is an implied private right of action to alleged wrongdoing relating to the financial crisis, particularly with enforce the anti-fraud provisions of the federal securities laws. The respect to the packaging, rating, marketing, and sale of mortgage scope of an implied right of action is construed narrowly. securities. In addition, regulators investigated and brought enforcement actions relating to interest rate-fixing schemes (e.g., LIBOR), high-frequency trading, insider trading, share class 1.4 Is third-party funding available in financial services selection disclosures, mortgage default and foreclosure practices, litigation (crowdfunding, maintenance, champerty, etc.)? Does litigation insurance operate in your credit card collection practices, and cryptocurrencies. jurisdiction and, if so, what are the implications for Investigations and enforcement actions brought pursuant to the this? Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”) and False Claims Act (“FCA”) have been particularly The doctrines of champerty and maintenance – which have common given the relatively long statutes of limitation applicable to

ICLG TO: FINANCIAL SERVICES DISPUTES 2019 WWW.ICLG.COM 143 © Published and reproduced with kind permission by Global Legal Group Ltd, London 144 USA Other barrierstofinancialservices litigationincludeliability enforceability ofarbitrationclauses. and hasbeenheldtopre-empt statestatuteslimitingthe commerce”. The FAA reflectsaU.S.policyinfavourofarbitration applies broadlytoany“contractevidencing atransactioninvolving (“FAA”) promotestheenforceabilityofarbitrationclauses and barriers tolitigationforcustomers. The Federal Arbitration Act Arbitration clausesinconsumercontractsareoneofthemain 2.1 court tofederalcourt. financial servicesfirmstoremoveclassactionlawsuitsfromstate The Class Action Fairness Act of2005expandedtheability waivers remainpermissiblefornow. by afederalstatutepassedinNovember2017,soclassaction such waiversintoconsumercontracts,butthatrulewasabrogated aimed atlimitingtheabilityoffinancialservicesproviderstoinsert consumer contracts.InJuly2017,theCFPBpromulgatedarule In manycases,classactionsareprecludedbyarbitrationclausesin class actionsappeartohavefallenbackpre-crisislevels. companies inthefinancialsector. Since2010,newfilingsofsuch spike inthenumberofsecuritiesclassactionsuitsbroughtagainst Immediately followingthefinancialcrisis,therewasasignificant securities laws. Act, stateUDAP statutes),andclaimsunderfederalstate consumer protectionlaws(e.g.,the Telephone ConsumerProtection shareholder derivativeactions,suitsunderfederalandstate common classactionsbroughtagainstfinancialservicesfirmsare representatives willfairlyprotecttheclass’ interest. The most representatives haveclaimstypicaloftheclass;andthatthose questions oflaworfactamongtheclassmembers;that that themembersofclassbenumerous;therecommon Class actionlawsuitsareavailableintheUnitedStatesandrequire: 1.5 conduct. limitations, includingforcriminalordeliberatelyfraudulent company. Suchpoliciestypicallycontainexclusionsand settlements thatariseoutofactstheyperformonbehalfthe officers withliabilityinsurancethatcoverslitigationcostsand On thedefendantside,mostcompaniesprovidedirectorsand the downsideriskforplaintiffs andencourageslitigation. alternative feearrangements,suchascontingencyfees,whichlower market isdeveloping.Manyplaintiff-side lawyersalsooffer more commonforplaintiffs thandefendants,butthedefendant-side increasingly importantpartofdisputeresolution.Financingisfar doctrines donotactasabar, litigationfinancehasbecomean abandoned inothers. Where thechampertyandmaintenance funding lawsuits–arepermittedinsomestatesandprohibitedor historically operatedtoprecludethirdpartiesfromencouragingor Debevoise &PlimptonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM limitations, exclusions, orwaiversincorporated into consumer 2 case? contracts whichpreventcustomersfrombringinga clauses ordutydefiningincustomer litigation forcustomers? Are thereexclusionary What arethemainbarrierstofinancialservice Before CommencingProceedings class actionsuitspostthefinancialcrisis? services litigation?Hastherebeenanincreasein jurisdiction? Ifso,hasthisimpactedfinancial Are classactionlawsuitsavailableinyour

