SWISS FRANCS SAGA WHOSE FAULT IS IT?

It is common knowledge that the Swiss Banking system attracts investments for a variety of reasons, including that Switzerland has a reputation for having a stable currency and advantages because it is not a member of the European Union.

An astute observer would notice that the period, which CHF loans were made was between 2005 and 2007 when the Euribor rates were higher than the Libor rates in which Swiss francs were made. During this period, banks lured customers by offering loans at very low interest, without properly informing borrowers details of hidden dangers. Few Greek bank officials understood the complexities of the loans or were qualified to explain them. Fewer still tried to explain the transactions. This resulted in thousands of people having Swiss franc mortgages blissfully unaware of the financial perils. 

Some of the dangers are:


· Lack of clarity about whether the bank or the borrower would bear the "currency risk" if the Euro-Swiss Franc exchange rate underwent a major change, which is exactly what happened when the financial crisis hit in 2008.

· The banks created a highly stressed market and many borrowers have been driven into default. For the most part, the blame for this lies with the lender and poses the question of whether the bank owed a duty of care to the borrower.


Under English law, in the landmark case of Selangor United Rubber Estates Ltd v Cradock [1968 1WLR 1555], judge Thomas J. Ungoed Thomas took the view that: "To my mind a bank has a duty of care under its contract with its customer to exercise reasonable care and skill in carrying out its part with regard to operations within its contract with its customer. The standard of that reasonable care and skill is an objective standard applicable to bankers. Whether or not it has been attained in any particular case has to be decided in the light of all the relevant facts".


Ungoed clearly recognized that banks DO owe a duty of care to their customers and although other courts qualified that decision other English cases recognize that such liability does exist. In Cornish v Midland Bank plc L.J. Kerr stated that banks owe their customers a duty to explain adequately the nature and effect of any security documents that they intend to execute. A

French court also recognised that Swiss franc lenders owe a duty of care. This was Foti v Banque Nationale de Paris (1989) 54 SASR 354 (see full text below). In that case two Italian labourers borrowed money in Swiss francs. It has to be borne in mind that the court recognized that a bank owes a duty of care to advise a customer with no prior experience of "forex loans". The important essence of this is that the court recognized that loans made in Swiss francs were actually "forex loans" about which special knowledge about the risk of adverse currency fluctuations, was of vital importance. The court ruled that if special knowledge is required then a bank is under an obligation to inform the borrower of this.
 
Greek courts have ruled in favour of the borrowers up until today holding that most of the terms the loan contract contains are void . However this concerns business loans (Not Swiss Francs) whereby Greek ΓΟΣ (Γενικοί όροι συναλλαγών) (the equivalent of Unfair contract terms Act) have ruled that terms the loan contracts contain such as :

1) Calculating the interest of the loan on the basis of 360 days instead of 365 days provides more interest to the bank 1,388%.which is not legal.
2) Also compound as this also ADDS more interest should take place every 6 months and not every three months as this also more money to the bank than the law provides. However up until today there is not a final irrevocable case which would finalise the issue as to whether the loan contract should be considered void or voidable.
Our firm has launched a lawsuit against the bank asking the court to recognize the contract null and void and accordingly to rule that the loan has to be considered as a euro loan and not a loan on Swiss Francs.

The basis of the lawsuit was

1) The bank offered a forex loan which their employees should has special knowledge and classification under Greek law, which at the time of signing did not have.
2) The bank did not fulfil its part of the bargain by securing the loan on other derivatives.
3) The banks have never actually purchased Swiss Francs themselves instead they converted logistically Euros to Swiss Francs at the day of paying out the mortgage.
4) The bank never provided evidence that they have purchased Swiss francs as they have not issued the relevant receipts.
Judges have a great opportunity to deliver justice to borrowers that have been misled by banks to buy something that even the banks have not purchased themselves at the first place. The question is will it be taken?

Should you have any questions on your Swiss francs mortgage please do not hesitate to contact us.

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