Germany’s Federal Court of Justice has ruled that when trading securities, banks dealing with private customers may, under strict conditions, include clauses in their standard terms and conditions allowing for the retention of commission received.
Retention of commission when trading securities
A consumer protection association brought the claim against a private bank requiring it to stop using a clause in its ‘framework agreement on trading securities’ which allowed it to retain commission paid by security issuers, so far as the retention was compatible with the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG).
The term also explicitly stated that by waiving his right to require the bank to surrender any benefits received for having arranged a securities transaction, the bank and the customer recognise that they are entering into an agreement which deviates from statutory provisions on agency.
On appeal, Germany’s Federal Court of Justice (Bundesgerichtshof, BGH) rejected the claimant’s claim, coming to the conclusion that the standard business term passed the reasonableness test contained in § 307(1), 307(2) German Civil Code (Bürgerliches Gesetzbuch, BGB). As a result, the court held that there was no need to resolve the question, which is disputed in the case law and the literature, of whether banks are obliged under § 384 German Commercial Code and § 667 BGB, to surrender to their customers the commission they receive for entering into securities transactions.
The court came to the conclusion that when read together with explanatory details concerning the retention of commission contained in two preceding introductory paragraphs, the clause offered sufficient clarity over the substantive scope and commercial consequences of the customer waiving the right to require the bank to surrender the commission, which were also explained in advance.
The court clarified that it is was sufficient for the standard terms and conditions to refer to the relevant sections of legislation from which the agreement deviated (here: § 31d WpHG) and that it was not necessary for the wording of the legislation, or a summary of its wording, to be explicitly included in the standard terms.
Standard terms and conditions
Furthermore, the court ruled that the per-formulated waiver of the right to commission, as drafted in this case, did not unreasonably disadvantage the customer (§ 307(1), 307(2) BGB). In the court’s opinion, the inclusion of the clause in the standard terms and conditions was justified, as it reflects the needs of banks to regulate bulk contractual relationships concerning security transactions, which are regularly concluded via telephone.
Freedom of choice
The court noted that the customer retained the freedom of choice to enter into securities transactions. The customer had been provided with the relevant information, contained in the framework agreement, concerning the bank’s commission margin and the bank was required, where advice had been sought on a transaction, to inform the customer about the actual level of commission before concluding the transaction and in any other cases upon request. Consequently, the customer’s need for information concerning the commercial value behind the waiver was met.
In addition, the court also drew attention to the fact that any waiver by the customer of the right to commission was subject to it being compatible with § 31d WpHG which permits investment service providers to retain commission under specific circumstances.
Finally, the court pointed out that the bank remains accountable for any commission it receives, which means the customer can examine the amount received afterwards.
You can find the full judgment here.