to a10-yearstatuteoflimitations.ClaimspursuedundertheFCA violating anyoneofanumberotherfederalstatutes–aresubject that subjectsfinancialinstitutionstocivilmoneypenaltiesfor Actions broughtundertheFIRREA –abroadcivilanti-fraudstatute more than$100,000. statute oflimitationsforbreachclaimsinvolvingcontractsvaluedat recent lawallowspartiestocontractuallyprovidefora20-year fraud aresubjecttoasix-yearstatuteoflimitations.InDelaware, action. InNew York, forexample,claimsbreachofcontractand Statutes oflimitationsdiffer dependingontheunderlyingcauseof 2.2 one ofthebargaining parties”. showing thattheclauseis“fundamentallyunfairoroppressiveto unconscionable isanexceedinglyhighburdenandrequiresa or publicpolicy. Demonstratingthatacontractualprovisionis are unconscionableoriftheycontraveneamandatorystatutoryduty Arbitration clausesandliabilitywaiverswillnotbeenforcedifthey gross negligence. where thefinancialinstitutionhasengagedinwilfulmisconductor contracts. Liabilitywaiversaregenerallyenforced,exceptincases privilege astothird parties,knownastheselective waiver doctrine. attorney-client privilegedmaterial toaregulatoryagencywaives U.S. jurisdictionsdiffer overwhetherthevoluntarydisclosure of Congress. information inconnectionwith an investigationbytheU.S. invoke theattorney-clientprivilege towithholddocumentsor covered bytheattorney-clientprivilege. Inaddition,partiescannot banking institutionstoproduceinformationthatwouldotherwisebe (“FDIC”), andtheCFPB,haveassertedtheirauthoritytocompel Currency (“OCC”),theFederalDepositInsuranceCorporation including theFederalReserve,Office oftheComptroller regulatory examinationorinvestigation,certainfederalagencies, or informationinfinancialserviceslitigation.Inthecontextofa The attorney-clientprivilegecanbeassertedtowithholddocuments 2.3 interpreted bytheregulatorasan Refusing anagency’s requesttosignatollingagreementcanbe of limitations. This cansometimesleadtoprolongedinvestigations. investigation toenterintoanagreementtolltheapplicablestatute investigation, itiscommonpracticeforthecompanyunder When afederalorstategovernmentagencylaunchesan statute oflimitations. General underthefar-reaching Martin Act aresubjecttoathree-year Claims forsecuritiesfraudpursuedbytheNew York Attorney actions seekinga“civilfine,penalty, orforfeiture”. subject tothegeneralfive-yearstatuteoflimitationsforgovernment committed). CivilenforcementactionspursuedbytheSECare event morethan10yearsafterthedateonwhichviolationis have knownaboutthematerialfactssurroundingfraud(butinno committed, or(2)threeyearsaftertheUnitedStatesknewshould must bepursuedeither(1)sixyearsfromwhenthefraudwas ICLG TO: FINANCIAL SERVICESDISPUTES 2019 clock’? the commencementofaregulatoryprocess‘stop before aregulatorybodyorthecourts?Does depending onwhetherproceedingsarebrought disputes mustbecommenced?Ifso,isitdifferent Is thereatimelimitwithinwhichfinancialservices considered ‘litigation’ inthecontext ofprivilege? investigations conductedbyregulatedbodies litigation and/orlegaladviceprivilege? Are Can partiesinfinancialserviceslitigationavailof

indicia ofalackcooperation.

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2.5 in theUnitedStatesoutsideofrealmbankruptcyproceedings. The ISDA Master Agreement hasnotbeensubjecttomuchlitigation are betweentwosophisticatedparties,suchasfinancialinstitutions. standard formmasteragreements,especiallywhentheagreements and masterrepurchaseagreements.U.S.courtsgenerallyenforce qualified financialcontractspursuanttoISDA Master Agreements Regulated entitiesintheUnitedStatestypicallydocumenttheir 2.4 respect tothirdparties. submitting informationtotheBureaudoesnotwaiveprivilegewith opposite view. The CFPBhasspecifiedinarulethataninstitution privilege asagainstthirdparties;theremainingjurisdictionstake document toagovernmentregulatoryagencywilldestroythe A majorityofU.S.jurisdictionsholdthatdisclosureaprivileged Debevoise &PlimptonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 they willhear(1) civilcasesinvolvingissuesarising underfederal or statecourt.Federalcourtsare oflimitedciviljurisdiction; In theUnitedStates,civillitigation isbroughteitherinfederalcourt 3.1 generally construethemverynarrowly. between theparties.Becausetheyareimpliedduties,courts faith andfairdealingwheneverthereisacontractualrelationship The commonlawofmoststatesimposesanimplieddutygood liability. financial institutioncannotcontractuallydisclaimitsstatutory owed byafinancialinstitutiontoitsinvestorsandcustomers. A products, andnumerousstateregulatorystatutesestablishduties federal Truth inLending Act (“TILA”)forconsumercredit Advisors Act of1940),disclosurerequirementsimposedbythe 1933, SecuritiesExchange Act of1934,andtheInvestment Securities disclosurerequirements(pursuanttothe Act of debtor relationshipsorloanparticipationagreements. they engageinarms-lengthtransactions,suchastraditionalcreditor- Financial servicesentitiesarenotsubjecttofiduciarydutieswhen corporate opportunities. their dutyofloyaltytothecorporation,specificallywithrespect Delaware lawallowscorporatedirectorstocontractoutofpart to creditorsandmustactinaccordancewiththecreditors’ interests. enters thezoneofinsolvency, thedirectorsalsoowefiduciaryduties boards, havefiduciarydutiestoshareholders. When acorporation customer. Corporations,anddirectorswhoserveoncorporate a financialservicesentityactsinanadvisorycapacitywith fiduciary dutytotheirclients.Fiduciarydutiesmayalsoexistwhen Securities broker-dealers andfinancialadvisorsgenerallyowea and byfederalstatestatutes. include dutiesimposedbythecommonlaw, suchasfiduciaryduties, Non-contractual dutiesthatarebindingonfinancialinstitutions 3 they becontractedoutof? particular fiduciarydutyoracodeofconduct)?Can binding onfinancialservicesentities(forexample,a Are thereanynon-contractualdutieswhichare ISDA Master Agreement)? Howaretheytreated? jurisdiction forfinancialinstitutions(forexample,the Are standardformmasteragreementsusedinyour financial serviceslitigation? Is thereaspecialistcourtor judgesfor Progressing theCase

