Facts
The appellant, a securities dealer and asset manager supervised by FINMA, acted as asset manager for the respondent, a foundation in liquidation, from 1 July 2009 to 30 June 2014. During this period, representatives of the appellant (including its CEO) were members of the foundation board of the respondent. A significant portion of the foundation’s assets was invested in two fund-of-funds managed by the appellant itself (Fund 1 and Fund 2).
The respondent alleged that the appellant had caused unnecessary costs totalling CHF 1,240,464.62 through the investment in Fund 1, most of which had flowed to the appellant itself. Furthermore, the appellant, as asset manager of Fund 1, had repeatedly purchased more expensive tranches of the target funds intentionally to obtain higher retrocessions, even though cheaper institutional tranches had been available. This had caused additional damage of CHF 168,923.--. Finally, the appellant was suspected of not having paid the retrocessions to the fund-of-funds but instead retained them.
With a claim filed on 29 June 2019, the respondent requested the Zurich Commercial Court to order the appellant to pay CHF 1,409,388.-- plus interest and to provide an account and settlement of the retrocessions received. With a partial judgment of 22 May 2023, the Commercial Court ordered the appellant to pay CHF 650,914.80 plus interest and to provide information on the retrocessions received in connection with the target funds of Fund 1 and Fund 2. The appellant filed an appeal against this partial judgment with the Federal Supreme Court.
Considerations
The Federal Supreme Court examined the appeal of the asset manager against the partial judgment of the Zurich Commercial Court. The central issue was whether the appellant had breached its duties as asset manager by maintaining and even increasing the investment in the fund-of-funds Fund 1 instead of investing directly in the target funds. The Commercial Court had answered this in the affirmative and allowed a claim for damages by the foundation in the amount of CHF 650,914.80 as well as a claim for information on the retrocessions received.
1. Breach of duty due to conflict of interest and unnecessary costs
The Federal Supreme Court confirmed the findings of the lower court that the appellant had entered into a conflict of interest due to its dual role as asset manager of the foundation and simultaneously as asset manager of Fund 1. This conflict led the appellant to maintain the investment in Fund 1 even though a direct investment in the target funds would have been more cost-effective. The appellant was unable to provide convincing evidence that Fund 1 offered added value for the foundation that would have justified the high additional costs. The lower court had also correctly found that the foundation did not have the necessary information to approve the investment in Fund 1 in an informed manner. The appellant could not rely on tacit approval by the foundation since it had not informed the foundation of the conflict of interest and the associated risks.
2. Claim for damages and contributory negligence
The Federal Supreme Court held that the appellant had caused damage through the improper investment in Fund 1, which consisted of the direct costs of Fund 1 and the additional costs incurred by purchasing more expensive tranches of the target funds. However, the claim for damages was reduced by half due to the foundation’s contributory negligence. The lower court had justified this on the grounds…