In its ruling of 24 April 2007, the Federal Court of Justice (BGH) decided that initiators are liable for damages in the event of “deliberately objectively evidently false” information in the prospectus. In the present case, it was a question of special benefits outside the articles of association or reorganisation costs without any basis in fact. Dr. Johannes Fiala, lawyer (Munich), MBA Financial Services (Univ. Wales), MM (Univ.), certified financial and investment advisor (A.F.A.), lecturer in civil and insurance law (Univ. of Cooperative Education), banker (www.fiala.de), has sent us his review of the judgment for publication. Excerpt from the judgement discussion: A requirement on reclaim penetration analogously § 9 II p.4 VerbrKrG, i.e. the refusal to make further loan contributions to the financing bank together with a demand for repayment of interest and principal, was denied by the BGH. This is because, according to the exemption provision in Section 3 II No. 2 of the VerbrKrG, the provision on linked transactions in Section 9 of the VerbrKrG is inapplicable to real estate loans. It does not matter whether “only” a real estate fund share is to be financed, nor whether the real estate lien was ever registered. And: In addition, the BGH has repeatedly stated that a bank does not have to accept responsibility for the conduct of founding shareholders, fund initiators, key operators, managers and prospectus issuers due to deliberately false or misleading information: In this respect, the financing connection within the meaning of Section 9 VerbrKrG is missing. Finally the court states that a possible breach of the duty of disclosure due to the combination of a fixed loan with a life insurance policy as a repayment vehicle also does not entitle to a reversal of the transaction, but at most justifies a claim for compensation of additional costs. The case may be different if an intermediary (also) acted within the scope of duties of the bank (§ 278 BGB), or if the “initiator etc.” acted as an organ, representative or branch of the credit institution. In addition, the credit institution may be liable for its own fault, provided that the sub-case of a concrete knowledge advantage in the form of institutional cooperation of the bank with the seller or distributor of the financed object exists. The prerequisites for this are, on the one hand, “fraudulent deception of the customer through incorrect information from the broker, seller, initiator or through the fund prospectus” and, on the other hand, “the incorrectness of the information is objectively evident from the point of view of the financing bank”. Furthermore, there must be a permanent business relationship between the bank and the initiator (sales agreement, framework agreement, sales concept) – a general financing commitment by the bank is not sufficient for this. Indications for a cooperation would be, for example, the provision of office space or forms to intermediaries, up to the repeated mediation of financing for the same property. A typical example of this is the case of joint involvement of a structural distributor by the initiator and the credit institution, whereby the investor has no personal contact with the bank. In such cases, the burden of proof lies with the bank to prove that it was not aware of any obvious deceptions, in particular in the fund prospectus. BGH Guideline: a) The prerequisites for institutionalised cooperation between fund initiators and the bank financing the fund investments. b) The rules of § 3 para. 2 No. 2 VerbrKrG shall also apply if the security right over real property intended to secure the loan has not been created or has subsequently been waived.
(DA No 30B.07 of 26.07.2007, p. 5)
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Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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