3.2 courts, suchasshorterdiscoverytimetables. amount incontroversy. Specialcivilproceduresoftenapplyinthese out ofbusinessdealings.Claimsgenerallymustexceedaminimum actions, commercialclassandstatutoryviolationsarising including breachofcontractorfiduciaryduty, fraud,derivative hears casesinvolvingawiderangeoffinancialserviceslitigation, other commercialentities.InNew York, theCommercialDivision involving businesstransactionswithfinancialinstitutions,among Illinois, havededicatedcommercialcourtsestablishedtohearcases At thestatelevel,somestates,includingNew York, Florida,and composed ofindustryexperts. Authority (“FINRA”)canbebroughtbeforeaFINRA arbitralpanel, broker-dealers registeredwiththeFinancialIndustryRegulatory securities lawsadministeredbytheSEC.Inaddition,claimsagainst judges, forexample,haveexpertisewithrespecttothefederal familiarity withspecificregulatorytopics;SECadministrativelaw however, areoverseenbyadministrativelawjudgeswhohave for financialserviceslitigation.Federaladministrativeproceedings, In thefederalcourtsystem,therearenospecialistcourtsorjudges restrictions onthecivilcasestheywillhear. courts ofgeneraljurisdictionanddonotimposesubject-matter differ instateand/ornationality).Statecourts,bycontrast,are $75,000 andthepartiesare“diverse”fromoneother(meaningthey law, and(2)civilcaseswheretheamountincontroversyexceeds services disputesisverycommon andmanyconsumercontracts enforceability ofarbitrationclauses. Arbitration offinancial and hasbeenheldtopre-empt statestatuteslimitingthe commerce”. The FAA reflectsaU.S.policyinfavourofarbitration applies broadlytoany“contractevidencing atransactioninvolving The FAA promotestheenforceabilityofarbitration clauses and 3.4 board ofdirectorsbeforeanactionmaybefiled. corporations lawsrequirethatapre-suitdemandbemadetothe For derivativeactionsbroughtbyshareholders,manystate judicial reviewofanagencydetermination. may berequiredtoexhaustadministrativeremediesbeforeseeking With regardtoregulatoryenforcementactionsandrulings,aparty timetables andappliesharshersanctionsfornon-compliance. York’s CommercialDivisionimposestight discovery limitationsand recognise thatpre-trialproceduresvarybycourt.Forexample,New litigation; however, asdiscussedinquestion3.2,itisimportantto There arenopre-trialproceduresthatuniquetofinancialservices 3.3 district inwhichthelitigationistakingplace. by court.Itiscriticaltoreviewtherulesspecificcourtor Service methodsdonotvarybytypeofproceeding,butoften Does themethodofserviceproceedingsdifferfor jurisdiction? used toresolvefinancialservicesdisputesinyour in financialservicescontracts,andis ADR commonly your jurisdiction? Are ADR clausestypicallyincluded regulations thatapplytofinancialservicesdisputesin Are thereanyalternativedisputeresolution(ADR) consequences ofnotabidingbythem? jurisdiction? Ifso,whataretheyandthe be followedforfinancialserviceslitigationinyour Are thereanyspecificpre-trialproceduresthatmust financial servicelitigation?

