Switzerland: Applicability of clausula rebus sic stantibus to banks' refusal to release gold in kind
In Decision 4A_263/2019, dated 2 December 2019, the Federal Supreme Court had to decide the fate of a contract between a bank client and his Swiss banks, which had refused to release gold from the client's bank deposit in kind. This decision prompted the Federal Supreme Court to outline the requirements for the general applicability of clausula rebus sic stantibus and its specific use in cases where a foreign mandatory law issued after a banking contract's conclusion affects the relationship between Swiss banks and their foreign clients. The applicability of clausula rebus sic stantibus is also interesting beyond the specific circumstances reviewed
A (the bank client and complainant) resided in Germany and held a precious metal account with Bank B AG (the first respondent) and later with Bank B Switzerland AG (the second respondent). In 2014 A requested the physical release of his 299 ounces (approximately 8kg) of gold, whereupon Bank B AG requested that a disclosure form be signed regarding the correct taxation. A refused to sign the form. Thus, Bank B AG terminated the contractual relationship and requested A to appoint a new depositary bank for the gold. A refused and continued to insist on the physical release of the gold. Bank B AG then liquidated the precious metal account without handing over the gold to A. Therefore, A claimed the physical release of his 299 ounces of gold before the court. His action was dismissed by the first and second cantonal courts.
The Federal Supreme Court first stated that Swiss law clearly provides that the client of a Swiss bank can request the release of deposit assets, such as gold physically stored in a precious metal account. However, under certain circumstances, mandatory public law or penal law may take precedence over this private law claim.
The Banking Act requires banks not to undertake immoral or illegal business (Article 3(2)(c)). Among other things, this requires banks to comply with the Anti-money Laundering regulations; failure to do so may result in supervisory and criminal law penalties. In this case, Article 32(1) of the Financial Market Supervisory Authority's Anti-money Laundering Ordinance (AMLO-FINMA), which reads as follows, is particularly relevant:
If the financial intermediary breaks off a dubious business relationship without a well-founded suspicion of money laundering or terrorist financing and without reporting it, he may only permit the withdrawal of significant assets in a form which allows the criminal prosecution authorities to follow the trail of the transaction if necessary (paper trail).
As regards this regulation, the Federal Supreme Court held that banks may invoke Article 32(1) of the AMLO-FINMA and the obligation to comply with a paper trail provided therein to refuse to release assets in kind only if the banking relationship in question qualifies as 'dubious' under the money laundering legislation. A banking relationship may qualify as dubious if a bank is under the perception that the assets derive from a classic money laundering offence or a qualified tax offence within the meaning of Articles 305bis(1) and 305bis(1bis) of the Criminal Code.
The Federal Supreme Court stated that there was no evidence of a classic money laundering offence or a qualified tax offence in this case, particularly because the amount of evaded tax required for a qualified tax offence by Article 305bis(1bis) of the Criminal Code (more than Sfr300,000 per tax period) had not been reached. Thus, the banking relationship qualified only as unusual and not as dubious. Therefore, the banks could not invoke their duty to comply with a paper trail as provided for in Article 32(1) of the AMLO-FINMA to refuse the gold's physical release.
However, the Federal Supreme Court held that the banks' refusal to release the gold might be justifiable if it violated a foreign mandatory public law, as Article 3(2)(c) of the Banking Law requires banks to comply with Swiss as well as foreign law. Since the previous instance court had failed to address a possible violation of foreign mandatory law, the Federal Supreme Court referred the case back to it.
However, the Federal Supreme Court did not refer the matter back to the previous instance court without pointing out on which grounds the refusal to release the gold in kind could be justified if it violated foreign mandatory law. Among other things, the court mentioned that if the foreign mandatory law had been issued after the banking contract's conclusion, the banks might be able to request a judicial amendment of the contract in accordance with clausula rebus sic stantibus. The court continued to consider which conditions would have to be met for clausula rebus sic stantibus to apply.
Clausula rebus sic stantibus allows the parties to a long-term contractual relationship to request a change of certain contractual parameters. According to Swiss case law, clausula rebus sic stantibus can be invoked if the following requirements are fulfilled:
- There must be a subsequent change of circumstances after the contract's conclusion.
- The change must cause a serious equivalence disruption (ie, a significant disproportion between performance and consideration).
- The change cannot have been predictable at the time of the contract's conclusion.
- There must be no contradictory behaviour on the part of the parties (ie, the party invoking the concept must not have fulfilled the contract without reservation after the circumstances changed or must not itself have provoked the change of circumstances).
The Federal Supreme Court mainly addressed the second prerequisite (ie, the considerable impairment that would result for the banks if the gold were released to the client). The court first stated that a serious equivalence disruption may occur if the risk for a bank of a violation of criminal or regulatory law has increased significantly.
The court subsequently pointed out that clausula rebus sic stantibus, as an intervention in the fundamental principle of contractual freedom, may be applied only with restraint – namely, not every unpredictable or unavoidable equivalence disruption may lead to the applicability of clausula rebus sic stantibus.
The court stated that this meant that the banks in the present case must provide concrete evidence of criminal liability occurring abroad due to the release of the gold. Further, the banks must prove that:
- the potential penalties would be imposed because the gold had been released;
- the release of the gold considerably increased the risk of prosecution; or
- the penalties would be significantly harsher if the gold were released.
However, even if these three requirements were to be affirmed, the previous instance court would have to examine ex officio whether the client could reasonably be expected to disclose his gold assets for tax purposes. Only after weighing the banks' and the client's conflicting interests in releasing or not releasing the gold in kind could the previous instance court decide whether clausula rebus sic stantibus allowed a judicial amendment of the contract to the extent that the banks could refuse the gold's release.
A Swiss bank cannot justify refusing to release assets without a paper trail based on clausula rebus sic stantibus solely by proving that it might make itself liable to prosecution abroad due to foreign mandatory law issued after the banking contract's conclusion. Instead, an additional balancing of interests must show that the Swiss bank's interest in avoiding the penalties in question outweighs its client's interest in non-disclosure of the assets. This can happen only if it is confirmed that a serious equivalence disruption justifies a judicial amendment of the banking contract in accordance with clausula rebus sic stantibus and thus the refusal to release the assets in kind. This decision corroborates the Federal Supreme Court's previous case law that clausula rebus sic stantibus may be applied only with restraint.
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