Case Law - Individual claims against banks and PSF based on breaches of rules of conduct

Luxembourg’s highest Courts issued on February 25th and March 26th 2015, two different rulings which override the past position that refused the possibility for individuals to base a civil claim against a bank or other professionals of the financial sector (“Professionals”) for reason of a breach of rules of conduct and/or organizational rules (the “Rules”).

Under Luxembourg law, Professionals shall, on a permanent basis, comply with the Rules contained in the amended law of April 5th 1993 on the financial sector (“Banking Law”) and the law of November 12th 2004 on the fight against money laundering and terrorist financing (“AML Law”), as well as with all the relevant implementing regulations and circulars issued by the Commission de Surveillance du Secteur Financier (the “CSSF”).

Previously, Luxembourg Courts took the position that it was not possible for individuals to base a civil claim against a Professional on the fact that such Professional was in in breach of the Rules.

It had been held that the Rules did not constitute per se a legal base for individual claims before courts, as they were created for the protection of the public interest and not of private interests. The non-respect of the Rules was to be sanctioned exclusively by the CSSF, as they were considered to be of a purely administrative nature.

However, since 2008, some rulings started to gradually soften this approach, on the ground that, even though the Rules did not provide individuals with the right for direct action, Courts could use them in order to look for the existence of fault in the behaviour of a Professional, independently from the contractual provisions stipulated between parties.

In February 2015, the Luxembourg Court of Appeal ruled that individuals are allowed to invoke directly the liability of a Professional, on the ground of a breach to the rules of conduct provided for in Article 37 of the Banking Law (ruling No 39014).

Moreover, on March 2015, the Luxembourg Supreme Court reaffirmed this principle, granting the right for compensation to an individual who claimed a breach of the Banking Law and the AML Law. According to the Supreme Court, “the fact that a rule is enacted for the protection of the public interest does not exclude that this same rule shall also protect private interests and give rise to the right for compensation to those individuals who have suffered damages due to the violation of this rule” (ruling No 24/15).

"The Luxembourg position follows the tendency in European law to strengthen the possibility for individuals to invoke the liability of the Professionals directly before the courts."

The UCITS V Directive goes in this direction, giving the right to all investors (and not just unitholders in funds in contractual form) to invoke directly the liability of depositary banks.