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145 USA 146 USA personal dataheld byafinancialservicesinstitution ifthe In thecontextoflitigation,acustomer canrequestdisclosureof security protectionsinrecentyears. examinations orinvestigationshave putinplacestringentdata quantities offinancialdatain connectionwithsupervisory Many regulatoryagenciesthat seek theproductionoflarge material inseveralways. protective order, whichrestrictsthedisseminationanduseof will conditionthedisclosureofsuchmaterialpursuanttoa presumptively protectedfromdiscoveryinlitigation.Mostcourts Commercially sensitiveandconfidentialinformationisnot 3.7 have purchasedproductsorservicesfromaparticularcompany. restricted tonaturalpersons,andoftenonlythoseindividualswho “consumer” variesfromregulationtoregulation,butisusually any goodsorservices”.Ontheotherhand,CFPB’s definitionof or agencyofthisstatewhoseeksacquiresbypurchaselease, any “individual,partnership,corporation,thisstate,orasubdivision Trade Practices Act (Texas’ UDAP statute)defines“consumer”as be broaderthanfederalones.Forexample,the Texas Deceptive jurisdiction andthecontext,but,ingeneral,statedefinitionstendto The term“consumer”isdefineddifferently dependingonthe business practices. violations ofregulatoryrequirementsandunfairordeceptive grant aprivaterightofactiontoconsumersbringsuitsrelating Numerous federalandstateUDAP andconsumerprotectionstatutes laws, whichdefineunfairpracticesbroadly. upheld. UnfairtermsalsocanrunafouloffederalandstateUDAP that areunconscionableorcontrarytopublicpolicywillnotbe a certainlevelofunequalbargaining power, althoughcontractterms Courts generallyupholdcontracttermseveniftheyaretheresultof 3.6 consumer protectionstatutes. statutory remediesfornegligentmisrepresentationunderstate to thecommonlawcauseofaction,manyplaintiffs canseek justifiable reliance;(3)causation;and(4)pecuniaryloss.Inaddition misrepresentation generallymustshow:(1)amisrepresentation;(2) negligent misrepresentation. A plaintiff suingfornegligent Many statejurisdictionsrecognisecommonlawcausesofactionfor 3.5 arbitration provisionbetweentheparties. arbitration ofdisputes,evenintheabsenceacontractual Certain self-regulatoryorganisations, suchasFINRA,providefor market. in theirconsumercontracts,andsodid44%ofthecheckingaccount the totalcreditcardmarketincludedmandatoryarbitrationclauses contain arbitrationclauses.In2015,theCFPBfoundthat53%of Debevoise &PlimptonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM dealt withinyourjurisdiction? How areclaimsfornegligentmisstatement/mis-selling dealt withinthecontextofdiscoveryordisclosure? commercially sensitiveorconfidentialinformation services customeraccesstheirpersonaldata?Howis with infinancialserviceslitigation?Cana How isdataprotection/freedomofinformationdealt jurisdiction? broad isthedefinitionofa‘consumer’ inyour defences availablespecificallytoconsumers?How in yourjurisdiction? Are thereanycausesofactionor How haveunfairtermsincontractsbeeninterpreted

Certain self-regulatoryorganisations alsoprovideforarightof Court of Appeals orstatecourt. party canfileapetitionforjudicialreviewwiththeappropriateU.S. initial appealisheardinternallywithintheagency, andthenthe decision byafederalorstateadministrativeagency;typically, the courts toappealscourts.Partiesalsohavearightappeal There isarighttoappealdecisionsmadebylowerfederalandstate 4.1 made atthetimeofproductiontogovernmentagency. basis toresistdisclosure,butaclaimofconfidentialitymustbe state regulators.Undersuchlaws,confidentialitymayprovidea presumptive righttoobtaindocumentssubmittedfederaland Act, grantmembersofthepublic,includingmedia, Federal andstatelaws,suchasthefederalFreedomofInformation on thecourt’s docket. data, andbankaccountnumbers,fromalldocumentspubliclyfiled identifiable information,suchassocialsecuritynumbers,health all federalcourts,requiretheredactionofcertainpersonally lead tothediscoveryofadmissibleevidence.Mostcourts,including information isrelevanttothelitigationorreasonablycalculated so basetheirdecisionsoninternational comity. enforce foreignjudgmentsandstates thatrelyoncommonlawtodo and enforceaforeignjudgment. Moststatelawsrecogniseand will applyrelevantstatelawindetermining whethertorecognise although thereisnofederallawgoverning theissue,federalcourts With respectto the enforcementofforeignjudgmentsinU.S.courts, to theU.S.beingasignatoryofNew York Convention. courts recogniseandenforceinternationalarbitralawardspursuant purely internationaldisputes,outsideofU.S.jurisdiction, clauses areoftenupheldasvalidandenforceable. With respectto institutions arisingfromcontractsgovernedbyU.S.law, arbitration litigation. IndisputesbetweenU.S.andforeignfinancial provisions andarbitralawardstypicallyariseincross-border Disputes overtherecognitionandenforcementofarbitration 5.1 litigation. applicable topublicinterestcasesratherthanfinancialservices shifting statutesaretheexceptiontoruleandgenerally its ownattorney’s feesandlitigationcostsincivillitigation.Fee- Consistent withthe“AmericanRule”,eachpartyisresponsiblefor 4.2 determination totheSECandfederalcourt. Council (“NAC”).PartiescanfurtherappealtheNAC’s made byFINRA hearingpanelstoFINRA’s National Adjudicatory appeal. Forexample,partieshavetherighttoappealdecisions 4 5 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 disputes? Is therearightofappealinfinancialservices Post Trial how aretheycateredforinyourjurisdiction? or investigationsinvolvingfinancialinstitutionsand What issuestypicallyariseincross-borderdisputes Cross-Border Issues services disputes? How doesthecourtdealwithcostsinfinancial

