Decision of the German Federal Court: Damages are possible even with a valid Foreign Currency Loan
The German Federal Court (BGH – Bundesgerichtshof) has just published the written decision of its judgment from 12.09.2017. According to the BGH, an inquiry from a debtor regarding an action for damages in a foreign currency can’t be set aside even if the contract is valid, as a financial consulting agreement is made (even without written contract) before the loan agreement is finalized (signed). This consulting agreement between the bank and the customer endows duties onto the bank, which are violated when the bank provides deficient consumer information that will result in damage to the customer (and possibly puts liability on the bank).
A town in Nordrhein-Westfalen re-financed its earlier trusts through a Swiss franc loan. After the exchange rate of the Swiss franc increased the parties debated over whether the risk assessment and the alternatives to lower the risk offered by the bank were adequate. The town stated that it’s possible to claim damages from the bank even if the said deficits wouldn’t result in the invalidity of the agreement.
The claim was dismissed by the District Court (Landgericht) and the Court of Appeal (Oberlandesgericht), but at the end the BGH remanded the case and ordered the lower courts to discuss the amount of damages.
Though the lower courts have decided that the consumer information was enough to ensure the agreement’s validity and to enable the bank to avoid liability, the BGH didn’t share that opinion: since the foreign currency loan doesn’t count as a conventional agreement, the usual consumer information is enough to ascertain the validity, but not enough to avoid liability, therefore the consumer has the right to claim damages.
The BGH has decided that there was no investment advisory agreement, so the relating regulations can’t be applied, but prior to the loan agreement a financial consulting agreement is in effect. In this regard the customer information should be submitted to a much stricter inquest than at the examination of validity.
Therefore the lower courts are bound to decide the amount of damages resulting from the fact that the bank failed to give proper security to the customer.
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