Swaps: Supreme Court clarifications necessary information
The Supreme Court has specified the information to be provided by the financial institution to fulfill its duty when it comes to placing a swap.
This is the part, I believe most interesting Judgment of the Supreme Court 15 October 2015.
In the same, the most common allegations are rejected by banks and end the guidelines of what would need to be sufficient information when placing it contains a swap.
The company "Elder Environment Vitoria SLL" (hereinafter Elder) He contracted with Banco Santander one framework contract June 2004, in which he concluded a swap type "collar subsidized". October 2006 the contract is canceled and twelve days later hire another swap entitled "swap soft reversible media ". Later they hired a 'swap interest rate with unilateral conversion option and Cap with Knock-out "canceling swap anterior.
As a result of the losses generated by the last swap, Elder filed a complaint.
The Court of First Instance dismissed the application the lack of diligence considered signing a contract without understanding its content or advice. Also, considered that the signing of three successive "swaps"Exclude the existence of the error.
Elder appealed the ruling and the Provincial Court upheld the appeal considering that Santander had failed to comply with applicable regulations, namely Royal Decree 629/1993, forcing the bank to ensure that the product is suited to the customer and the customer understand the effects and risks of the swaps.
In the contract there is a clear imbalance between the parties. So if you have understood the operation of swap, the client would not have hired. He also was due to report on market expectations and interest rates and the rate cut was more than expected. He adds that the signing of several chained swaps done without the benefits or advantages of the product are explained. The terms of risk awareness are generic and not stating that such risks have been explained.
The prepayments were made to the detriment of the applicant and has not calculated how balances or the consequences of early termination if the solicitase explained Elder.
Last, Elder was a limited company with working capital 9.000 euros and heritage 90.000: a swap con notional 1.000.000 It is disproportionate and unwise risk, that can only be explained by the commercial activity of the bank. to hiring someone who lacks investment profile it is induced and sufficient financial resources.
Ultimately, the Court considered accredited the error on the consent and annulled.
Banco Santander appealed the procedural infringements and appeal to the Supreme Court.
Centrándonos en el recurso de casación, alleges that the bank is not accredited by Elder error on consent and that in any case, the error would have been after the signing of the contract. He says the bank is not fulfilled the requirement excusability "Because the applicant could have sought advice". Finally it states that the Court would not have analyzed the existence of a causal link between the fault and the formalization of the contract.
The Chamber of the Supreme Court dismisses the bank.
It indicates reiterated the jurisprudence (SSTS 20 January 2014, 7 July 2014, 8 July 2014 and 26 is February 2015) that "Appreciates the annulment of contracts on complex investment products, such as the so-called "swap" of interest, where the breach by the investment firm of information duties imposed by the regulations governing the investment market has given the substantial and customer excusable error that is not professional of the market ".
The error occurs at the time of giving consent, although it was later revealed, when risks materialize.
Clauses manifestation of knowledge and acceptance of the risks of surgery, do not exclude the occurrence of the error, Given the generality of this type of provisions, lacking an explanation of what the risks inherent in the contract, and are empty of content to be contradicted by the facts (SSTS 18 April 2013, 12 January 2015).
The breach of duties of information makes the error and its presumed excusable and bringing up of the SSTS 20 January 2014 and 10 September 2014, indicates:
“(….) if the retail customer was in need of this information and the bank was required to suministrársela in an understandable and appropriate, wrong about the specific risks associated with complex financial product that knowledge is hired error, it is excusable customer ".
Also, regarding the allegation of the bank in the sense that the client could have sought advice, Hall suggests (referring to the SSTS of 18 April 2013 and 12 January 2015) that the reporting obligation is active, not merely the availability.
Facing bank's claim that there was a tacit confirmation of the contract, the Chamber indicates that no confirmation any, despite chained three swaps, advance canceling two of them and accepting both positive and negative assessments.
Not fulfilled the requirement of knowledge and removal of the cause of nullity as required by Article 1.311 Civil Code. Therefore, There was no confirmation of any kind, either express or tacit.
Regarding obligations of bank information, The Board makes the following clarifications:
1.- You should report the conflict of interest that occurs between bank and customer to sign the swap: what wins one loses the other and vice versa.
2.- You must report the initial market value of the swap or at least, how much the customer should pay and compensation for the early termination if it occurs at the time of recruitment. The bank is not obliged to inform the customer of its forecast of changes in interest rates, but on reflection that such provision is at the time of contracting swap, because it is a determinant of risk for the customer.
3.- If the positions are unbalanced (limited customer benefits, and unlimited for the bank), "The investment firm must inform in clear terms, in view of the complexity of the product, the existence of such an imbalance and its consequences, since they are a key factor to stop the client can understand and calibrate business risks ".
4.- For there advice it is not essential the existence of a written contract advice. Just the initiative emanates from the investment firm, or it is the product that offers the customer recommending hiring.
5.- The swap is a financial product, complex and risky, which falls within the application of the regulations governing the market.
Ultimately, bank resources are dismissed, the judgment of the Court is confirmed and the costs imposed.
These aforementioned points on swaps that comes to clarify the Supreme Court are extremely important because financial institutions are systematically claim in litigation swaps and thus, the criteria to be applied are evidenced.