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communications andtherightagainstself-incriminatingtestimony. affords rigidprotectionstoprivilegedattorney-client In contrasttoitsbroadapproachdiscovery, theUnitedStates the discoveryrequestsareoverbroad. not alwaysgrantedbyforeigncourts,whichsometimesdecidethat by lettersrogatorycanbealengthyprocess,andsuchrequestsare gathering evidencelocatedinthatcountry. Engagingindiscovery U.S. courtcanappealtoaforeignforitsassistancein letter ofrequest,knownalsoasarogatory, throughwhichthe discovery andonetoolemployedtocollectevidenceabroadisthe related tothediscoveryofevidence.U.S.courtsallowforbroad Cross-border disputesandinvestigationspresentcomplications parties. through amotiontotransferthecourtchosenbycontractual clauses areusuallyrecognisedinU.S.courtsandcanbeenforced substantially affected theUnitedStates.Unilateraljurisdiction committed intheUnitedStatesorconductoutside conduct substantiallyfurtheringthesecuritiesviolationwas SEC ispermittedtoassertextraterritorialjurisdictionaslong jurisdiction clausesarealsocommonincross-borderdisputes. The Issues relatingtoextraterritorialjurisdictionandunilateral Debevoise &PlimptonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 jurisdiction intheabsenceofexpress legislativeintent. The Co. National Australia BankLtd. The SupremeCourthasruledin decisionssuchas 5.3 occurring withintheirborders,ratherthanonglobalissues. environments forfinancialinstitutionsbasedontheproblems be increasinglyfocusedoncreatingtheoptimalregulatory sector. Nationaljurisdictions,includingtheUnitedStates,seemto from cooperationwithregulatorybodiesinthebankingregulation tendencies areincreasing. As aresult,therehasbeensomeretreat In thecurrentglobaleconomy, nationalistandprotectionist cross-border regulationofOTCderivatives. statement reflectingtheirsharedcommitmenttocooperationonthe example, theSECandforeignregulatorybodiesissuedajoint ensure thesafetyandsoundnessoffinancialsector. In2012,for foreign regulatorsoffinancialservicesentitiestocombatfraudand There continuestobehigh-levelcooperationamongU.S.and of internationalcomity. recognition andenforcementofforeignjudgmentsunderthepolicy enforcement offorum-selectionclausesinparties’ contracts;andthe the assistanceofforeigncourtsin:cross-bordercivildiscovery; courts bymeansoflettersrequest(orrogatory),whichseek As addressedinquestion5.1,U.S.courtscooperatewithforeign 5.2 testimony inaccordancewithitslaw. a U.S.proceedingevenifforeignsovereigncompelledthesame having toprovideself-incriminatingtestimonygenerallyappliesin regard totherightagainstself-incrimination,protection communications shouldremainprivilegedorconfidential. With determine whichcountryhasthestrongestinterestinwhether court commonlyappliesthe“touchbase”choice-of-lawtestto If aU.S.proceedingimplicatesforeignprivilegelaw, theU.S. thatstatutesarepresumednot tocreateextraterritorial disputes (includinginvestigations)? regulatory bodiesorofficialsinfinancialservices jurisdiction toco-operatingwithforeigncourtsor What isthegeneralapproachofcourtsinyour your jurisdictionand,ifso,inwhat circumstances? Is extra-territorialjurisdictiontypicallyassertedin

and Kiobel v. RoyalDutchPetroluem

Morrison v.

power isanimportantfactorinevaluatingsuchagreements. unconscionability; asignificantdisparityintheparties’ bargaining held invalidonthegroundsofmutualobligationor expectations. However, insomestates,unilateralclausescanbe ruled thatcourtsshouldnotunnecessarilydepartfromtheparties’ the courtevaluatesamotiontotransfer, theU.S.SupremeCourthas While bothprivateandpublicfactorsareusuallyconsideredwhen transfer thecasebyinvokingdoctrineof party suesinanimproperforum,theothercanmoveto parties haveaforumselectionclauseintheiragreement,andone the UnitedStates,arevalidandenforceableinU.S.courts.If Unilateral jurisdictionclauses,knownasforumselectionclausesin 5.4 United Statessubstantiallyaffected theUnitedStates. violation wascommittedintheUnitedStatesorconductoutside securities fraudwhereconductsubstantiallyfurtheringthe the SECtobringactionsagainstnon-U.S.firmsinvolvedin jurisdiction. The Dodd-Frank Act, forexample,expresslypermits effect andareenforcedpursuanttotheexerciseofextraterritorial Nevertheless, somefederalstatutesexpresslyhaveextraterritorial and foreignlaws. among nationsandpreventunintentionaldisputesbetweendomestic presumption againstextraterritorialityexiststopreservecomity staff. panel consistingofindustrymembers andamemberoftheNYSE referrals fromtheSEC.Proceedings areconductedbeforeahearing basis ofinternalreferrals,investor complaints,examinations,and that violateitsinternalrulesaswell asfederalsecuritieslawsonthe for example,hasauthoritytotakedisciplinaryactionagainstissuers financial servicesfirms. The New York StockExchange(“NYSE”), Securities exchangesprovideaforumfordisputesinvolvinglisted hearing officer andtwoindustryexperts. firm beforeaFINRA administrativepanelcomposedofaFINRA FINRA itselfmaybringacomplaintagainstregisteredbrokeror registered withFINRA)andbrokeragefirmsbrokers. forum toresolvedisputesbetweeninvestors(whetherornot registered members.FINRA,forexample,providesanarbitral services industryalsoprovideforumsfordisputesinvolving Certain self-regulatoryorganisations specifictothefinancial before anadministrativepanelorstatecourt. financial servicesfirms,maysimilarlybringanenforcementaction enforcement authorityoverstatecharteredbanksandmanyother Generally, stateregulatoryagencies,whichpossesssupervisoryand administrative lawjudges. against financialservicesfirmsinfederaldistrictcourtorbefore CFPB, HUD,FTC,andCFTC,canbringenforcementactions services entities,suchastheOCC,FederalReserve,FDIC,SEC, exercise supervisoryandenforcementauthorityoverfinancial involving financialservicesfirms.Federalregulatoryagenciesthat agencies andorganisations thatprovideaforumfordisputes There areanumberoffederal,state,andindependentregulatory 6.1 6

