Investment Advisory Contract: Liability of the Bank for Unauthorized Transactions

Facts

The plaintiff, Dr. med. dent. [A.] , maintained an account/deposit connection with [X.] -Bank. In the summer of 1996, the bank asked the plaintiff if he had a need for investments in securities in view of the balance on his account. The plaintiff then began to trade intensively in securities, with over 700 securities transactions being executed by the customer advisor in the name of the plaintiff by the end of 1998. The plaintiff claimed that the customer advisor had carried out various stock exchange transactions without his consent. The bank rejected all allegations and claims.

The plaintiff approached the Civil Court of Basel-Stadt and requested that the bank be ordered to cancel certain debits on his account and credit the corresponding amounts back to his account. The Civil Court ordered the bank to pay the plaintiff CHF 212,738.80 plus staggered interest and dismissed the further claims.

The plaintiff appealed to the Court of Appeal of the Canton of Basel-Stadt, which partially upheld the complaint and ordered the bank to reverse certain purchases and sales of options. The bank requested the Federal Court to overturn the judgment of the Court of Appeal and dismiss the complaint in its entirety.

Considerations

The Federal Court examined the question of whether the bank was liable for the unauthorized transactions. It found that the plaintiff had objected to the transactions with the customer advisor by telephone, but had not insisted that the latter reverse them. The court valued the plaintiff's behavior after receiving the quarterly statements as of the end of March and June 1998 as implicit subsequent approval of the six transactions carried out without an order between early February and the end of June 1998.

The Federal Court found that the lower court had wrongly assumed that the plaintiff had fulfilled his contractual obligations towards the bank with his complaints, which he had submitted exclusively orally to the customer advisor over a period of eight months. The bank had stipulated in its General Terms and Conditions (GTC) that the customer had to notify the bank of any contractual breach by the bank or its…