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The facts: an insurance broker offered his client Koblis
The Kobelco case caused a stir in Flanders in the late 2000s. Kobelco, active in the life insurance sector before being declared bankrupt in 2009, offered investors a product called KOBLI, providing an investment of a given amount over a one-year horizon, in return for an attractive interest rate above 4% at maturity. Between 2006 and 2009, an insurance broker, who was also a banking agent, acted as intermediary between a client and Kobelco. The client invested three years in a row in this product, which mentioned a capital in case of death and a capital in case of life, wording suggesting these were insurance contracts. That was the view of the client-investor and of the intermediary, who therefore considered he was acting as an insurance broker in distributing the product.
In reality, that was not the case: the term beneficiary had been poorly chosen by Kobelco’s directors; according to them, the investment was a loan, not a life insurance contract. Now, the public offer of such a financial instrument breached, on Kobelco’s part, article 4 of the banking law then in force, which in principle reserved to credit institutions alone the monopoly on appealing to the public to receive deposits or other repayable funds. It remained possible for any other undertaking, as today, to issue investment instruments materialising the receipt of repayable funds, provided it complied with the prospectus law (drawing up a prospectus if the offer is public, approval of that prospectus by the competent authority, approval of promotional communications, compliance with the legal requirements on intermediation, etc.). Kobelco, however, had not complied with that law.
The client was nonetheless satisfied with the return and kept renewing his investment through the insurance intermediary, until the issuer’s bankruptcy. After two years of repeated investments in the Kobli product, the investor again signed an investment contract in 2009. But following Kobelco’s bankruptcy that year, his prospects of repayment receded. Only in 2016 was the irrecoverability of his claim confirmed, and he decided to sue the insurance intermediary for liability, as well as the bank for which he was a banking agent. Once the client sues, liability law applies, combined with the specific provisions of banking law.
Relevant questions in the liability law of banking and insurance intermediaries
Had the banking services intermediary and insurance broker committed a fault? Was any fault in causal connection with the damage claimed by the client? In other words, had the intermediary correctly informed his client of the true nature of the Koblis, would the client have refrained from investing, so that his damage would not have occurred? Would the client not, given Kobelco’s bankruptcy, have suffered the same loss in the end? Moreover, was the cause of the damage, assuming it related to poor information, attributable to the broker or rather to Kobelco, the issuer, which had itself communicated inaccurate information to the public and misled it as to the nature of the financial instrument? Did the two faults concur in the damage, allowing joint and several (in solidum) liability? Finally, if the intermediary’s liability were engaged, should it also be borne by the bank under the Act of 22 March 2006, given that the bank in fact knew nothing of the activities the intermediary carried out, according to him, as an insurance broker, and that no reference to the bank appeared in the subscription contract signed by the client?
Under the Act of 22 March 2006 on intermediation in banking and investment services and the distribution of financial instruments, banking services agents are intermediaries who act in the name and on behalf of a single regulated undertaking, on the basis of a mandate. The collaboration between a banking agent and the regulated undertaking mandating it is the subject of a written agreement. That agreement sets the accounting and administrative procedures the agent must follow and expressly provides that the agent may only carry out intermediation in banking and investment services in the name and on behalf of the principal. It also determines the activities other than such intermediation that may be combined with the mandate. In practice, a banking services agent frequently also carries on the activity of insurance intermediary, as a broker, free of any exclusivity obligation towards a principal for the distribution of insurance products. From a liability angle, the law also provides that the banking and investment services agent acts, as regards its intermediation activity, under the full and unconditional responsibility of its principal.
The court’s case law on the intermediary’s liability in the case described
The court of first instance of Antwerp ruled several times, most recently in 2019. First, the court dismissed the existence, unproven, of investment advice given to the client by the intermediary, or of any other form of incentive to invest. It nonetheless considered that the intermediary had committed a fault, given the incomplete performance of his information obligation. Second, the court held that this fault was not in causal connection with the damage claimed. For the court, nothing suggests that, for the investor, correct information on the characteristics of the product acquired would have led him not to invest in the Kobelco product: the client simply sought to invest with a company that at the time enjoyed a good reputation, over one year, for a determined amount, in return for interest. For the court, the origin of the client’s damage also lay in the faulty and misleading conduct of Kobelco’s officers, who had presented the contracts incorrectly, incompletely and misleadingly. Given the absence of liability of the intermediary, the court did not analyse the possible liability the bank might have had to bear.
Could the bank have been held liable for its agent’s fault, when he thought he was acting as an insurance broker? In a similar case, the client tried to hold the bank liable for its agent’s acts, since despite his mistaken belief that he was an insurance broker, he had acted as an investment services intermediary. The court stressed that article 10(4) of the Act of 22 March 2006, which enshrines the principal’s liability towards third parties for the intermediary’s acts, itself contains a limitation, since it provides that this liability applies only where the intermediary acts as regards its banking and investment services intermediation activity. That intermediation is defined in article 4(1) as the activity of bringing savers and investors into contact with regulated undertakings, including promotion aimed at setting up, on behalf of a regulated undertaking, one or more banking and investment services. Given that definition, the court found that the intermediary had not brought the client into contact with the regulated undertaking (the bank) whose agent it was. It therefore did not carry on an intermediation activity within the meaning of the law that could have engaged the bank’s liability. In reality, on the facts, the intermediary had acted as agent of Kobelco and not of the bank. The court’s reasoning was confirmed in every respect by the Court of Appeal on 6 September 2018.
Subsidiary question: could the bank have been troubled by its agent’s acts on the basis of apparent mandate? In that last case there could be no question of any appearance of intermediation or apparent mandate capable of binding the bank and the final client. Since the bank’s name never appeared on the disputed contract, the conditions for appearance to be a source of law were not met. This was reinforced by the fact that the investment in Kobelco products did not appear in the clients’ securities account statements, thus ruling out any legitimate belief by the client in the bank’s involvement. Moreover, the bank had taken the precaution of warning its clients, in the contractual documents binding them, that it was only bound and liable for documents bearing its name and logo and countersigned by persons mandated to represent it. Finally, the intermediary’s letterhead clearly stated that he was not only a banking agent but also an estate agent and insurance broker.
This article is a translation and a condensed version. Only the French version is authoritative. It is provided for information purposes and does not constitute legal advice.
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