enforceable inyourjurisdiction? Are unilateraljurisdictionclausesvalidand services disputesinyourjurisdiction? What bodies,apartfromthecourts,regulatefinancial Regulated Bodies

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147 USA 148 USA regulatory agencies aregenerallyappealabletostate courts.In to theappropriateU.S.Courtof Appeals. Decisionsofstate or otheragency, areinitiallyappealabletotheagencyitselfandthen administrative lawjudges,whether attheSEC,CFPB,HUD,CFTC, Most regulatorydecisionsareappealable. Decisionsoffederal 6.4 decision. parties, althoughtypicallythepartieshaverighttoappeal Yes, thedecisionofanadministrativeproceedingisbindingon 6.3 not beincompliancewitharuleorregulation. has theauthoritytodelistafinancialservicesfirmthatisfound and penalties,orderrestitutiontoharmedinvestors. The NYSE example, canseekinjunctiverelief(includingsuspensions),fines and organisational rulesand canimposesanctions.FINRA,for own administrativepanelstoenforceviolationsofsecuritieslaws FINRA andtheNYSEcanbringenforcementactionsbeforetheir investigative demandsisarequirementofcontinuedmembership. subpoena power, althoughcompliancewithFINRA andNYSE respect totheirmembers.FINRA andtheNYSE,forexample,lack Self-regulatory organisations havemorelimitedauthoritywith laws andregulations. are notrequiredtoregisterwiththeSECandenforcestatesecurities banks. Statesecuritiesregulatorsregulateinvestmentadvisorswho enforcing manystatelawswithrespecttonationallychartered issue penalties,althoughstateagenciesarepre-emptedfrom agencies mayalsoenforcestatelaws,exercisesubpoenapower, and that arenotmembersoftheFederalReserveSystem.Statebanking banks, sharingthispowerwiththeFDICrespecttosuchbanks State bankingagencieshavesupervisorypoweroverstatechartered and injunctivesanctions. conduct investigations,enforcenoncompliance,andissuemonetary and enforcementpowers,includingsubpoenapower, thepowerto firms –suchastheSECandCFPBalsohavebroadsupervisory Other federalagencieswithjurisdictionoverfinancialservices consumers. suspensions, cease-and-desistorders,andrestitutionforharmed civil moneypenaltiesandinjunctive–suchas noncompliance, theOCC,FederalReserve,andFDICcanimpose regulations andunsafeorunsoundpractices. To penalise enforcement authoritywithrespecttoviolationsoflawsand possesses visitorialpowersovertheaffairs ofregulatedbanksand banks forsafetyandsoundnessadequatecapital.Eachagency Reserve, andFDIC–areresponsibleformonitoringregulating The federalprudentialbankingregulators–theOCC,Federal products, services,orlawsandregulations. supervisory andenforcementauthoritywithrespecttospecific Generally, eachfederal,state,andself-regulatoryagencyhas 6.2 have thepowertobringenforcementactionsagainstnon-members. only haveauthoritytodisciplineregisteredmembers;theydonot Self-regulatory organisations, likeFINRA andtheNYSE,generally Debevoise &PlimptonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM have? enforcement/sanctions) dotheseregulatorybodies What powers(investigative/inquisitorial/ exist? What rightsofappealfromregulatorydecisions parties toafinancialservicesdispute? Are thedecisionsofregulatorybodiesbindingon

7.1 proceedings publicontheirwebsites. NYSE, alsomakethedecisionsofinternaladministrative Many self-regulatoryorganisations, includingFINRA andthe decisions publiclyaccessible,usuallyontheagencies’ websites. Federal andstateagenciestypicallymakeregulatoryenforcement 6.5 appropriate U.S.Courtof Appeals. must firstbeappealedinternally, andthentotheSEC, similar path–withrespecttoFINRA andtheNYSE,decisions Appeals ofthedecisionsself-regulatoryorganisations followa agency’s expertise. except incaseswherethelegaldeterminationisuniquelywithin determinations, andlessdeferencetoanylegal grant substantialdeferencetotheadministrativepanel’s factual appeals ofadministrativedecisions,federalandstatecourtsgenerally institution-friendly inothers.Consumersareempowered under The U.S.isconsumer-friendly insome waysandfinancial 7.2 significant drop-off inthelasttwoyears. actions in2016. These numbers havenotseenaparticularly actions anddisgorgements, reaching868individualenforcement The SEChascontinuallytoppeditsownrecordsforenforcement enforcement actionsatelevatedratesintheyearssincecrisis. Previously-existing regulatoryagencieshavebeenfiling institutions, includinga$1billionfineagainst Wells Fargo in2018. Act, hasalreadyassessedbillionsofdollarsinfinesagainstfinancial the financialcrisis. The CFPB,createdin2011 bytheDodd-Frank There hasbeenaconsiderableexpansioninregulatorypowersince fiduciaries totheirclients),whichwasrecentlyrolledback. fiduciary rule(requiringretirementplanningadvisorstoactas their ownfiduciaryrulestoreplacetheU.S.DepartmentofLabor’s states, includingNewJersey, areconsideringimplementationof maintain reasonableprivacyprocedures.Inaddition,anumberof subject tounauthorisedaccessdueacompany’s failureto creates aprivaterightofactionwhenconsumer’s informationis maintained bycompanies,includingfinancialinstitutions,and consumers therighttorequestdeletionofpersonalinformation for instance,justenactedanewConsumerPrivacy Act, whichgrants Some statelawdevelopmentsareanticipated,however. California, major developmentsinfederallawthecomingyear. Congress. Becauseofthissplit,itisunlikelythattherewillbeany U.S. HouseofRepresentatives,leadingtoasplitinpartycontrol In Januaryof2019,theDemocraticPartyassumedcontrol 7 ICLG TO: FINANCIAL SERVICESDISPUTES 2019 crisis impactedlegislation?Hastherebeenan trends inyourjurisdiction(e.g.,hasthefinancial expected inthecomingyear. Describeanypractical Summarise anylegislativedevelopmentsinthisarea Updates –CasesandTrends accessible? Are decisionsofregulatorybodiespublicly customer-friendly? considered tobemorefinancial institution-or On aninternationallevel,would yourjurisdictionbe against financialserviceproviders?). amount andtypeofcasesbeingbroughtby reaction tothecrisis?Hastherebeenachangein increase inthepowersofregulatorybodiesasa

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corporate decision-making. financial serviceslitigationprovideanexcellentframeworkfor a meaningfulbodyofcaselawandprecedentinmanyareas future liability. Stablecourts,informedandexperiencedjudges, allowing financialservicesinstitutionstoplanaroundpotential action. CourtsintheU.S.alsooffer agreatdealofpredictability, mandating arbitrationorwaivingtheabilitytoparticipateinaclass including thewillingnessofcourtstoupholdcontractprovisions The U.S.isalsofinancialinstitution-friendlyinsomerespects, consumers. actions toprotectconsumersandseekrestitutionforharmed state regulatoryagencies,whichsometimestakeenforcement financial institutionsareregulatedbyalarge numberoffederaland private partiestobringsuits,includingclassactions.Inaddition, loans, studentsecurities,etc.),mostofwhichauthorise types offinancialproducts(e.g.,mortgages,creditcards,consumer state consumerprotectionstatutesthatapplywithrespecttospecific statutory, andcommonlawrights. There arenumerousfederaland lawsuits againstfinancialinstitutionstovindicatetheircontractual, numerous statutoryandcommonlawcausesofactiontobring Debevoise &PlimptonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London ICLG TO: FINANCIAL SERVICESDISPUTES 2019 deregulatory reformsattheagency. likely serveforthenextfiveyearsandisexpectedtousherinfurther committees.) The currentCFPBdirector, KathyKraninger, will only forcause.(Mostotherregulatoryagenciesaremanagedby managed byasingledirectorwhoisremovablethePresident because theCFPBisuniqueamongfederalagenciesinbeing the CFPB’s organisational structure. The casewassignificant Court of Appeals fortheD.C.Circuitupheldconstitutionalityof In 7.3 PHH Corp.v. ConsumerFinancialProtection Bureau drawn fromthem. new ornovelissuesraisedandwhatlessonscanbe Please highlightthesignificanceofcase(s),any financial servicesdisputesduringthepast12months. Please identifyanysignificantcasesregarding

, theU.S.

and regulatoryactionsinvolving,forexample,creditderivative litigation hasfollowedontheheelsofpublicenforcementefforts litigation againstfinancialinstitutions. A large volumeofprivate financial crisishasgivenconsiderableimpetustopublicandprivate The expansionoftheregulatoryregimefollowing2008global 7.4 required todemonstrateasecuritiesviolation. material misstatement,andnotintentorreliancebyinvestors,is power ontheNew York Attorney General,sinceonlyproofofa six-year, statuteoflimitations. The Martin Act bestowstremendous securities anti-fraudlaw, aresubjecttoathree-year, ratherthana Attorney GeneralundertheMartin Act, thestate’s far-reaching Securities (USA)LLC New York’s highestcourt,in up byacourt. class arbitrationtothearbitrator, thedecisioncouldinsteadbetaken services entitydoesnotexpresslydelegatethepermissibilityof arbitration clause. These decisionsdemonstratethatifafinancial decide ifclassarbitrationispermittedunderanambiguous recently ruledthatcourtspossessthepresumptiveauthorityto an arbitrationclausepermitsclassarbitration. Two circuitcourts A controversialissueinU.S.financialserviceslitigationiswhether technology anddataanalysistogeneratesupportinvestigations. cryptocurrency offerings, and acontinuedfocusontheuseof indicated thatitsmainenforcementprioritiesarecybersecurity, in enforcementfocusatmajorU.S.federalregulators. The SEChas Technological advancesandtheriseofFinTech havecausedshifts monetary charges totalling more than$3.76billion. individuals, withpenalties,disgorgement, interestandother financial crisishaveledtocharges against198entitiesand example, reportsthatitsenforcementactionsrelatingtotheglobal leading toanumberoflarge privatesettlements. The SEC,for products thatperformedpoorlyduringtheglobalfinancialcrisis, jurisdiction? to financialserviceslitigation/regulationinyour Have globaleconomicchangescausedany

, heldthatclaimsbroughtbytheNew York Schneiderman v. Credit Suisse WWW.ICLG.COM

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149 USA 150 USA Debevoise &PlimptonLLP © Published and reproduced with kindpermission byGlobal LegalGroup Ltd, London WWW.ICLG.COM institutions andsensitivesituationsinvolvingthegovernment. and organisations,withaconcentrationonmattersrelatedtofinancial civil, regulatoryandenforcementmattersonbehalfofbothindividuals negotiations andlitigationofcomplexdiverseissues,including Regulatory DefenseGroup.Hispracticeisfocusedontheexpert Banking IndustryGroup,andamemberofthefirm’s WhiteCollar& Matthew L.BibenisaLitigationPartner, Co-Leaderofthefirm’s data privacy, bankruptcy, insuranceindustrydisputes,antitrust,securitieslitigationandproductliability. investigations, generalcommerciallitigation,internationaldisputeresolution, crisismanagement,intellectualpropertyandm as wellbeforearbitrationtribunals,agenciesandadministrativebodiesworldwide. Areas ofconcentrationincludewhite-co Debevoise’s LitigationDepartmenthandlescomplexmattersincourtstheUnitedStates,Kingdom,HongKong,France Debevoise drawsonthestrengthofitscultureandstructuretodeliverbesteveryclientthroughtruecollaboration. Deep partnercommitment,industryexperienceandastrategicapproachenableDebevoisetobringclearcommercialjudgmentev Debevoise tobringadistinctivelyhighdegreeofquality, intensityandcreativitytoresolvelegalchallengeseffectively and Debevoise &PlimptonLLP isapremierlawfirmwithmarket-leadingpractices,globalperspectiveandstrongNew York roots. U.S. banks. U.S. banks,includinguniversal,regional,super-regional,andlocal Pakistani, English,Chinese,andGermanbanksaswellalltypesof At Debevoise,hehasadvisedSpanish,Canadian,French,Japanese, New YorkMellon. Executive Vice PresidentandDeputyGeneralCounselof The Bankof General CounselofJPMorganChase’s consumerbusinessesand For over10years,Mr. BibenservedasExecutive Vice Presidentand University ofPennsylvaniaLawSchool. Mr. BibenreceivedaB.S.fromCornellUniversity andaJ.D.fromthe described asa“tenaciousbutbalancedlitigator”. He isrecommendedby OCC, CFPP, NYDFS,State Attorneys Generalandforeignregulators. domestic andinternationalmattersinvolvingtheDOJ,SEC,FRB, work. Heroutinelyactsascounselininternalinvestigationsofboth senior managementthroughextensiveenforcementandadvisory Mr. Bibenhasgarneredextensiveexperienceadvisingboardsand

USA New York, NY 10022 919 Third Avenue Debevoise &PlimptonLLP Matthew L.Biben URL: Email: Tel: The Legal500US

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(2016)whereheis

Guide Chambers USA and SarahLawrenceCollege.Mr. Goodmanisrecommendedby Mr. GoodmanisagraduateoftheNew York UniversitySchoolofLaw bank fraud,mailandwiremoneylaundering. and prosecutionsinvolving,amongothercrimes,securitiesfraud, prosecutor, heparticipatedinandsupervisednumerousinvestigations Southern DistrictofNew York (CriminalDivision). As afederal 1995, Mr. Goodmanservedasan Assistant U.S. Attorney forthe and isafellowofthe American Collegeof Trial Lawyers.From1992to Goodman routinelyadvisescorporateboardsandboardcommittees broad varietyofmatters,withemphasisoncomplexcivillitigation.Mr. Committee. Herepresentsclients,includingfinancialinstitutions,ina Group andspentsixyearsasamemberofthefirm’s Management Group, aseniormemberofitsWhiteCollar&RegulatoryDefense Mark P. GoodmanistheCo-Chairoffirm’s CommercialLitigation ICLG TO: FINANCIAL SERVICESDISPUTES 2019 .

, The Legal500US

URL: Email: Tel: USA New York, NY 10022 919 Third Avenue Debevoise &PlimptonLLP Mark P. Goodman

www.debevoise.com [email protected] +1 2129097253 and

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